Closing On A Home? Tips For Understanding the HUD-1

When you agree to purchase a home and begin the closing process, you’ll be issued an HUD-1 Settlement Statement. The HUD-1 will detail the costs associated with the purchase of the property and will identify which party is responsible for which cost. On this form, however, some charges are aggregated together so that only the total is shown, thus it won’t provide specific details on that category of charges. Real estate professionals involved in the transaction, like a real estate agent, broker or attorney can help answer any questions regarding these closing costs.

The details of the HUD-1

The first page of the HUD-1 is divided into two columns. These are sections J and K. Section J is a summary of your transaction and section K is a summary of the seller’s transaction. This page will show you how much you owe the seller and includes settlement charges and adjustments to the transaction. At the bottom of the page are lines 303 and 603. Line 202 shows how much the buyer owes or is owed and Line 603 will detail how much the seller owes or is owed.

Settlement costs are found on page two of the HUD-1 under section L. These costs are broken into a number of categories including real estate broker fees, items required by the lender to be paid in advance, items payable in connection with the loan, reserves deposited with the lender, title insurance charges, government recording and transfer charges as well as additional settlement charges. The totals of charges are found at Line 1400 at the bottom of the page and are referenced on lines 103 for the borrower and 502 for the seller on the first page.

The third page of the HUD-1 Settlement State shows the charges from the buyer’s Good Faith Estimate issued by the lender to allow buyers and their real estate agent to see any increases in charges. While increases in charges are not uncommon fees under the “Charges that Cannot Increase” section are a tolerance violation and the lender is required to pay those fees. There’s also a section titled “Charges that in Total Cannot Increase More Than 10 Percent” and any fees greater than 10 percent must be paid by the lender. Buyers should remember that there is a section that includes charges that can change and the buyer is responsible for any of these increases.

Loan terms on the third page include the loan amount, term, interest rate and other payment information.

-from First American Exchange Newsletter -The Exchange Update

 

 

 

 

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The Market Gets Competitive for Home Buyers

Daily Real Estate News |      Thursday, September 13, 2012

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More home buyersare finding they’re losing their power position in the real estate market and that when they submit an offer for a home, they may not be alone in the bidding. In fact, buyers who submit low offers may not even get a courtesy of a callback nowadays.One Florida couple says they put in seven offers on homes over two months — most at or above asking price — before they were finally able to get a $365,000 Sarasota home.

A drop in the inventory of for-sale homes around the country is prompting more competition among home buyers. Inventory in June is 24 percent below year-ago levels.

“I’ve had listings get 45 offers,” Sin-Yi Chao Lambertson, a real estate broker in Glendora, Calif., told Money Magazine.

Money Magazine recently offered potential buyers the following tips if they want to get the winning bid on a home:

  • Get pre-approved, not prequalified: Pre-approval for a loan based on a buyer’s credit, income, and assets is viewed as better than getting pre-qualified, which is just an estimate of how much that buyer may be able to borrow.
  • Find an experienced REALTOR®: Money Magazine advised home buyers to find a real estate professional who knows how to handle multiple-offer situations and can advise how much to offer and help buyers determine if they’re getting a home at a fair price.
  • Watch the contingencies: “The best offer isn’t always the one with the best price,” says George Miller, a Sarasota, Fla., real estate agent. Buyers who put in too many contingencies with their offer may lose out.

Source: “Winning in a Seller’s Housing Market,” Money Magazine (Sept. 12, 2012)

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3 common home purchase roadblocks

Buyers who find a home they’d like to buy soon after they start their home search often pass on it because they feel they haven’t seen enough listings. Months later, when they haven’t found anything to compare to the first home they really liked, they can regret that they didn’t seize a great opportunity when they had a chance.

It takes a leap of faith and complete trust in your real estate agent to make a quick move in a market that’s new to you. You’ll feel more confident when you’ve done your homework and know the reasons why some listings sell for more than others. This is a process that takes time and is time well spent.

