Appraisals & Market
Value
Can I find out the value of my home through
the Internet?
How do you determine the value of
a troubled property?
What is the difference between
list price, sales price and appraised value?
What is the difference between
market value and appraised value?
What is the return on new versus previously
owned homes?
What standards do appraisers use
to estimate value?
What's a house worth?
Question: Can I find out the value of
my home through the Internet?
Answer:
You can get some idea of your home's value by searching the Internet. A number
of Web sites and services crunch the numbers from historic public records of
home sales to produce the statistics. Some services offer an actual estimate
of value based on acceptable software appraisal standards. They also depend
on historic home sales records to calculate the estimate.
Neither of these services produce official appraisals. They also don't factor
in market nuances or other issues a certified appraiser or real estate professional
might in assessing the value of your home.
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Question: How do you determine the value of a troubled property?
Answer:
Buyers considering a foreclosure
property should obtain as much information as possible
from the lender, including the range of bids expected.
It also is important to examine the property. If you are unable to get into
a foreclosure property, check with surrounding neighbors about the property's
condition.
It also is possible to do your own cost comparison through researching comparable
properties recorded at local county recorder's and assessor's offices, or through
Internet sites specializing in property records.
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Question: What is the difference
between list price, sales price and appraised value?
Answer:
The list price is a seller's advertised
price, a figure that usually is only a rough estimate
of what the seller wants to get. Sellers can price high,
low or close to what they hope to get. To judge whether
the list price is a fair one, be sure to consult comparable
sales prices in the area.
The sales price is the amount of money you as a buyer would pay for a property.
The appraisal value is a certified appraiser's estimate of the worth of a property,
and is based on comparable sales, the condition of the property and numerous
other factors.
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Question: What is the difference
between market value and appraised value?
Answer:
The appraised value of a house is
a certified appraiser's opinion of the worth of a home
at a given point in time. Lenders require appraisals
as part of the loan application process; fees range
from $200 to $300.
Market value is what price the house will bring at a given point in time. A
comparative market analysis is an informal estimate of market value, based
on sales of comparable properties, performed by a real estate agent or broker.
Either an appraisal or a comparative market analysis is the most accurate way
to determine what your home is worth.
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Question: What is the return on new
versus previously owned homes?
Answer:
Buying into a new-home community
may seem riskier than purchasing a house in an established
neighborhood, but any increase in home value depends
upon the same factors: quality of the neighborhood,
growth in the local housing market and the state of
the overall economy.
One survey by the National Association of Realtors shows that resale homes
do have an edge over new homes. The trade group's figures show the median price
of resale homes increased4.3 percent between 1999 and 2000, compared to 2.8
percent for new homes in the same period.
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Question: What standards do appraisers
use to estimate value?
Answer:
Appraisers use several factors when
estimating a home's value, including the home's size
and square footage, the condition of the home and neighborhood,
comparable local sales, any pertinent historical information,
sales performance and indices that forecast future value.
For detailed information on appraisal standards, visit
the Appraisal Institute website, appraisalinstitute.org,
or contact the organization at 550 W. Van Buren St.,
Suite 1000, Chicago, IL 60607; (312) 335-4100.
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Question: What's a house worth?
Answer:
A home ultimately is worth what someone
will pay for it. Everything else is an estimate of value.
To determine a property's value, most people turn to
either an appraisal or a comparative market analysis.
An appraisal is a certified appraiser's estimate of the value of a home at
a given point in time. Appraisers consider square footage, construction quality,
design, floor plan, neighborhood and availability of transportation, shopping
and schools. Appraisers also take lot size, topography, view and landscaping
into account. Most appraisals cost about $300.
A comparative market analysis is a real estate broker's or agent's informal
estimate of a home's market value, based on sales of comparable homes in a
neighborhood. Most agents will give you a comparative market analysis for free.
You can do your own cost comparison by looking up recent sales of comparable
properties in public records. These records are available at local recorder
or assessor offices, through private real estate information companies or on
the Internet.
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Escrow
and Closing Costs
How can I save on closing costs?
What are closing costs?
Where do I get information about
closing costs?
Who pays the closing costs?
Why do I need a title report?
Question: How can I save on closing costs?
Answer:
Studies show that the closing costs,
which can average 2 to 3 percent of a total home purchase
price, are often more costly than many buyers expect.
But there are some ways to save:
- Negotiate with the seller to
pay all or part of the closing costs. The lender must
agree to this as well as the seller.
- Get a no-point loan. The trade-off
is a higher interest rate on the loan and many of
these loans have prepayment penalties. But buyers
who are short on cash and can qualify for a higher
interest rate may find a no-point loan will significantly
cut their closing costs.
- Get a no-fee loan. Usually, though,
these fees are wrapped into a higher interest rate
though it will save you on the amount of cash you
need upfront.
- Get seller financing. This kind
of arrangement usually does not entail traditional
loan fees or charges.
- Rent the property in which you
are interested with an option to buy. That will give
you more time to save for the upfront cash needed
for the actual purchase.
- Shop around for the best loan
deal. Each direct lender and each mortgage brokerage
has their own fee structure. Call around before submitting
your final loan application.
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Question: What
are closing costs?
Answer:
Closing costs are the fees for services,
taxes or special interest charges that surround the
purchase of a home. They include upfront loan points,
title insurance, escrow or closing day charges, document
fees, prepaid interest and property taxes. Unless, these
charges are rolled into the loan, they must be paid
when the home is closed.
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Question: Where
do I get information about closing costs?
Answer:
For more on closing costs, ask for
the "Consumer's Guide to Mortgage Settlement Costs," Federal
Citizen Information Center, Pueblo, CO 81009; (888)
878-3256; pueblo.gsa.gov.
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Question: Who
pays the closing costs?
