Monthly Archives

June 2015

What Happens After the Contract Is Signed: Surveys and Inspections

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Surveys and Inspections: What Happens After the Contract Is Signed

You have found the perfect home, negotiated a price, and signed the purchase contract. Now the process towards closing begins, which includes inspections, surveys and a property appraisal. Understanding the value in this process will help you decide if you want options inspections or if going with bank required items will be enough.

Surveys establish the property lines for the land you are buying. While you are purchasing a home, the land that goes with it establishes much of its value. The survey will determine where you can build fences, add buildings or structures and what property you can claim as your own. The other benefit of a survey is that it will define if there are any existing encroachments. This means that a neighbor may have built something that is actually on your property. Fences are a common area of encroachment, where a neighbor’s fence is built beyond their property line. If this issue is not addressed, eventually the neighbor could own the land they have encroached on. Local and state laws determine the time period where an encroachment can result in the loss of property. Not all lenders require surveys to be completed, making this an optional closing cost in some cases.

Appraisals are generally ordered by the lender. The appraiser will view the home and then look at recent sales nearby to establish the value of the home and property. The appraisal will hopefully confirm the sales price for the bank. The appraised value can be particularly important if you are not putting money down or the seller is paying closing costs. If the home does not appraise for a high enough value you may be required to put more down in order to buy the home. A low appraisal may create an opportunity to renegotiate the price with the seller, though they are not required to lower the price.

Home Inspections are an essential part of buying a home. A general home inspector will generally inspect the home’s heating and cooling system, electrical system, roof and foundation, plumbing, and the structure of the home. It is recommended that you accompany the inspector as they walk through the home. This will enable you to discuss issues that are found determining its seriousness. Once the inspection is complete you might be in a position to request repairs, or renegotiate the price of the home. This will be dependent on the original contact and if there were contingencies around the inspection and home’s condition. Most banks require a home inspection.

Termite Inspection is generally required by the bank. Termites eat the wood in your home which can impact the home’s structure as most homes are framed with wood. This must be done by a professionally licensed pest inspector. They will look for any active infestations and if there are present, they will generally have to be treated before the closing can occur. The buyer is typically responsible for the cost of the pest inspection. If a problem exists, generally the seller must cover the costs of repair.

Professional Inspections may be warranted depending on the age and condition of the home. Things like lead and asbestos might be present on homes built before 1980. Professional inspections are generally not required by the lender. If you are planning renovations or upgrades these may be worthwhile to have before closing, as they could indicate expensive repairs are needed. Generally if the asbestos and lead are not disturbed they do not require removal.

Surveys and inspections are an important part of the closing process as they help you better understand what you are buying. The condition the home is in and where the legal boundaries for the property are. In some cases the lender requires the reports, in other cases you will have the option. It is best not to try and save money on closing costs by skipping surveys and inspections. Do so could result in expensive problems further down the road.

 

Realtor Agency and Why It Matters To You

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Realtor Agency and Why It Matters To You

Whether you are buying or selling your first home, most consumers utilize the expertise of a real estate professional. When you work with a Realtor, how they represent you is called agency. This is important because it determines who the agent works for and where their fiduciary duty lies.

There are three different categories of agency; buyers, sellers and dual agency. Some real estate professionals serve in any of the roles depending on the transaction, while others specialize as either a buyer’s agent or a seller’s agent.

What Does Agency Offer

  • When written it will provide a legal obligation for the real estate agent to uphold the integrity of the clients’ interests.
  • Negotiate and protect the clients’ position through negotiation of terms and the contract.
  • Offer undivided loyalty toward the client and their interests.
  • Keep confidences of the client. Though any material facts should be disclosed. Agents must maintain integrity and honesty in all cases for all parties.
  • Maintain strict adherence to the Code of Ethics.

Buyer’s Agent. When you hire a buyer’s agent, the agent works for you and will give advice and negotiate with your best interest in mind. The real estate agent will have a fiduciary duty to the buyer as long as the agreement is in writing. They assist with evaluating the property, preparing the offer and negotiating the terms of the contract.

If you are buying a property listed by another agent then the buyer’s agent fee is generally paid by the seller at closing. If you are buying a home that is listed as “For Sale By Owner,” then you may need to make arrangements to pay the real estate agent’s fee directly.

Seller’s Agent is also known as the listing agent. The seller’s agent is hired by the seller and works for the seller. This is where their fiduciary interest lies. The agent will help the seller prepare the home for sale, determine the best listing price and negotiate terms of the contract. When the listing contract is signed the duties and responsibilities of the real estate agent are established.