A characteristic of the current home-sale market, particularly in or near areas where job growth has improved significantly, is that there are not a lot of good homes for sale. In these niche markets, there tend to be more buyers looking than there are homes to satisfy the demand.

The housing market is bifurcated. Unlike the high-demand enclaves inspired by a pickup in employment, there are many more areas where there are far too many unsold homes and with too few buyers. This tends to have a dampening effect on home prices.

How long it takes you to find a home will depend in part on whether what you’re looking for is readily available. It will also depend on how many buyers are looking for the same kind of home you’d like to buy. If there’s competition for a scarce commodity, you might make offers on several homes before you are able to convince a seller to accept your offer.

HOUSE HUNTING TIP: Investors snap up foreclosure listings quickly, but they aren’t going to call these places home. It’s rare for buyers to find a home they want to occupy as their primary residence quickly, either due to specialized housing needs or lack of inventory. Put the time you spend waiting to good use by learning more about the community in which you want to live. Patience should be your motto.

Patience is also needed to carry you through the contract negotiation and closing. Although each home-sale transaction is unique, it’s not uncommon for a glitch to come up at some point. Some homes don’t appraise for the price you’ve agreed to pay. If you don’t have any additional cash to add to the deal, and the seller won’t renegotiate the price, you’ll be back at square one, looking for a home to buy.

The glitch could occur before your offer is accepted if the sellers are stubbornly unrealistic about the price they’re asking. Recently, buyers were encouraged to make an offer on an overpriced listing that had been on the market for months. The buyers reluctantly made an offer for the top price they could pay for the house. The sellers flatly turned the buyers down and said they would never sell for that price.

Three months and one price reduction later, the house still hadn’t sold. The buyers were again encouraged to make an offer. They made an offer for the same price they did the first time, but the terms were more agreeable to the sellers. It was accepted.

Many unrealistic sellers never come around. Don’t waste your time on sellers who don’t have a strong motivation for selling. There’s a big difference between sellers who want to sell only if they can get an unrealistic price, and sellers who have purchased another home and have no need for the current one.

THE CLOSING: Until you have an accepted offer, keep your eye on the market; don’t miss a listing that will work for you and is reasonably priced.

By Dian Hymer, Monday, April 2, 2012.

Inman News®

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

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Financing Part 2 – More Options for Every Investor

In last month’s article, we reviewed financing options for investors to use in their businesses. The two options discussed were traditional financing and asset-based financing (also called a hard-money loan). This month, we will review additional options, including seller financing and lease options, debt partners, and equity partners.

The whole point of both of these articles is to show you that there are financing options that will allow you to capitalize on some of the best real estate deals you will see in your lifetime. Now is the time to be creating a portfolio of real estate that will pave the way for financial independence. Applying these principles will make getting out of the rat race easier than it ever has been.

Seller Financing/Lease Options

Seller financing and lease options are very viable strategies in today’s market as it allows investors an option to bypass financing altogether. Usually when we discuss creative financing techniques, like seller financing or lease options, people usually wonder if these techniques are commonly used and accepted by sellers. The answer to that is yes and no. Let us explain…

Yes, the techniques are commonly accepted. In fact, seller financing is commonly used with commercial properties and other types of real estate that are not easily financed through traditional means (mobile home parks, commercial buildings, etc). Although it is less common with single-family homes, it still happens when it is explained the right way. And that brings us to the “no” part of the answer.

No, they are not common because it is usually explained the wrong way. Most investors will simply ask the seller if they would be willing to carry the financing. Most sellers are not sophisticated enough to know what that means, so they will say “no,” simply because they do not understand. As an investor, part of your success will be based on how you present this to sellers. You would be better off saying something like, “If I were to make your payments on the home until I could find a buyer and cash you out, would that work for you?” or “Would you like cash, or more cash?” Either of these questions will open up the door for the conversation to go further. At that point, you can explain how seller financing or a lease-option works and they can make an educated decision.