Answer:
Closing costs are either paid by
the home seller or home buyer. It often depends on local
custom and what the buyer or seller negotiates.
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Question: Why
do I need a title report?
Answer:
As much as you as a buyer may want
to believe that the home you have found is perfect,
a clear title report ensures there are no liens placed
against the prior owners or any documents that will
restrict your use of the property.
A preliminary title report provides you with an opportunity to review any impediment
that would prevent clear title from passing to you.
When reading a preliminary report, it is important to check the extent of your
ownership rights or interest. The most common form of interest is "fee
simple" or "fee," which is the highest type of interest an owner
can have in land.
Liens, restrictions and interests of others excluded from title coverage will
be listed numerically as exceptions in the report.
You also may have to consider interests of any third parties, such as easements
granted by prior owners that limit use of the property. Some buyers attempt
to clear these unwanted items prior to purchase.
A list of standard exceptions and exclusions not covered by the title insurance
policy may be attached. This section includes items the buyer may want to investigate
further, such as any laws governing building and zoning.
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Finding
The Right Home
Do we dig deep and buy a dream home
or settle for a starter home?
How do I get the real scoop on homes
I am looking at?
How do you choose between buying
and renting?
What are the pros and cons of adding
on or buying new?
What do all of those real estate acronyms
in the ads mean?
Question: Do
we dig deep and buy a dream home or settle for a starter
home?
Answer:
Choosing between a smaller
house in an affluent neighborhood, an older, bigger
house in a more working-class community or a brand-new
home is not easy. If you're in this situation, start
by examining your priorities and asking the following
questions:
- Is the surrounding neighborhood
or the home itself the most important consideration?
- Is each of the neighborhoods
safe?
- Is quality of the schools an
issue?
- Do any of the areas seem to attract
more families with children or adult residents? And
where do you fit in?
As for the return on your investment,
home-price appreciation is hard to predict. In the late
1980s, and again 10 years later, the more expensive
move-up housing appreciated wildly. But during the recession
that followed, smaller homes tended to hold their value
better than more expensive ones.
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Question: How
do I get the real scoop on homes I am looking at?
Answer:
Home inspections, seller disclosure
requirements and the agent's experience will help. Disclosure
laws vary by state, but in some states, the law requires
the seller to complete a real estate transfer disclosure
statement. Here is a summary of the things you could expect
to see in a disclosure form:
- In the kitchen -- a range, oven,
microwave, dishwasher, garbage disposal, trash compactor.
- Safety features such as burglar
and fire alarms, smoke detectors, sprinklers, security
gate, window screens and intercom.
- The presence of a TV antenna
or satellite dish, carport or garage, automatic garage
door opener, rain gutters, sump pump.
- Amenities such as a pool or spa,
patio or deck, built-in barbeque and fireplaces.
- Type of heating, condition of
electrical wiring, gas supply and presence of any
external power source, such as solar panels.
- The type of water heater, water
supply, sewer system or septic tank also should be
disclosed.
Sellers also are required to indicate
any significant defects or malfunctions existing in
the home's major systems. A checklist specifies interior
and exterior walls, ceilings, roof, insulation, windows,
fences, driveway, sidewalks, floors, doors, foundation,
as well as the electrical and plumbing systems.
The form also asks sellers to note the presence of environmental hazards, walls
or fences shared with adjoining landowners, any encroachments or easements,
room additions or repairs made without the necessary permits or not in compliance
with building codes, zoning violations, citations against the property and
lawsuits against the seller affecting the property.
Also look for, or ask about, settling, sliding or soil problems, flooding or
drainage problems and any major damage resulting from earthquakes, floods or
landslides.
People buying a condominium must be told about covenants, codes and restrictions
or other deed restrictions.
It's important to note that the simple idea of disclosing defects has broadened
significantly in recent years. Many jurisdictions have their own mandated disclosure
forms as do many brokers and agents. Also, the home inspection and home warranty
industries have grown significantly to accommodate increased demand from cautious
buyers. Be sure to ask questions about anything that remains unclear or does
not seem to be properly addressed by the forms provided to you.
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Question: How
do you choose between buying and renting?
Answer:
Home ownership offers tax benefits
as well as the freedom to make decisions about your
home. An advantage of renting is not worrying about
maintenance and other financial obligations associated
with owning property.
There also are a number of economic considerations. Unlike renters, home owners
who secure a fixed-rate loan can lock in their monthly housing costs and make
prudent investment plans knowing these expenses will not increase substantially.
Home ownership is a highly leveraged investment that can yield substantial
profit on a nominal front-end investment. However, such returns depend on home-price
appreciation.
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Question: What
are the pros and cons of adding on or buying new?
Answer:
Before making a choice between
adding on to an existing home or buying a larger one,
consider these questions:
- How much money is available,
either from cash reserves or through a home improvement
loan, to remodel your current house?
- How much additional space is
required? Would the foundation support a second floor
or does the lot have room to expand on the ground
level?
- What do local zoning and building
ordinances permit?
- How much equity already exists
in the property?
- Are there affordable properties
for sale that would satisfy your changing housing
needs?
Ultimately, the decision should
be based on individual needs, the extent of work involved
and what will add the most value.
For more information, check out "The Do-able Renewable Home," a booklet
published by the American Association of Retired Persons, available online at homemods.org.
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Question: What
do all of those real estate acronyms in the ads mean?
Answer:
If you find yourself stumbling
over weird acronyms in a real estate listing, don't
be alarmed. Here are some abbreviations and the meaning
of each:
- assum. fin. -- assumable financing
- dk -- deck
- gar -- garage (garden is usually
abbreviated "gard")
- expansion pot'l -- may be extra
space on the lot, or possibly vertical potential for
a top floor or room addition. Verify actual potential
by checking local zoning restrictions prior to purchase.
