Archive for May, 2012

Buyers Deposit

Posted on: May 29th, 2012 No Comments

There’s an intangible cost that a seller pays when their house goes under contract: they have to pull the home off the market. It can take months to close on a home, and if something happens to prevent that, they’ve missed countless opportunities to bet a qualified buyer in the home. To offset this cost, most sellers will require a cash deposit (aka binder) to compensate the seller if the buyer is not able to close on a sale in a reasonable time period.

The amount of a deposit can vary. To have an offer taken seriously, a buyer should consider putting down 1%-2% of the offer price. Deposits are not paid directly to the seller but are placed in an escrow account, usually with the title company listed on the contract. The title company serves as an independent third party to the transaction and must follow strict rules laid out by the state for maintaining and disbursing the money.

Most contracts are written so that the deposit is fully refundable within a preset inspection period (15 calender days in Tallahassee). If the real estate transaction closes, the title company will credit the deposit to the buyer at closing. If the transaction doesn’t close and the contract is not terminated before the end of the inspection period, the buyer will likely lose their deposit. When there’s a dispute as to who the deposit rightfully belongs to in a failed transaction, both parties must either come to an agreement or take the matter to a court.

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Warranted vs. As-Is Contract

Posted on: May 28th, 2012 No Comments

It’s important for both buyers and sellers to understand what is contained in a real estate contract, especially when it comes to anything that may cost either party money. Buyers have the right to inspect homes they put under contract. What is open to negotiation is whether the seller or buyer will be left to fix issues that turn up in those inspections. To better understand who is responsible for repairs in a real estate transaction, you need to know the difference between a warranted and “as-is” contract.

A warranted contract is one where the seller is responsible for having certain items in proper working condition at closing. When using the Tallahassee Board of Realtors Contract for Sale and Purchase, warranted items include heating, cooling, electrical,  plumbing, appliances, well, septic tank, sprinkler systems, security system, pool and spa. It should be noted that with a warranted contract, the seller is OBLIGATED to have each of the items previously listed in proper working condition, or the manner in which the system was designed to operate (the system need not meet current building regulations nor do aesthetic imperfections need to be addressed).

As the name implies, an “as-is” offer is one in which the buyer is willing to accept the property in its present condition. That doesn’t mean, however, that the buyer can’t or shouldn’t have inspections done. If inspections are not satisfactory to the buyer, they can terminate the contract. It is not customary to enter into an “as-is” contract and, upon finding issues during inspections, to try to renegotiate the terms of the contract with the seller. The seller is NOT OBLIGATED to fix issues that turn up in an “as-is” contract.

 

 

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Sellers Disclosures

Posted on: May 28th, 2012 No Comments

Sellers want to cast their homes in the best possible light to potential buyers. However, the state of Florida has seller disclosure laws obligating homeowners to disclose anything that is in disrepair or could affect the home’s value.

Home issues can be categorized as either Material Defects or Non-Apparent Defects. Both are required to be disclosed in Florida. Anything that is visible to the eye is a material defect. Cracked windows, leaking roofs, holes in flooring, and cracked walls would all be material defects. Non-apparent defects are not readily visible. Plumbing, sewage, and electrical system issues would fit into this category. Another very important non-apparent defect is termite damage and treatment, of which potential buyers have a right to know.

If you’re selling your home through a Realtor, they should have you fill out a Sellers Property Disclosure prior to listing the home. Make sure to fill it out as truthfully and thoroughly as possible. Sellers who don’t disclose issues that should have been reasonably known about a home can be held financially responsible.

 

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Condo Financing

Posted on: May 23rd, 2012 No Comments

The housing recession forced lenders and loan insurers to reassess how they deal with risk. Nowhere is that more glaring than condominium financing. To reduce the chance that these loans defaulted in the future, lenders tightened their standards considerably for condos.

There are two primary ways to get financing for condos: 1) an FHA backed loan, or 2) conventional financing. In order to qualify for an FHA-backed loan, the condomium association must first apply for and receive FHA approval for the entire condominium. Factors that may disqualify a condominium from FHA approval are numerous delinquencies, low reserves, and a high percentage of investor ownership. Some estimates show that fewer than 25% of condominiums nationwide currently qualify for FHA financing. The FHA recently announced it is preparing to change its rules so that more condominiums will qualify. To see if a condominium you’re interested in qualifies for FHA backing, check out this link.

Conventional financing often involves meeting the underwriting requirements of FNMA (Fannie Mae) and FHLMC (Freddie Mac), the two biggest buyers of mortgages in the secondary market. Unfortunately, they have most of the same condo qualification requirement as the FHA. However, some banks and credit unions will consider condo purchases on an individual basis with many keeping the loans as “portfolio loans”.

Condo financing rules change like the seasons. If you’re considering purchasing a condo, it’s best that you contact a lender and have them bring you up to speed on all your financing options.

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Re-issue Credit for Title Insurance

Posted on: May 21st, 2012 No Comments

When closing on a home, almost all buyers get title insurance. If the previous owner also had title insurance and certain conditions are met, the buyer may be entitled to a discount on the title insurance premium. Re-issue credit is a discount offered to parties that can prove a previous title insurance policy existed on the real estate being insured.  Because it was previously insured, there’s less risk to the title insurance company and a lower rate will apply. One of three conditions must be met for re-issue credit to be available:

  1. The policy to be issued must have an effective date of less than three (3) years from the effective date of the policy protecting the seller in the current transaction.
  2. The policy must be on real property which is unimproved except for roads, bridges, drainage facilities and utilities where the current owner’s title has been insured prior to the application for a new policy (no time limit).
  3. Loan policies issued on refinancing of property insured by an original owner’s policy which insured the title of the current mortgagor (no time limit).