When you are presenting seller financing, always frame the discussion around the benefits for the seller. These benefits include monthly cash flow from your payments, more money because of the interest on the loan, no more hassles of being a landlord, and the tax benefits. Tax benefits are a huge reason for people to consider seller financing. If the seller is selling a property where they are making a gain and it is not their personal residence, or if they have lived in the property less than two of the last five years, the seller must pay capital gains taxes. If the seller is receiving a lump sum of money from the sale, they have to pay capital gains taxes. When they are taking monthly payments from you on seller financing, they only pay taxes on the payments received and greatly reduce their capital gains tax. Or, if you are using a lease option, the title of the property has not transferred and it is not subject to capital gains until the property is purchased and title is exchanged.

The whole point of creative financing is to find a win-win scenario. When you construct deals that benefit both parties, you can produce great results by investing and you can also sleep well at night knowing that you have benefitted someone else.

Debt Partner

Most people think that a partner is a partner and there is not much difference between a debt partner and an equity partner. The truth is, that they are very different.

A debt partner is someone that partners with you by owning the debt of the property. In other words, they put up the money, and you are paying them a return in the form of interest on the loan. For the sake of clarity, let’s explain it this way…

When you buy a property through a bank and use traditional financing, the bank is your debt partner. They own the mortgage and expect you to pay them interest on the loan. They make money as the payments are made each month, regardless of how well (or poorly) the property performs. They make money by financing you and you repay them the interest. If the property goes up in value or receives more positive cash flow, they do not receive a greater return.

When you have a partner that puts up the money and they only want you to pay them interest on the money you are using, this is a debt partner. They do not have any ownership in the property. They own the financing behind the property. The property is their security in the event that you do not pay them. If payments are not made, they would have the right to foreclose and secure the property to recoup their investment.

What would make someone want to be a debt partner? It is all based on the return that they would get. Consider the options from their point of view. They could put their money in a CD at the bank and get a return that won’t even keep up with inflation. They could put it in a mutual fund or the stock market and get a lower return. Generally speaking, most mutual funds and index funds offer low rates of return. As a debt partner, they could finance the money on a property, get a fixed return in the 5-9% range, and have the property as security for their investment. That is a pretty safe deal for them when you consider their other options.

Equity Partner

The equity partner is different from the debt partner. Instead of owning the debt on the property, the equity partner owns a percentage of the property based on splits that are predetermined. Since there is not a fixed return (based on an interest rate on the loan) there is no guarantee that the partner will make money.

However, as the property increases in value or cash flow increases, their return increases as well. You will find that most people will prefer to have an ownership interest as it will also provide them a greater return.

When you are raising capital from other people, there are rules that you must comply with or you can get into trouble with the Securities and Exchange Commission (SEC). You will want to read up on Rule 506 for Regulation D on the SEC’s website. It will walk you through exactly what you have to do to be in compliance when raising capital for an investment.

The presentation to potential money partners is one of the most important aspects of raising capital. The presentation should ideally cover market conditions, the type of properties you will be purchasing, why you are able to provide a return, and how the return will be shared. If you do not adequately address all of these issues, then you will not be as successful raising money as you could be.

When you are working with money from your investors, you must be conservative and handle their money the way it should be handled. Provide them with an accounting of each fee, expense, and return. The worst thing you can do with a money partner is to not communicate with them. They will get the impression that you are trying to hide or run away with their money. That does not inspire a lot of confidence.

Raising capital is one way of being able to finance almost any kind of deal. Investors that are successful with equity partners will be able to take their business to the next level without investing any of their own money into the deal.

That is the whole point of these two articles on financing options. There are so many possibilities out there. It is just a matter of finding solutions for your deals. When you open your eyes to the possibilities, you will see that there are so many more options than just traditional financing.

from Rich Dad Education Newsletter

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Know risks when forgoing inspection contingency

Think again if you’re considering buying a home without having it inspected. This particularly applies to first-time buyers who have little, if any, experience with home defects and repairs. Even professionals can make mistakes when buying homes without having them thoroughly inspected.

