Archive for May, 2012

Soil Testing on Residential Property

Posted on: May 10th, 2012 No Comments

Soil boring being done on a vacant lot in Tallahassee. The orange mark under foot is where a corner of the home will be.

Tallahassee has some unique geological features that may make owning or building a home quite a headache. One of the first things you need to know is that our soil has characteristics of both Georgia clay and south Florida sand. It’s also important to know that there is much limestone throughout Florida that is constantly being dissolved and carried away by acidic rainwater. With these two things in mind, two soil problems quickly become evident.

Soil plasticity is the first thing you should have looked at if you are having foundation issues or are considering building a home on a vacant lot. Highly plastic soil is often referred to as “fat clay” or “pipe clay”. Soil with a high percentage of pipe clay can swell and become unstable when wet, then shrink by as much as 50% when it dries. This expansion and contraction can actually break concrete floors, crack walls and destroy the foundation of your home.

Sinkholes occur when voids left behind by dissolved limestone collapse. Sinkholes can be as big as those at the Leon Sinks Geological Area (several thousands of square feet) to much smaller areas. Sinkholes can cause your foundation to crack a little or a lot, and even make the home uninhabitable if the sinkhole is big enough.

Soil Testing a Vacant Lot

This tool allows testers to reach a depth of 10 feet

On unimproved lots, soil borings are taken within the proposed home footprint to provide a description of the soils encountered. Conditions of particular concern include:

Soil Testing Existing Structures

Soil tests can help identify problems that may have led to foundation problems such as differential settlement or movement resulting in the cracking or movement of the foundation, concrete block or brick veneer. Typically, cracking and movement within the foundation is found to be directly related to the presence of buried organic material, pipe clay, and/or  loose fill soils which were not properly compacted during construction. If testing reveals the cause of the problem, foundation system companies can help with foundation remediation.

 

 

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What is a Wood Destroying Organism Inspection?

Posted on: May 8th, 2012 No Comments

A wood destroying organism (WDO) inspection is an inspection on a home for visible and accessible evidence of an infestation or damage by wood destroying organisms. Usually this means subterranean or dry wood termites, but will also cover wood destroying beetles and wood destroying fungi. In Florida, carpenter ants and carpenter bees do NOT have to be reported.

WDO inspector checking for damage

A WDO inspection report is provided when a home or other structure is being sold and the mortgage lender or buyer requires the inspection as part of the transaction. If an inspection is done for these purposes, the inspection must be reported on a specific report form as required by Florida Law. The inspection must be performed by a pest control specialist licensed by the state of Florida.

A WDO report tells the buyer if the pest inspector saw any evidence of the following:

The inspector must report the common name of the wood destroying organism identified and the location of the evidence. If any areas are not accessible for inspection these areas and the reason they are inaccessible must be reported. Click here for a sample WDO inspection report.

After the inspection, the inspector may issue a “clear” report stating no evidence of wood destroying organisms infestation or damage was visible. A clear report does not mean, however, that the buyer can be absolutely assured that there are no wood destroying organisms infesting the structure or that there is no damage from termites or other wood destroying organisms. It is very possible for termite or other WDO damage or infestations to be behind walls or in some other inaccessible location even in structures that receive clear reports.

The existence of a past infestation or damage does not necessarily mean that the buyer should not purchase the home. The buyer should obtain additional information, however, to determine what steps (if any) are needed to put the structure into an acceptable condition.

Buyers should try to be present when the WDO inspection is done. If possible, obtain documentation on termite treatment history and copies of protection contracts issued for the structure from the current owner. It would also be wise to maintain an active WDO protection contract (aka “termite bond“) on the structure after purchase.

 

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What Does a Title Company Do?

Posted on: May 7th, 2012 No Comments

At a real estate closing, a property is legally transferred from one party to another. Closings almost always occur at a title company or a law firm with a title department. A title company has responsibility to make sure that all the documents related to the ownership of a property are in proper order before the real estate transaction closes.

Conducting a Title Search

Title companies will conduct a title search to find out if the person selling the property is legally able to do so. Court records are reviewed to ensure all liens and judgements on a particular property have been satisfied. After the court records have been reviewed, the title company will issue an opinion letter as to whether the property has a clear title. If the title is not found to be clear, the closing cannot proceed.

Issuing Title Insurance

To ensure buyer hold proper and legal claim to a property title, title companies will issue title insurance. These policies cover the owner and lender if legal disputes concerning ownership of the property arise. Since the title company has conducted a title search prior to the close of a real estate transaction, no such issues should arise. In reality, documents occasionally get overlooked or claims are made that can threaten the interests of the owner and lender after the property changes hands. If problems do arise, the title insurance company will compensate the affected parties.

Maintaining Escrow Accounts

When money is deposited by either side of a real estate transaction (binder, monies for repairs, etc.), title companies are charged with holding the money in an escrow account. With the title company acting as an impartial third party, neither the buyer or seller can claim the money was for a purpose other than closing the real estate transaction.

Recording the Deed

A deed or title for a property shows legal ownership for said property. After the close of a real estate transaction, the title company is responsible for seeing that the deed is recorded with the local courthouse. Technically, a buyer does not own a piece of real estate until the deed is recorded. Once recorded, lenders and other parties my apply liens against the real estate.

Closing the Transaction

Title companies preside over the signing of all documentation required for closing a real estate transaction, including all transfer and loan paperwork. The title company acts in the interest of all parties to the transaction. The title company will oversee the exchange of funds between the buyer, seller, and lender (if one is involved). After the closing, the title company will see that all necessary legal documents are recorded with the local courthouse.