- fab pentrm -- fabulous pentroom,
a room on top, underneath the roof, that sometimes
has views
- FDR -- formal dining room (not
the former president)
- frplc, fplc, FP -- fireplace
- grmet kit -- gourmet kitchen
- HDW, HWF, Hdwd -- hardwood floors
- hi ceils -- high ceilings
- In-law potential -- potential
for a separate apartment. Sometimes, local zoning
codes restrict rentals of such units so be sure the
conversion is legal first.
- large E-2 plan -- this is one
of several floor plans available in a specific building
- lsd pkg. -- leased parking area,
may come with an additional cost
- lo dues -- find out just how
low these homeowner's dues are, and in comparison
to what?
- nr bst schls -- near the best
schools
- pvt -- private
- pwdr rm -- powder room, or half-bath
- upr- upper floor
- vw, vu, vws, vus -- view(s)
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Home
Inspections & Warranties
What's a home inspection?
Do I need a home inspection?
How do I find a home inspector?
Question: What's
a home inspection?
Answer:
A home inspection is when a paid
professional inspector -- often a contractor or an engineer
-- inspects the home, searching for defects or other
problems that might plague the owner later on. They
usually represent the buyer and or paid by the buyer.
The inspection usually takes place after a purchase
contract between buyer and seller has been signed.
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Question: Do I need a home inspection?
Answer:
Yes. Buying a home "as is" is
a risky proposition. Major repairs on homes can amount
to thousands of dollars. Plumbing, electrical and roof
problems represent significant and complex systems that
are expensive to fix.
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Question: How do I find a home inspector?
Answer:
In order to find a home inspector,
Dian Hymer, author of "Buying and Selling a Home
A Complete Guide," Chronicle Books, San Francisco;
1994, advises looking for someone with demonstrable
qualifications. "Ideally, the general inspector
you select should be either an engineer, an architect,
or a contractor. When possible, hire an inspector who
belongs to one of the home inspection trade organizations."
The American Society of Home Inspectors (ASHI) has developed formal inspection
guidelines and a professional code of ethics for its members. Membership to
ASHI is not automatic; proven field experience and technical knowledge of structures
and their various systems and appliances are a prerequisite.
One can usually find an inspector by looking in the phone book or by inquiring
at a real estate office or sometimes at an area Realtor association.
Rates for the service vary greatly. Many inspectors charge about $400, but
costs go up with the scope of the inspection.
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Home
Insurance
Question: What kind of home insurance
should I get?
Answer:
A standard homeowners policy protects against
fire, lightning, wind, storms, hail, explosions, riots, aircraft
wrecks, vehicle crashes, smoke, vandalism, theft, breaking
glass, falling objects, weight of snow or sleet, collapsing
buildings, freezing of plumbing fixtures, electrical damage
and water damage from plumbing, heating or air conditioning
systems, according to the Insurance Information Institute,
a Washington, D.C.-based nonprofit group for the insurance
industry.
Such policies are "all-risk" policies, which cover everything except
earthquakes, floods, war and nuclear accidents.
A basic policy can be expanded to include additional coverage, such as for
floods and earthquakes and even workers' compensation for servants or contractors.
Home-based business-coverage, an increasingly popular rider, does not cover
liability associated with the business.
Insurance experts recommend that homeowners obtain insurance equal to the full
replacement value of the home. On a 2,000-square-foot home,for example, if
the replacement cost is $80 per square foot, the house should be insured for
at least $160,000.
For personal items, homeowners can increase their coverage beyond the depreciated
value of items such as televisions or furniture by purchasing a "replacement-cost
endorsement" on personal property.
Some experts recommend an inflation rider, which increases coverage as the
home increases in value.
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How To Buy Your Home: Home
Insurance
Question: What kind of home insurance
should I get?
Answer:
A standard homeowners policy protects against
fire, lightning, wind, storms, hail, explosions, riots, aircraft
wrecks, vehicle crashes, smoke, vandalism, theft, breaking
glass, falling objects, weight of snow or sleet, collapsing
buildings, freezing of plumbing fixtures, electrical damage
and water damage from plumbing, heating or air conditioning
systems, according to the Insurance Information Institute,
a Washington, D.C.-based nonprofit group for the insurance
industry.
Such policies are "all-risk" policies, which cover everything except
earthquakes, floods, war and nuclear accidents.
A basic policy can be expanded to include additional coverage, such as for
floods and earthquakes and even workers' compensation for servants or contractors.
Home-based business-coverage, an increasingly popular rider, does not cover
liability associated with the business.
Insurance experts recommend that homeowners obtain insurance equal to the full
replacement value of the home. On a 2,000-square-foot home,for example, if
the replacement cost is $80 per square foot, the house should be insured for
at least $160,000.
For personal items, homeowners can increase their coverage beyond the depreciated
value of items such as televisions or furniture by purchasing a "replacement-cost
endorsement" on personal property.
Some experts recommend an inflation rider, which increases coverage as the
home increases in value.
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About
Lease Options
What is a lease option?
How do lease options work and what
are the benefits?
Where do I get information on lease
options?
Question: What is a
lease option?
Answer:
When a renter signs a lease with an option
to purchase a property for a specific price within a certain
time frame, that is called a lease option. In most lease-option
situations, a portion of the rent is applied to a future down
payment.
Lease options are most popular among buyers who don't have enough funds for
a down payment and closing costs.
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Question: How do lease options work and
what are the benefits?
Answer:
A lease option is an arrangement with you
and a seller to exercise the option to buy a house after you
have rented it for a specific period. A portion of your rent
would applied toward the purchase if the option is exercised.
This is referred to as rent credit, which most institutional
lenders will accept as part of the down payment if rental payments
exceed the market rent and if a valid lease-purchase agreement
is in effect, a copy of which must be attached to the loan
application.