In one example, an experienced contractor bought a home to fix up and resell. The contractor looked over the property carefully before he bought it, but he did not have it inspected by an impartial home inspector.

After the contractor took possession of the property, he discovered that the furnace was shot and required replacement. The cost of a new furnace was not included in his renovation budget.

Homebuying is an emotional experience no matter how hard you try to keep it strictly business. You have high hopes that nothing will go wrong and the transaction will close. The appeal of a home could cloud your objectivity about the real purchase price when you consider the work that needs to be done to repair defects and deferred maintenance.

<a href="http://www.shutterstock.com/gallery-478396p1.html" mce_href="http://www.shutterstock.com/gallery-478396p1.html" target=blank>Home and magnifying glass image</a> via Shutterstock.com.Home and magnifying glass image via Shutterstock.com.

Think again if you’re considering buying a home without having it inspected. This particularly applies to first-time buyers who have little, if any, experience with home defects and repairs. Even professionals can make mistakes when buying homes without having them thoroughly inspected.

In one example, an experienced contractor bought a home to fix up and resell. The contractor looked over the property carefully before he bought it, but he did not have it inspected by an impartial home inspector.

After the contractor took possession of the property, he discovered that the furnace was shot and required replacement. The cost of a new furnace was not included in his renovation budget.

Homebuying is an emotional experience no matter how hard you try to keep it strictly business. You have high hopes that nothing will go wrong and the transaction will close. The appeal of a home could cloud your objectivity about the real purchase price when you consider the work that needs to be done to repair defects and deferred maintenance.

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In some areas, the home-sale market has picked up. One example is California’s Silicon Valley, where job growth is strong. There is far more demand than there are homes for sale, which tends to drive prices up.

In some cases, buyers will waive contingencies in order to outbid the competition. Buying without including an inspection contingency in the purchase contract can be an expensive strategy if you later find defects that are expensive to repair.

The risk is minimized if the sellers provide the buyers with copies of recent presale home inspections done by reputable local home inspectors before they write an offer. However, most home inspection reports recommend further inspections. Diligent sellers take the extra step and have further inspections done, like a roof or furnace inspection. Many do not.

HOUSE HUNTING TIP: A second opinion from a highly regarded home inspector can’t hurt. The reason to have inspections at all is to find out as much as possible about the property’s condition before you go through with the sale. Don’t skip an inspection to save money.

Sometimes, buyers who are satisfied with the report they received from the seller’s home inspector will hire that inspector to do a walk-through inspection based on the seller’s report. This means a second home inspector isn’t involved. But at least the buyers have an opportunity to spend time at the property with the seller’s inspector, ask questions, and find out more about what works and what doesn’t.

Inspection contingencies protect the buyers and, depending on how the clause is written, can allow the buyers to withdraw from the contract without losing their deposit. This is why sellers are often drawn to an offer that doesn’t have an inspection contingency. However, accepting such an offer can create problems.

Inspection contingencies also protect sellers from future legal entanglements with the buyers over items that weren’t discovered before closing. It’s much easier to resolve inspection defect issues before, than after, closing.

Inspection contingencies can create an opportunity for buyers to ask sellers to fix defects, lower the price, or credit money at closing to cover the cost of repair work.

When buyers ask sellers to make concessions after they bought the house “as is” with respect to certain disclosed defects, it can be a deal-breaker. However, reasonable sellers will often attempt to negotiate an acceptable solution regarding newly discovered defects rather than put the house back on the market.

If you’re buying in a competitive market and find you’re losing out because you won’t waive an inspection contingency and others are willing to take the risk, consider having inspections done before making an offer.

THE CLOSING: Make sure to ask permission from the seller through the listing agent.

By Dian Hymer, Monday, January 2, 2012.

Inman News®

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

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8 things you should know about down payments

Q: What is the down payment?

 

A: The down payment is the property value less the loan amount. It is not the same as the borrower’s cash outlay if some of that outlay is used for settlement costs. On a newly constructed home, the land value can be part or all of the down payment.

Q: If the appraised value of a home exceeds the sale price, can the difference be applied to the down payment?