 

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Buyers Closing Costs

Posted on: May 6th, 2012 No Comments

The following are costs typically paid by the buyer at a home closing:

Contract Sales Price

This is the price the buyer has agreed to pay the seller for the home.

Items Payable in Connection With Loan

Loan origination fee, loan discount points, recording fees, credit report, appraisal fee, survey, flood certification letter, and any other loan costs required by the lender.

Government Recording and Transfer Charges

Documentary tax on mortgage ($0.35 per $100 of loan), intangible tax on note ($0.20 per $100 of loan)

Title Charges

Closing fee, title search, title insurance for buyer and lender, notary fees, attorney fees, and documentation preparation fees.

Escrow or Reserve Items

Prepaid interest, taxes, hazard insurance, mortgage insurance, homeowner association dues, property taxes, and flood insurance.

 

 

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Why Buyers Should Avoid Making Lowball Offers

Posted on: May 4th, 2012 No Comments

A buyer’s market occurs when the supply of something greatly outweighs the demand for that same thing. Much of the Tallahassee real estate market is presently a buyers market. Buyers know this. They also know that when it comes to making an offer on a home, they have a lot of leverage. What they don’t always know is that sellers are only willing to bend so much on what they’ll accept in the way of an offer.

Lowball offers occur when a buyer makes a substantially lower bid on a home than the list price. To be clear, this can work with homes that are in short sale or foreclosure situations. But in those situations, a bank has the ultimate say in what an acceptable price is. A bank has no interest in owning homes. They are more willing to accept below-market prices in order to get rid of a home as quickly as possible.

Homeowners, on the other hand, tend to be emotional. They have also most likely been educated by a real estate agent as to the fair market value of their home, backed by data from comparable homes sales. If a home is priced at a fair or below-market price (by motivated sellers), they will be less likely to come down on price.

Buyers may think that a lowball offer will help them get a better price on a home. In reality, lowball offers only serve to put sellers in a defensive mode. I recently had sellers who received an offer 21% below the list price on their vacant home, which they had already dropped well below what we believed the fair market value was. The sellers wouldn’t even consider the offer. To them, it was an insult. At a great inconvenience, they’ve decided to move back into the home.

If you’re a home buyer and you’ve found a home you really like, avoid making a lowball offer. A seller will be more willing to offer concessions in the way of price, closing costs, and repairs if an offer is reasonable. If you do make a lowball offer, make sure you have price data on your side and really good agent to deliver the bad news to the sellers.

 

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Sellers Closing Costs

Posted on: May 3rd, 2012 No Comments

The following are costs typically paid by the seller at a home closing:

Brokers Commission

If you’ve used the services of a real estate agent to sell your home, you’ll be paying anywhere from 6% to 10% of the home’s sales price in commissions.

Items Unpaid by Seller

Property taxes, homeowners association dues, and condo association dues

Encumbrances

Balances remaining on mortgages, home equity loans, or liens.

Government Recording and Transfer Charges

Documentary Tax on Deed ($0.70 for every $100 of sales price).

Seller Paid Closing Costs

In the current market, sellers are doing all they can to get their homes sold. It has become very common for buyers to ask sellers for financial assistance and it usually comes as seller paid closing costs.

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Effect of Changing Interest Rates on Loan Amount

Posted on: May 2nd, 2012 No Comments

When you apply to a lender for a mortgage, you’re not so much applying for a total dollar amount as much as you are a payment. Lenders want to see that you’ll be capable of making the payments that come with a mortgage. Principal and interest are the two components of a mortgage payment. That’s why interest rates play a critical role in how much home you can afford to buy.

When a lender asks you to fill out a loan application, they’ll gather information that such as credit history, employment history, bank deposits, and investment accounts. Of particular interest will be your income and expenses. In order to prevent homebuyers from getting into a home they cannot afford, guidelines have been set requiring borrowers and/or their spouse to qualify according to set debt to income ratios. For example, FHA backed loans require that a borrower’s mortgage debt-to-income ratio be no more than 31%:

Total amount of new house payment (principal, interest, taxes, insurance, HOA, etc) = $1000

Borrowers gross income (including spouse, if married)                                               = $3500

Mortgage debt-to-income ratio   = $1000/$3500                                                         = 28.6%

In this example, the borrower(s) have sufficient income to afford the home at the prevailing interest rates. What would happen though if interest rates were to go up? The house payment above represents a home valued at $170,000 with an interest rate of 3.7%.  Now let’s look at that same home but with an interest rate of 4.7%. The house payment would become $1108/mo and the mortgage debt-to-income ratio would be 31.6%. With just a 1% bump in interest rate, the borrower wouldn’t qualify for the same home!

As a rule of thumb, for every 1% increase in the mortgage interest rate, a borrower loses $10,000 in buying power. If you’re already at the maximum debt-to-income level for a home you’re trying to buy, ask your bank about a rate lock. If interest rates start to rise, the home you thought you could qualify for last month may now be out of your reach.

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What is a Flood Certification?

Posted on: May 1st, 2012 No Comments

When you plan purchase a home, it’s important to know many details before proceeding. One of those details is what flood zone the property is in. A flood zone describes that land area in terms of its risk of flooding. FEMA (Federal Emergency Management Agency) flood maps are examined using the address or geographic coordinates of the property.

Flood zones can affect you financially in two ways. The first is the cost of your homeowners insurance. If you live in an area that is at high risk for flooding, you can expect to pay an additional cost for flood insurance. Second, a lender may not finance you if the home you’re buying is at risk. To protect its interests, a lender will order a flood certification before they disburse funds on a home loan. Using the location on the FEMA flood map, the flood certification provider certifies what, if any, flood zone in which the property is located.

See the “Flood Zone Designations” section in Resources for Home Buyers post for more information.

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