If you are a seller, lease options can give you several advantages, especially
in a slow market. These include a monthly rent higher than market rent, top-market
value for the property and tax-free use of the option consideration until the
option expires or is exercised. Also, the renter is more likely to treat the
property like an owner, tax-free use of option consideration until the option
expires or is exercised.
Read any lease-option arrangement carefully for details on transferring the
option and other important concerns.
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Question: Where do I get information on
lease options?
Answer:
Contact your real estate agent (some even
specialize in such transactions) or read up on lease options
at the public library. If you have a real estate attorney,
ask if he or she has any prepared information you can review.
Most bookstores have a fairly hefty real estate book section
these days. Many current real estate books have at least a
section on lease options.
If you are considering a lease option, be sure you do your homework first.
And have an attorney or financial advisor on hand to review any paperwork before
you sign.
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Making
An Offer
Are low-ball offers advisable?
Can you buy homes below market?
Do I need an attorney when
I buy a house?
How do you determine the value
of a troubled property?
Is a low offer a good idea?
What are some tips on negotiation?
What are the standard contingencies?
What contingencies should be put
in an offer?
What is the difference between
list and sales prices?
What is the difference between
list price, sales price and appraised value?
Who gets the furnishings when
a home is sold?
Whose obligation is it to disclose
pertinent information about a property?
Question: Are low-ball
offers advisable?
Answer:
A low-ball offer is a term used to describe
an offer on a house that is substantially less than the asking
price.
While any offer can be presented, a low-ball offer can sour a prospective sale
and discourage the seller from negotiating at all. Unless the house is very
overpriced, the offer will probably be rejected.
You should always do your homework about comparable prices in the neighborhood
before making any offer. It also pays to know something about the seller's
motivation. A lower price with a speedy escrow, for example, may motivate a
seller who must move, has another house under contract or must sell quickly
for other reasons.
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Question: Can you buy homes below market?
Answer:
While a typical buyer may look at five
to 10 homes before making an offer, an investor who makes bargain
buys usually goes through many more. Most experts agree it takes
a lot of determination to find a real "bargain." There
are a number of ways to buy a bargain property:
- Buy a fixer-upper in a transitional
neighborhood, improve it and keep it or resell at a higher
price.
- Buy a foreclosure property (after doing
your research carefully).
- Buy a house due to be torn down and
move it to a new lot.
- Buy a partial interest in a piece of
real estate, such as part of a tenants-in-common partnership.
- Buy a leftover house in a new-home development.
Question: Do I need an attorney when I buy
a house?
Answer:
In some states, you do need an attorney
to complete a real estate transaction, but in others you do
not.
Most home buyers are capable of handling routine real estate purchase contracts
as long as they make certain they read the fine print and understand all the
terms of the contract. In particular, you should be clear on the terms of any
contingency clauses that will allow them to back out of the contract.
If you have any questions at all, it may be advisable to consult an attorney
to avoid future legal hassles. In looking for an attorney, ask friends for
recommendations or ask your real estate agent to recommend several. Call to
inquire about fees and to check on their experience. In general, more experienced
attorneys will cost more, but real estate fees as a rule are small relative
to the cost of the property you are buying.
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Question: How do you determine the value
of a troubled property?
Answer:
Buyers considering a foreclosure property
should obtain as much information as possible from the lender,
including the range of bids expected.
It also is important to examine the property. If you are unable to get into
a foreclosure property, check with surrounding neighbors about the property's
condition.
It also is possible to do your own cost comparison through researching comparable
properties recorded at local county recorder's and assessor's offices, or through
Internet sites specializing in property records.
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Question: Is a low offer a good idea?
Answer:
While your low offer in a normal market
might be rejected immediately, in a buyer's market a motivated
seller will either accept or make a counteroffer.
Full-price offers or above are more likely to be accepted by the seller. But
there are other considerations involved:
- Is the offer contingent upon anything,
such as the sale of the buyer's current house? If so, a low
offer, even at full price, may not be as attractive as an
offer without that condition.
- Is the offer made on the house as is,
or does the buyer want the seller to make some repairs or
to lower the price instead?
- Is the offer all cash, meaning the buyer
has waived the financing contingency?
If so, then an offer at less than the asking price may be more
attractive to the seller than a full-price offer with a financing
contingency.
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Question: What are some tips on negotiation?
Answer:
The more you know about a seller's motivation,
the stronger a negotiating position you are in. For example,
seller who must move quickly due to a job transfer may be amenable
to a lower price with a speedy escrow. Other so-called "motivated
sellers" include people going through a divorce or who
have already purchased another home.
Remember, that the listing price is what the seller would like to receive but
is not necessarily what they will settle for. Before making an offer, check
the recent sales prices of comparable homes in the neighborhood to see how
the seller's asking price stacks up.
Some experts discourage making deliberate low-ball offers. While such an offer
can be presented, it can also sour the sale and discourage the seller from
negotiating at all.
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Question: What are the standard contingencies?
Answer:
Most purchase offers include two standard
contingencies: a financing contingency, which makes the sale
dependent on the buyers' ability to obtain a loan commitment
from a lender, and an inspection contingency, which allows
buyers to have professionals inspect the property to their
satisfaction.
As a buyer, you could forfeit your deposit under certain circumstances, such
as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the seller's responsibilities, such things
as passing clear title, maintaining the property in its present condition until
closing and making any agreed-upon repairs to the property.
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Question: What contingencies should be put
in an offer?
Answer:
Most offers include two standard contingencies:
a financing contingency, which makes the sale dependent on
the buyers' ability to obtain a loan commitment from a lender,
and an inspection contingency, which allows buyers to have
professionals inspect the property to their satisfaction.