A: No, the property value upon which down payment requirements are based is the lower of sale price and appraised value. An appraisal higher than the price is disregarded.

Q: What is the down payment?

 

A: The down payment is the property value less the loan amount. It is not the same as the borrower’s cash outlay if some of that outlay is used for settlement costs. On a newly constructed home, the land value can be part or all of the down payment.

Q: If the appraised value of a home exceeds the sale price, can the difference be applied to the down payment?

A: No, the property value upon which down payment requirements are based is the lower of sale price and appraised value. An appraisal higher than the price is disregarded.

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But there is an important exception, called a gift of equity, where the home seller is someone near and dear, usually a family member, who is willing to sell below market value. In such cases, the lender will probably require two appraisals, and the seller must follow Internal Revenue Service rules to avoid gift taxes, but those are minor nuisances.

Q: Can a home seller contribute to the buyer’s down payment?

A: No, because of a presumption that such contributions will be associated with a higher sales price. However, subject to limits, home sellers are allowed to pay purchasers’ settlement costs. This reduces the cash drain on purchasers, allowing more of it to be used as down payment.

Q: Can the lender contribute to the buyer’s down payment in exchange for a higher interest rate?

A: No, but lender rebates or “negative points” can be used to pay settlement costs as a possible alternative to seller contributions.

Q: Can cash gifts be used as a down payment?

A: Only if the gift comes from a relative or live-in partner who can document its source. Gifts from parties to the transaction such as home sellers or builders are not acceptable as down payment funds because of the presumption that the gift affects other parts of the transaction, especially the sale price.

The lender must also be convinced that the gift is not a disguised loan with a repayment obligation that might reduce the borrower’s ability to repay the mortgage.

Borrowers who receive undocumented cash gifts can include them as part of their own funds if they can show that the funds have been in their account for at least 60 days. They should have two monthly statements issued after the funds are deposited in the account.

<a href="http://www.shutterstock.com/gallery-264874p1.html" mce_href="http://www.shutterstock.com/gallery-264874p1.html">House and calculator image</a> via Shutterstock.com.House and calculator image via Shutterstock.com.

Q: What is the down payment?

 

A: The down payment is the property value less the loan amount. It is not the same as the borrower’s cash outlay if some of that outlay is used for settlement costs. On a newly constructed home, the land value can be part or all of the down payment.

Q: If the appraised value of a home exceeds the sale price, can the difference be applied to the down payment?

A: No, the property value upon which down payment requirements are based is the lower of sale price and appraised value. An appraisal higher than the price is disregarded.

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But there is an important exception, called a gift of equity, where the home seller is someone near and dear, usually a family member, who is willing to sell below market value. In such cases, the lender will probably require two appraisals, and the seller must follow Internal Revenue Service rules to avoid gift taxes, but those are minor nuisances.

Q: Can a home seller contribute to the buyer’s down payment?

A: No, because of a presumption that such contributions will be associated with a higher sales price. However, subject to limits, home sellers are allowed to pay purchasers’ settlement costs. This reduces the cash drain on purchasers, allowing more of it to be used as down payment.

Q: Can the lender contribute to the buyer’s down payment in exchange for a higher interest rate?

A: No, but lender rebates or “negative points” can be used to pay settlement costs as a possible alternative to seller contributions.

Q: Can cash gifts be used as a down payment?

A: Only if the gift comes from a relative or live-in partner who can document its source. Gifts from parties to the transaction such as home sellers or builders are not acceptable as down payment funds because of the presumption that the gift affects other parts of the transaction, especially the sale price.

The lender must also be convinced that the gift is not a disguised loan with a repayment obligation that might reduce the borrower’s ability to repay the mortgage.

Borrowers who receive undocumented cash gifts can include them as part of their own funds if they can show that the funds have been in their account for at least 60 days. They should have two monthly statements issued after the funds are deposited in the account.

Q: Are there any substitutes for a down payment?