Dual Agent works for both the buyer and the seller. This case arises if the brokerage firm represents both the buyer and seller. For dual agency to occur both buyer and seller must agree in writing. When this occurs the firm and agents have limited fiduciary duties. Even if there are two different agents involved in the transaction, if both work for the same firm then dual agency exists.

Due to potential conflicts of interests, neither agent will offer the full fiduciary duties listed above. This might impact the buyer’s agent’s ability to negotiate the best terms and keep confidences. Consider if it is in your best interest to have a dual agency transaction or if you would prefer a different agent to represent you during the negotiations and contract.

The rules of agency vary from state to state, therefore asking about who represents you will protect your interest. Most states require agency agreements to be in writing. Generally for buyers the contract is for one day, allowing you to work with different agents until you find one you trust with finding your home. Seller agent contracts are generally for a longer period of time, such as 3 months or more. This gives them the opportunity to advertise and market the home.

Most real estate professionals work on commission and only get paid if they successfully find you a home or sell the home they have listed. If the home is listed by another agent, the seller will generally pay the commission for both agents. This means all buyers should work with a real estate agent as the fees are covered in the transaction and failing to do so will generally result in dual agency.

 

5 things to do before finding your home

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5 Things to Do Before Starting Your Home Search

Searching for a home is a very exciting time, especially if it’s your first home. When you are ready to start looking, check off these 5 things before beginning your search. It will ensure you are prepared to buy the home, get a loan approved with the best terms, and have a smooth closing process.

  • Know and understand your credit score. One of the most important factors to a loan approval is the credit score. It will determine the rate you get, what programs you qualify for and down payment requirements. The lower the score the less favorable terms you will be offered. While some loan programs offer a 580 minimum score, this often requires higher fees and/or a larger down payment. A score of 640 or higher will provide a better choice of loan programs and lower down payment options. A 750 score or higher will land you the best rates available.

 

Pull the credit report and credit score for all loan applicants. Review the report with a fine tooth comb and dispute any errors. If there are unpaid debts on the report take care of them before applying and be sure to save the payoff letter for the lender. These steps will help secure the best rates and terms possible when you are ready to apply. Other recommendations include not applying for new credit in the months before buying a home and ensuring that all payments are made on time for the previous 12 months.

 

  • Review your budget and find a payment you are comfortable with. It is no fun being house poor. Look over the expenses and any new expenses that will be coming up in the next 2 to 5 years. Will you be purchasing a new car, expanding your family, or putting money away for retirement? Consider anything that will impact finances. If you are buying a home after your residency, there may be other financial obligations you want to take on. Add these to the budget before locking into a higher mortgage payment.

It is recommended that you estimate the new monthly payment, add in the taxes and insurance costs and then subtract that from what you are currently paying. Add this amount to a savings account for several months. This will help you save more for the new home along with giving you a trial run for the new payment. If you are purchasing just out of residency, or even while you are a resident, your current budget may not permit this. Doing the same exercise on paper will help you see what the numbers will look like.

  • Prepare for the down payment and closing costs. The down payment can range from 0% to 20%. Meeting with a lender early and reviewing options will help you manage the amount needed at closing. If you are buying a home even slightly under its market value, you may be able to get the seller to pay for some or all of the closing costs. However, you will not know that until you make an offer. The closing costs generally add 2% to 3% of the loan amount to what you need at closing. Saving this amount, plus the anticipated down payment will eliminate surprises that could kill the deal on a great home.

 

  • Get a preapproval. After you have reviewed your credit, and before you decide to pay your debt down with your down payment money, meet with a lender who understands the needs of physicians and is familiar with physician’s loans. They can help you evaluate loan programs and determine if you are ready to buy. Once you get the green light from the lender of your choice, get the loan pre-approved. If possible have an underwriter review the loan, along with a review of debts, income and any other factors the bank is looking at. Doing this ahead of time can speed up the closing process and offer an advantage if more than one offer is made on the home. Sellers want the deal to go through and the stronger the loan application is, the more security they have that the home loan will not fall through at the last minute.

 

  • Look forward at your lifestyle and family needs. A home is a long term commitment. Looking 3 to 5 years ahead will help you buy a home you can grow into. Will you be taking up a new hobby, expanding your family and taking care of aging parents? Understanding your personal situation and the contingencies that may happen in the near future can impact the size and style of home that will best meet your needs. Home layout, square footage along with budgeting considerations should be evaluated when looking at what you need in a home.

Checking these five things off your to-do list, before searching for a home, will lead to faster loan approval and closing, and ensure you buy the right house for your needs.

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