A buyer could forfeit his or her deposit under certain circumstances, such
as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the seller's responsibilities, such things
as passing clear title, maintaining the property in its present condition until
closing and making any agreed-upon repairs to the property.
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Question: What is the difference between
list and sales prices?
Answer:
The list price is how much a house is advertised
for and is usually only an estimate of what a seller would
like to get for the property. The sales price is the amount
a property actually sells for. It may be the same as the listing
price, or higher or lower, depending on how accurately the
property was originally priced and on market conditions.
If you are a seller, you may need to adjust the listing price if there have
been no offers within the first few months of the property's listing period.
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Question: What is the difference between
list price, sales price and appraised value?
Answer:
The list price is a seller's advertised
price, a figure that usually is only a rough estimate of what
the seller wants to get. Sellers can price high, low or close
to what they hope to get. To judge whether the list price is
a fair one, be sure to consult comparable sales prices in the
area.
The sales price is the amount of money you as a buyer would pay for a property.
The appraisal value is a certified appraiser's estimate of the worth of a property,
and is based on comparable sales, the condition of the property and numerous
other factors.
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Question: Who gets the furnishings when
a home is sold?
Answer:
It depends. Fixtures, any kind of personal
property that is permanently attached to a house (such as drapery
rods, built-in bookcases, tacked-down carpeting or a furnace)
automatically stay with the house unless specified otherwise
in the sales contract. But anything that is not nailed down
is negotiable. This most often involves appliances that are
not built in (washer, dryer, refrigerator, for example), although
some sellers will be interested in negotiating for other items,
such as a piano.
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Question: Whose obligation is it to disclose
pertinent information about a property?
Answer:
In most states, it is the seller, but obligations
to disclose information about a property vary.
Under the strictest laws, you and your agent, if you have one, are required
to disclose all facts materially affecting the value or desirability of the
property which are known or accessible only to you.
This might include: homeowners association dues; whether or not work done on
the house meets local building codes and permits requirements; the presence
of any neighborhood nuisances or noises which a prospective buyer might not
notice, such as a dog that barks every night or poor TV reception; any death
within three years on the property; and any restrictions on the use of the
property, such as zoning ordinances or association rules.
It is wise to check your state's disclosure rules prior to a home purchase.
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Negotiating & Closing
a Good Deal
Are interest rates negotiable?
Are low-ball offers advisable?
Can you buy homes below market?
Can you negotiate the price on new
homes?
Do I need an attorney when I buy a
house?
How is the price set?
How much does my real estate agent
need to know?
Is a low offer a good idea?
Is there a secret to good negotiating?
Should I include an inspection
contingency in my offer?
What are some tips on negotiation?
What contingencies should be
put in an offer?
What is the best time to buy?
What is the first step to buying
a home?
What repairs should the seller
make?
Who gets the furnishings when a home
is sold?
< Back to Home Buyers Info Center
Question: Are interest
rates negotiable?
Answer:
Some lenders are willing to negotiate on
both the loan rate and the number of points but this isn't
typical among established lenders who set their rates like
large corporations set the prices on their goods. Nevertheless,
it pays to shop around for loan rates and know the market before
you go in to talk to a lender. You should always look at the
combination of interest rate and points and get the best deal
possible.
The interest rate is much more open to negotiation on purchases that involve
seller financing. These usually are based on market rates but some flexibility
exists when negotiating such a deal.
When shopping for rates, look for published rates in local newspapers or check
the growing number of Internet sites that publish such information.
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Question: Are low-ball offers advisable?
Answer:
A low-ball offer is a term used to describe
an offer on a house that is substantially less than the asking
price.
While any offer can be presented, a low-ball offer can sour a prospective sale
and discourage the seller from negotiating at all. Unless the house is very
overpriced, the offer will probably be rejected.
You should always do your homework about comparable prices in the neighborhood
before making an y offer. It also pays to know something about the seller's
motivation. A lower price with a speedy escrow, for example, may motivate a
seller who must move, has another house under contract or must sell quickly
for other reasons.
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Question: Can you buy homes below market?
Answer:
While a typical buyer may look at
five to 10 homes before making an offer, an investor who
makes bargain buys usually goes through many more. Most experts
agree it takes a lot of determination to find a real "bargain." There
are a number of ways to buy a bargain property:
- Buy a fixer-upper in a transitional
neighborhood, improve it and keep it or resell at a higher
price.
- Buy a foreclosure property (after doing
your research carefully).
- Buy a house due to be torn down and
move it to a new lot.
- Buy a partial interest in a piece of
real estate, such as part of a tenants-in-common partnership.
- Buy a leftover house in a new-home development.
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Question: Can
you negotiate the price on new homes?
Answer:
It can be difficult to negotiate the sales
price with a developer because they may claim their prices
are based on fixed construction costs. But it doesn't hurt
to try.
Experts say builders more likely to be flexible on price at the very beginning
and the very end of a development project. Early on, most developers want to
move people in quickly so the project picks up momentum. Later, developers
may be more inclined to accept lower offers when only a few units remain.
If negotiating the price doesn't work, buyers commonly negotiate for better
amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say
a developer will rarely pass up a deal over a couple hundred dollars' worth
of carpeting, for example.
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Question: Do I need an attorney when I buy a
house?
Answer:
In some states, you do need an attorney
to complete a real estate transaction, but in others you do
not.
Most home buyers are capable of handling routine real estate purchase contracts
as long as they make certain they read the fine print and understand all the
terms of the contract. In particular, you should be clear on the terms of any
contingency clauses that will allow them to back out of the contract.
If you have any questions at all, it may be advisable to consult an attorney
to avoid future legal hassles. In looking for an attorney, ask friends for
recommendations or ask your real estate agent to recommend several. Call to
inquire about fees and to check on their experience. In general, more experienced
attorneys will cost more, but real estate fees as a rule are small relative
to the cost of the property you are buying.