A: In principle, any collateral acceptable to the lender could serve as a substitute for a down payment. The only such substitute found in the U.S. is securities, which must be posted as collateral with an investment bank that also makes mortgage loans. Borrowers who do this are betting that the return on the securities will exceed the mortgage rate.

Mortgage insurance and second mortgages can also be viewed as substitutes for down payment. They do not provide the first mortgage lender with additional collateral, but they shift a major part of the risk of the low-down-payment loan to a third party who is paid by the borrower for assuming it. The payment is either a mortgage insurance premium or a relatively high interest rate on a second mortgage.

Q: Is it wise to withdraw funds from a 401(k) to make a down payment?

A: Withdrawing funds is very unwise, as you would be hit with taxes and penalties, but borrowing against your account might make sense, provided your employer allows it. The cost of borrowing against your 401(k) is not the loan rate, which you pay to yourself, but the return the money would have earned if left in the account.

The risk is that if you lose your job, or change employers, you must pay back the loan in full within a short period, often 60 days. Otherwise, the loan is treated as a withdrawal and subjected to taxes and penalties. Loans from a 401(k) cannot be rolled over into a 401(k) account at a new employer.

Q: What are the costs and benefits of making a larger down payment than is required?

A. The cost is measured by the rate of return you could earn on the money if you invest it rather than use it for a larger down payment. The benefit is measured by the mortgage interest rate, as that rate determines the interest savings on the amount you don’t borrow.

If you increase your down payment by $10,000 on a 4 percent mortgage, you earn 4 percent on the $10,000 you didn’t borrow.

A possible additional benefit arises when the larger down payment reduces the cost of the loan by lowering either the mortgage interest rate or the mortgage insurance premium.

My calculator 12a shows the total rate of return on investment in a larger down payment taking account of any such cost reductions.

By Jack Guttentag, Monday, December 19, 2011.

Inman News®

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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What you should know about backup real estate offers

Buyers who lose out in a multiple-offer competition or who make an offer a little too late may be offered the opportunity to be in a backup position. A backup offer is one that’s accepted subject to the collapse of an already accepted offer.

The seller can accept multiple backup offers, in which case they are ranked: backup offer No. 1, backup offer No. 2, and so forth. It’s rare in the current market for there to be more than one backup offer.

If you’re offered backup position, should you accept it? Buyers are often reluctant to accept a backup offer because they feel it will strengthen the resolve of the buyers in primary position to move forward with the deal if they hit a rough patch, such as a previously unknown inspection issue. And, in fact, this can happen.

Recently, buyers went into contract to buy a home in Oakland, Calif. The sellers provided many reports and disclosures on the condition of the property. However, someone inspecting for the buyers had a different opinion about the condition of the roof, gutters and downspouts, and said it would cost an extra $13,000 to fix.

Two days after the first contract was accepted, another buyer made an offer that was accepted in backup position. The backup offer was for a higher price than the primary offer. Rather than lose the house to the backup buyers, the first buyers removed their inspection contingency despite the new information they received about the condition of the roof.

Some buyers fear that if they accept backup position they will halt their search effort until they know for sure that they can’t have the home they want. This is a factor you can control. If you accept backup position, don’t slow down your quest to find a home to buy.

HOUSE HUNTING TIP: Make sure there is a provision in the backup position clause in the contract that says the buyers can withdraw at any time up until they are notified that the primary offer has collapsed and their offer has been elevated to the primary position.

It’s usually worthwhile to accept a backup position because there is a high fallout rate in the current market. Just don’t sit around waiting for the first deal to fall apart.

From the sellers’ perspective, it’s usually a good idea to counter an offer for backup position if there is more than one offer. Keep in mind that most buyers would rather be in primary position. Some won’t accept backup for the reasons mentioned above, or they may have another house in mind if they don’t get yours.

To entice a buyer to accept backup position, you may have to accept an offer with a lower price than the primary offer. Don’t expect a buyer to accept a counteroffer from you for backup position that also includes a price increase. Make sure you tidy up the offer as if it were a primary offer. There won’t be a chance to change the terms if the primary deal falls apart.