The re-issue credit will be the difference between the original insurance and the new insurance computed at the original insurance rates. The money a buyer can save with a re-issue credit can be significant: $445 on a $200,000 home. If you think a re-issue credit may apply, make sure to bring it to the attention of your title company before closing.

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What is an Arms Length Transaction?

Posted on: May 20th, 2012 No Comments

Home sales can fall under any number of characterizations: Short Sale Potential, In Foreclosure, Bank Owned, and Relocation are just a few. The most common type of sale by far is called Arms Length.

An arms length transaction is one in which the buyer and seller act independently of each other, have no relationship, and are not acting under pressure from an outside party. An arms length transaction will yield a price very close to the market value since the seller wants to sell for as much as possible and the buyer wants to buy for as little as possible.

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Buying a Short Sale

Posted on: May 18th, 2012 No Comments

Due to the high number of distressed homes presently in Florida, it’s almost unavoidable that home buyers will come across one that merits consideration. In fact, some buyers are targeting short sales for purchase. If this group includes you, it’s important to know what you’re getting in to.

Several Parties to the Transaction

Though the homeowner holds the deed to the property, there are other groups that will get a say in the short sale as well. The lender will not release their lien from the mortgage unless they approve the terms of the sale.   There could also be a mortgage insurer who will get a say in the transaction. If the lender uses a mortgage servicer, which almost all the big lenders do, you will also have to go through their short sale approval process! It could be sooner or later, but expect to wait about 60 days before you get short sale approval from all the interested parties.

Short Sales Don’t Sell at a Significant Discount

Many people believe that short sales sell well below the value of similar homes. Before a bank will allow a short sale to proceed, they will get a brokers price opinion or an appraisal done. They’ll then set the price of the home at the appraised price or slightly lower. If the home isn’t selling, the bank will consider offers lower than the asking price. Depending on your source, you may see short sales at 5-10% below market.

Sold As-Is

When a home sells “As-Is”, the owner or lender is telling the buyer that they are unwilling to address any problems a home might have. There are exceptions, but generally a bank is highly resistant to sinking any more money into a home they will already be taking a loss on.

 

Buying a short sale is significantly harder than regular, non-distressed sales. If you have a limited amount of time in which to buy or are not a patient person in general, short sales may not be for you.

 

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Restrictive Covenants

Posted on: May 15th, 2012 No Comments

Restrictive covenants regulate what the residents of a particular neighborhood can and cannot do with their property. They are put in place for two reasons:

  1. To preserve and enhance property value in the neighborhood
  2. To prevent annoyance, distraction, or offensive use by their neighbors for what would fall outside of normal law

Covenants ensure that a neighborhood will remain a desirable one to live in. Since zoning laws can change, covenants could be the only thing standing in the way of a strip club or chicken processing plant from moving in.*

Restrictive covenants can vary greatly from place to place. They may restrict the paint colors that can be used on the exterior of a home or the type of plants to be used as landscaping. They may control pets, vehicle parking, security lights and alarms, mailboxes, or remote-control toys. Covenants may also include fees for road maintenance or amenities. It is important to note that they may impose stricter rules on easements and setbacks than local government zoning laws.

Before purchasing a home, make sure you’re familiar with the restrictive covenants for the neighborhood you’ll be living in.

 

*Restrictive covenants have nothing to do with zoning or governmental regulations. Those are separate issues that could affect the way you use the property.

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Open Houses

Posted on: May 13th, 2012 No Comments

An open house is a tool real estate agents use to market a home to buyers. An agent may open a house for anywhere from a couple hours to an entire day. Home shoppers, neighbors and passers-by will all visit the home when they see the “Open House” sign in the front yard or on the internet.

Homes need to be properly prepared before an open house. The sellers should remove clutter from inside and outside the home. They should clean and deodorize all the rooms. Window treatments should be opened and all the lights turned on to illuminate the home. Pets should be put away and the occupants should leave for the duration of the open house.

Open houses are most effective when done as part of a larger effort. In Southwood, there is at least one neighborhood-wide open house day a year. This generates a tremendous amount of traffic to all the homes involved, moreso than each home could generate on its own. Open houses should also be advertised through the newspaper, local internet sites, and especially with signage at the home and the nearest busy cross street.

Homeowners should know the odds are not good a home will be sold at an open house. It is not advisable or practical to hold an open house every week; once a month is more than adequate. Even so, open houses should be part of a broader marketing plan laid out by your real estate agent.

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Who Pays Agent Commissions?

Posted on: May 11th, 2012 No Comments

Being a real estate agent is not an easy job. Agents will handle many tasks, including:

Real estate agents don’t work for free. When an agent agrees to help someone sell their home, they will negotiate a commission for their services. This commission is usually split 50/50 with an agent who brings a buyer (buyers agent). As such, a buyer is not responsible for paying any commission. This arrangement represents the vast majority of agent-assisted sales.

There are situations, however, when a buyer may be responsible for paying a commission. When a buyer is interested in purchasing a For Sale By Owner (FSBO), the agent will help them negotiate the sale. Most times, the seller is happy to pay a commission to the buyers agent for their assistance and access to their buyers. There are instances where a FSBO owner will not pay a commission (not enough money or not enough motivation to sell). In these rare cases, the buyer would need to pay a commission to the agent for their assistance.

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