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Question: How is the price set?
Answer:
It's very important to price your home according
to current market conditions. Because the real estate market
is continually changing, and market fluctuations have an effect
on property values, it's imperative to select your list price
based on the most recent comparable sales in your neighborhood.
A so-called comparative market analysis provides the background data upon which
to base your list-price decision. When you prepare to sell and are interviewing
agents, study each agent's comparable sales report (the data should be no more
than three months old).
If all agents agree on a price range for your home, go with the consensus.
Watch out for an agent whose opinion of value is considerably higher than the
others.
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Question: How much does my real estate agent
need to know?
Answer:
Real estate agents would say that
the more you tell them, the better they can negotiate on
your behalf. However, the degree of trust you have with an
agent may depend upon their legal obligation.
Agents working for buyers have three possible choices: They can represent the
buyer exclusively, called single agency, or represent the seller exclusively,
called sub-agency, or represent both the buyer and seller in a dual-agency
situation.
Some states require agents to disclose all possible agency relationships before
they enter into a residential real estate transaction. Here is a summary of
the three basic types:
- In a traditional relationship, real
estate agents and brokers have a fiduciary relationship to
the seller. Be aware that the seller pays the commission
of both brokers, not just the one who lists and shows the
property, but also to the sub-broker, who brings the ready,
willing and able buyer to the table.
- Dual agency exists if two agents working
for the same broker represent the buyer and seller in a transaction.
A potential conflict of interest is created if the listing
agent has advance knowledge of another buyer's offer. Therefore,
the law states that a dual agent shall not disclose to the
buyer that the seller will accept less than the list price,
or disclose to the seller that the buyer will pay more than
the offer price, without express written permission.
- A buyer also can hire his or her own
agent who will represent the buyer's interests exclusively.
A buyer's agent usually must be paid out
of the buyer's own pocket but the buyer can trust them with
financial information, knowing it will not be transmitted to
the other broker and ultimately to the seller.
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Question: Is a low offer a good idea?
Answer:
While your low offer in a normal market
might be rejected immediately, in a buyer's market a motivated
seller will either accept or make a counteroffer.
Full-price offers or above are more likely to be accepted by the seller. But
there are other considerations involved:
- Is the offer contingent upon anything,
such as the sale of the buyer's current house? If so, a low
offer, even at full price, may not be as attractive as an
offer without that condition.
- Is the offer made on the house as is,
or does the buyer want the seller to make some repairs or
to lower the price instead?
- Is the offer all cash, meaning the buyer
has waived the financing contingency?
If so, then an offer at less than the asking
price may be more attractive to the seller than a full-price
offer with a financing contingency.
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Question: Is there a secret to good negotiating?
Answer:
There are several cardinal rules to negotiating
effectively. One is do your homework, and learn as much about
the seller or the buyer as you can. Another is to play your
cards close to your vest and not reveal too much information
to the other party or their agent. Don't let yourself get rushed
into any decision, no matter how tempting it may be. Finally,
if you have doubts about your negotiating skill, hire someone
to help.
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Question: Should I include an inspection contingency
in my offer?
Answer:
An "inspection contingency" protects
you as a buyer in a purchase offer by allowing you to cancel
closing on the deal if an inspector finds problems with the
property.
As soon as the seller accepts a written offer, the document becomes a legally
binding contract. The purchase contract can be written to include a contingency
for any repairs found to be needed or related items the seller must take care
of before closing. If these are not dealt with, and you have such a clause
in your contract, you can delay or possibly cancel the closing. If it's not
stated in the contract, you could face losing your deposit. There also may
be costly legal implications stemming from backing out of a contract.
You usually will have the right to choose the inspector (and be responsible
for paying for the inspections). In addition to an overall inspection for structural
soundness, you can request a satisfactory pest control inspection report, roof
inspection report or contingency for no potential environmental hazards such
as asbestos or radon gas.
Contingency clauses should satisfy the concerns of both the buyer and seller.
Buyers also can protect themselves by inserting additional necessary contingencies.
Indicate which items like curtains and appliances are to remain with the house.
Then stipulate you have the right to personally inspect the home 24 hours before
closing to make sure all is in order.
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Question: What are some tips on negotiation?
Answer:
The more you know about a seller's motivation,
the stronger a negotiating position you are in. For example,
seller who must move quickly due to a job transfer may be amenable
to a lower price with a speedy escrow. Other so-called "motivated
sellers" include people going through a divorce or who
have already purchased another home.
Remember, that the listing price is what the seller would like to receive but
is not necessarily what they will settle for. Before making an offer, check
the recent sales prices of comparable homes in the neighborhood to see how
the seller's asking price stacks up.
Some experts discourage making deliberate low-ball offers. While such an offer
can be presented, it can also sour the sale and discourage the seller from
negotiating at all.
Back to top..
Question: What contingencies should be put in
an offer?
Answer:
Most offers include two standard contingencies:
a financing contingency, which makes the sale dependent on
the buyers' ability to obtain a loan commitment from a lender,
and an inspection contingency, which allows buyers to have
professionals inspect the property to their satisfaction.
A buyer could forfeit his or her deposit under certain circumstances, such
as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the sellers responsibilities, such things
as passing clear title, maintaining the property in its present condition until
closing and making any agreed-upon repairs to the property.
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Question: What is the best time to buy?
Answer:
Because many buyers prefer to move in the
spring or summer, the market starts to heat up as early as
February. Families with children are eager to buy so they can
move during summer vacation, before the new school year begins.
The market slows down in late summer before picking up again briefly in the
fall. November and December have traditionlly been slow months, although some
astute buyers look for bargains during this period.
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Question: What is the first step to buying a
home?