Don’t accept any offer just to have a backup offer. If you have a backup offer and the first contract fails, your home goes to the backup buyer without going back on the market. This can be a benefit to both buyers and sellers. The backup buyer doesn’t have to face multiple offers again, and the sellers don’t have to go through the hassle of finding another buyer.

Sellers who don’t like a potential backup offer because of a very low price might be better off not countering the offer for backup position.

THE CLOSING: Sellers should feel comfortable with a prospective backup offer; they may have to live with it.

By Dian Hymer, Monday, October 31, 2011.

Inman News™

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

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Check home’s permit history before buying

Now more than ever, it’s important to protect yourself from unexpected surprises when you buy a home. The goal is to find out as much about the house as possible before closing.

Your offer should include an inspection contingency even if you’re making an offer in competition. The contingency wording should be broad enough for you to inspect whatever you deem necessary so that you are confident the home will satisfy your housing needs within a budget you can afford.

If the inspections reveal defects that can’t be corrected, or ones that can but the sellers won’t participate in the solution, you should have the option to withdraw from the contract and have your deposit returned.

Most buyers have a home inspected by a home and structural pest control (“termite”) inspector. Additional inspections recommended, such as for roof or drainage, should also be done.

Now more than ever, it’s important to protect yourself from unexpected surprises when you buy a home. The goal is to find out as much about the house as possible before closing.

Your offer should include an inspection contingency even if you’re making an offer in competition. The contingency wording should be broad enough for you to inspect whatever you deem necessary so that you are confident the home will satisfy your housing needs within a budget you can afford.

If the inspections reveal defects that can’t be corrected, or ones that can but the sellers won’t participate in the solution, you should have the option to withdraw from the contract and have your deposit returned.

Most buyers have a home inspected by a home and structural pest control (“termite”) inspector. Additional inspections recommended, such as for roof or drainage, should also be done.

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Ideally, you want to know not only the severity of a defect, but how much it will cost to repair. It’s a good idea to ask for written reports and repair estimates, despite the additional cost. Written reports can be effective in negotiations with the sellers over inspection issues.

Even if you don’t intend to negotiate, written reports provide a record that will help you complete the needed repair work. It will also serve to inform the future buyers about the condition of the property when you bought it.

HOUSE HUNTING TIP: An item that is often overlooked during buyers’ inspections is the permit history on the house. It can be a hassle dealing with the city bureaucracy, and few buyers have time to go to the city planning department. Some even pay others to take care of this task. One way or the other, it should be done. Ignoring this detail can result in problems.

Several years ago, a buyer in the hills of Oakland, Calif., didn’t check the permit history when she bought. When she applied for a permit to do work on her house, she was denied because of outstanding permits taken out by the previous owner that hadn’t received final approval.

In order to obtain a permit, she had to have the property inspected by the city and do any work necessary to receive the final approval — all at her expense. This can cost thousands of dollars.

Recently a homebuyer in Oakland’s trendy Rockridge neighborhood obtained the permit history on the home she was buying. Two items became apparent that required further investigation.

One involved a remodel done by a past owner, not the current owner, for which a variance was granted. The permit received final approval. However, final permit approval was conditioned on the seller agreeing to record a notice of property use limitation on the title to the property. The preliminary title report on the property didn’t show a notice of property use limitation.

The title company searched the title record again, aware of the dates around which the notice should have been recorded, and found it. The title company issued an amended report correcting its mistake.

The permit search also indicated that there were fees owed against the property. The buyer was concerned because she planned to do work after closing and didn’t want to be stuck paying fees that she hadn’t incurred, especially having no idea how much was owed.

It turned out that the fees would not be charged to the new owner. One was for an application made by a past owner that had expired. The city had not performed any services. The other was from 1997, which was deemed to be too old to collect.

THE CLOSING: While you’re checking the permits, be sure to ask if any fees are owed. You may need to check directly with the cashier.