Answer:
Finding out what you can afford is one of
the fist steps, which can be done by pre-qualifying for a home
loan. This step will help you narrow your search for both a
neighborhood and particular houses. A pre-qualification is
a simple calculation that considers several factors, but primarily
your income. There are no guarantees with a prequalificaiton,
but it will be expected of you when you make an offer on a
home.
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Question: What repairs should the seller make?
Answer:
If you want to get top dollar for your property,
you probably need to make all minor repairs and selected major
repairs before going on the market. Nearly all purchase contracts
include an inspection clause, a buyer contingency that allows
a buyer to back out if numerous defects are found or negotiate
their repair.
The trick is not to overspend on pre-sale repairs, especially if there are
few houses on the market but many buyers willing to buy at almost any price.
On the other hand, making such repairs may be the only way to sell your house
in a down market.
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Question: Who gets the furnishings when a home
is sold?
Answer:
It depends. Fixtures, any kind of personal
property that is permanently attached to a house (such as drapery
rods, built-in bookcases, tacked-down carpeting or a furnace)
automatically stay with the house unless specified otherwise
in the sales contract. But anything that is not nailed down
is negotiable. This most often involves appliances that are
not built in (washer, dryer, refrigerator, for example), although
some sellers will be interested in negotiating for other items,
such as a piano
Back to top..
Property
Taxes
Are property taxes deductible?
Are taxes on second homes deductible?
Do all loans require impound accounts?
How do property taxes work?
How is a home's value determined?
What is an impound account?
Where can I learn more about
appealing my property taxes?
Question: Are property
taxes deductible?
Answer:
Property taxes on all real estate, including
those levied by state and local governments and school districts,
are fully deductible against current income taxes.
Back to top...
Question: Are taxes on second homes deductible?
Answer:
Mortgage interest and property taxes are
deductible on a second home if you itemize. Check with your
accountant or tax adviser for specifics.
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Question: Do all loans require impound accounts?
Answer:
If you are taking out a FHA or VA loan,
the lender can require an impound account to pay real estate
taxes and hazard insurance premiums, as with a standard loan.
Most conventional loans do not require an impound account.
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Question: How do property taxes work?
Answer:
Property taxes are what most homeowners
in the United States pay for the privilege of owning a piece
of real estate, on average 1.5 percent of the property's current
market value. These annual local assessments by county or local
authorities help pay for public services and are calculated
using a variety of formulas.
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Question: How is a home's value determined?
Answer:
You have several ways to determine the value
of a home.
An appraisal is a professional estimate of a property's market value, based
on recent sales of comparable properties, location, square footage and construction
quality. This service varies in cost depending on the price of the home. On
average, an appraisal costs about $300 for a $250,000 house.
A comparative market analysis is an informal estimate of market value performed
by a real estate agent based on similar sales and property attributes. Most
agents offer free analyses in the hopes of winning your business.
You also can get a comparable sales report for a fee from private companies
that specialize in real estate data or find comparable sales information available
on various real estate Internet sites.
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Question: What is an impound account?
Answer:
An impound account is a trust account established
by the lender to hold money to pay for real estate taxes, and
mortgage and homeowners insurance premiums as they are received
each month.
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Question: Where can I learn more about appealing
my property taxes?
Answer:
Contact your local tax assessor's
office to see what procedures to follow to appeal your property
tax assessment. You may be able to appeal your assessment
informally. Mostly likely, however, you will have to go through
a formal tax-appeal processes, which begin with an appeal
filed with the appropriate assessment appeals board.
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Taxes
Considerations
Are points deductible?
Are seller-paid points deductible?
Are taxes on second homes deductible?
Are there tax credits for first-time
home buyers?
Explain the home mortgage deduction
. .
How are fees and assessments figured
in a homeowners association?
How do I reach the IRS?
How do I save on taxes?
How do you choose between buying
and renting?
Should I buy a vacation home?
What are the rules for mortgage credit
certificates?
What home-buying costs are deductible?
What is the Mortgage Credit Certificate
program?
Question: Are points
deductible?
Answer:
If you are a buyer, and you or the seller
pays points, they are deductible for the year in which they
are paid only. You also can deduct any points you pay when
you refinance your home, but you must do so ratably over the
life of the loan. Consult your tax or financial advisor.
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Question: Are seller-paid points deductible?
Answer:
As of Jan. 1, 1991, homeowners have been
able to deduct points paid by the seller. This deduction previously
was reserved only for points actually paid by the buyer.
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Question: Are there tax credits for first-time
home buyers?
Answer:
Many city and county governments offer
Mortgage Credit Certificate programs, which allow first-time
home buyers to take advantage of a special federal income
tax write-off, which makes qualifying for a mortgage loan
easier.
Requirements vary from program to program. People wanting to apply should contact
their local housing or community development office.
Here is a list of four general requirements to keep in mind:
- Some credit may be claimed only on your
owner-occupied principal residence.
- There are maximum income limits, which
vary by locality and family size.
- You must be a first-time home buyer,
which means you must not have had any kind of ownership interest
in a principal residence during the past three years. This
restriction may be waived, however, if you are buying property
within certain target areas.
- Allocations must be available.
A local MCC program may have to decline new applications when
it runs out of funds.
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Question: Explain the home mortgage
deduction . .
Answer:
The mortgage interest deduction entitles
you to completely deduct the interest on your home loan
for the year in which you paid it. Mortgage interest is
not a dollar-for-dollar tax cut; it reduces taxable income.
You must itemize deductions in order to do this, which
means your total deductions must exceed the IRS's standard
deduction.
Another point to remember is that the amount of interest on your loan goes
down each year you pay on your mortgage (all standard home-loan formulas pay
off interest first before significantly paying into principal). That's why
paying extra on your principal every year can help you pay off your loan early.
Back to top...
Question: How are fees and assessments
figured in a homeowners association?