By Dian Hymer – from Inman News Weekly Headlines

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

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Use incentives to sell house with defects

Buyers who purchased during the bubble market often paid too much in competition for a home that needed a lot of work, and then they did few or none of the repairs. In a rising market, buyers were willing to ignore defects and buy “as is” rather than miss out on rapid appreciation.

The opposite is the case today. Home prices have declined an average of 30 percent nationally from the peak. Buyers usually don’t overlook defects, even though the house is still standing and the defects have been there for years.

Today, homes are well-inspected. Defects are taken seriously. Buyers either ask the sellers to do repair work, reduce the price, or credit money to them at closing to help with renovations.

Disclosing property defects is required in most states. The timing of compliance with this requirement is an issue with some sellers.

Sellers don’t want the information made available to buyers before they make an offer for fear that the buyers won’t offer at all if they know the condition of the property. This approach will backfire when the buyers receive the information and the deal falls apart if no agreement is reached on who pays for what.

HOUSE HUNTING TIP: A better approach is to make known as much information as you can about the property condition to the buyers before they make an offer. If you want an “as is” sale, which means you don’t want to take care of any of the recommended repairs, make sure your list price reflects the work that needs to be done.

For instance, if your home has a market value of $450,000 and requires $30,000 of repair work, list it for $415,000. This gives the buyer a $5,000 incentive to take on the project.

There is always the possibility that the buyers’ inspections will find defects that weren’t revealed by the sellers or in any presale reports they provided. But, at least there’s less chance that the deal will fall apart.

A relatively small credit or price reduction will be easier to deal with if the buyers are applying for a mortgage to complete the purchase. Lenders have limits on how much they will allow a seller to credit a buyer at closing.

Check with your loan agent or mortgage broker about the amount of the credit. The lender will probably need an addendum to the purchase price that says the sellers are crediting the buyers a certain amount toward their closing costs.

One way to improve your sale prospects and bypass any lender concerns about property condition is to have work done before you put your home on the market. This requires time and money, so it’s not an option for all sellers.

Items to consider repairing are ones that might keep the sale from closing on time. For instance, if your front porch or back deck is rotted to the point of being a hazard, the lender’s appraiser will indicate this on the appraisal report. The lender will probably require that the work be done before closing. If you can’t line up contractors to complete the work quickly, this could delay the closing.

To save money, some sellers hire unlicensed workers to repair defects. There is potential liability if the work requires a city building permit. Make a list of all the presale work you had completed, who did it and when. Indicate if the person who did the work was licensed or unlicensed. Give the list to the buyers far enough in advance of closing so they can have the work inspected by a professional of their choice if they want to.

THE CLOSING: Selecting less expensive contractors to save money can end up costing you more if they don’t do a complete and proper job.

By Dian Hymer from Inman News

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

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Beware these myths when buying a home

A real estate purchase is a business transaction, so be careful of unrealistic expectations and high emotions. 

The first myth that many first time home buyers fall prey to is that “the perfect home is out there.”   Buying a home is  an exercise in compromise.  Do not focus on the things that are wrong in a house, but on how many items on your wish list the home has, and decide what are real deal breakers, and what you can live with.

Don’t get caught up in how the home “feels” to you.  Real estate agents are trained, and hire stagers to prepare the home for the best possible response from a buyer, so look at the house with a critical eye and try to imagine your belongings in the home.

Don’t  always believe what the listing agent says or that the information on the listing fact sheet is correct, always verify the information for yourself.  If the accuracy of the square footage is important to you, bring a tape measure.  Compare the number of closets, cabinet, and electrical outlets to those in your current home.

In the recent past, buyers would buy “as much house as they could get.”  In todays climate, it is makes much more financial sense to look for a home that is not excessive, but has what you need to live comfortably.

Do not have buyers remorse, if your offer was accepted by the sellers right away, this is not an indication that your offer was too high.  If you were comfortable with the offer you made, then you should be happy your offer was accepted.  The goal is to make everyone happy with the result.

As we learned from this economic crisis, your home is not necessarily going to go up in value.

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