Answer:
Homeowners association fees are considered
personal living expenses and are not tax-deductible. If,
however, an association has a special assessment to make
one or more capital improvements, condo owners may be
able to add the expense to their cost basis. Cost basis
is a term for the money an owner spends for permanent
improvements throughout their time in the home and is
used to reduce eventual capital gains taxes when the property
is sold. For example, if the association puts a new roof
on a building, the expense could be considered part of
a condo owner's cost basis only if they lived directly
underneath it. Overall improvements to common areas, such
as the installation of a swimming pool, need to be considered
on a case-by-case basis but most can be included in the
cost basis of any owner who can show their home directly
benefits from the work.
To find out more about how the IRS views condo association fees, look online
to IRS Publication 17, "Your Federal Income Tax," which includes
a section on condos. Or order a copy by calling (800) TAX-FORM.
Back to top...
Question: How do I reach the IRS?
Answer:
To reach the Internal Revenue Service,
call (800) TAX-1040; irs.gov.
Back to top...
Question: How do I save on taxes?
Answer:
Here are some ways to save money
on taxes:
- Mortgage interest on loans up to
$1 million is completely deductible for the year in
which you pay it to buy, build or improve your principal
residence plus a second home.
- Points, or loan origination fees,
also are deductible no matter who pays them, the buyer
or the seller.
- Most homeowners, except the
wealthy and those living in high-priced markets, no
longer need to worry about capital gains taxes. The
exemption has been raised to $500,000 for married
couples and $250,000 for single owners. It can be
taken every two years. Homeowners should always keep
all receipts of permanent home improvements and of
mortgage closing costs. If you do have to pay capital
gains taxes, these costs can be added to your adjusted
cost basis. Consult your tax adviser for more information.
Resources:
- "Tax Information for
First-Time Homeowners," IRS Publication 530,
and "Selling Your Home," IRS Publication
523.
Call (800) TAX-FORM to order or download from irs.gov.
Back to top...
Question: How do you choose between
buying and renting?
Answer:
Home ownership offers tax benefits
as well as the freedom to make decisions about your home.
An advantage of renting is not worrying about maintenance
and other financial obligations associated with owning
property.
There also are a number of economic considerations. Unlike renters, home owners
who secure a fixed-rate loan can lock in their monthly housing costs and make
prudent investment plans knowing these expenses will not increase substantially.
Home ownership is a highly leveraged investment that can yield substantial
profit on a nominal front-end investment. However, such returns depend on home-price
appreciation.
Back to top...
Question: Should I buy a vacation home?
Answer:
Today a vacation home can be purchased
for investment purposes as well as enjoyment. And yes,
there are tax benefits.
Some people buy a vacation home with the idea of turning it into a permanent
retirement home down the road, which puts them ahead on their payments. Another
benefit is that the interest and property taxes are tax deductible, which helps
to offset the cost of paying for a second home. A vacation home also can be
depreciated if you live in it fewer than 14 days a year, or 10 percent of the
rented days - whichever is greater.
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Question: What are the rules for mortgage
credit certificates?
Answer:
To qualify for a mortgage credit certificate,
both your income and the purchase price of the home must
fall within established city guidelines. These guidelines
vary by city but generally only permit people who earn
an average income or slightly higher than average income.
A limited number of cities have authorized the MCC program. Contact your municipal
housing department for more information.
Back to top...
Question: What home-buying costs are
deductible?
Answer:
Any points you or the seller pay to
purchase your home loan are deductible for that year.
Property taxes and interest are deductible every year.
But while other home-buying costs (closing costs in particular) are not immediately
tax-deductible, they can be figured into the adjusted cost basis of your home
when you go to sell (any significant home improvements also can be calculated
into your basis). These fees would include title insurance, loan-application
fee, credit report, appraisal fee, service fee, settlement or closing fees,
bank attorney's fee, attorney's fee, document preparation fee and recording
fees. Points paid when you refinance an existing mortgage must be deducted
ratably over the life of the new loan.
Back to top...
Question: What is the Mortgage Credit
Certificate program?
Answer:
The Mortgage Credit Certificate
program allows first-time home buyers to take advantage
of a special federal income tax credit. This program
allows buyers credit in qualifying for the tax advantage
they'll receive after they purchase the home.
The amount of the credit is tied to a local formula that every city with an
MCC program must follow. A MCC credit, which can total $2,000 or more, reduces
the borrower's federal tax liability by an amount tied to how much one pays
in annual mortgage interest. Both the borrower's income and the purchase price
of the home must fall within established guidelines.
To see if your community has an MCC program, call your local housing or redevelopment
agency. You also may inquire with your real estate broker or the local association
of Realtors.
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Working
With A Real Estate Agent
Can I use an agent for a new home?
How do you find a good agent?
How much does my real estate agent
need to know?
What about a buyer's agent?
Where can I get information on buyer
agents?
Question: Can I use
an agent for a new home?
Answer:
Yes, however buyers should be aware of the
differences inherent in working with sales agents who are employed
by the developer, rather than traditional real estate agents.
Builders commonly require that an outside agent be present, and sign in, the
first time a prospective purchaser visits a site before payment of commission
even is discussed. At times when buyers use an advertisement to find the development
themselves first, builders can refuse to pay any commission regardless of how
helpful an agent may become later in the process. It is advisable to call the
development first and inquire about their policy on compensating real estate
agents if you are using one.
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Question: How do you find a good agent?
Answer:
Getting a recommendation from a friend or
work colleague is an excellent way to find a good agent, whether
you are a buyer or a seller. Be sure to ask if they would use
the agent again.
You also can call the managers of reputable real estate firms and ask them
for recommendations of agents who have worked in your neighborhood.
A good agent typically works full-time and has several years of experience
at minimum.
If you are a buyer, you don't usually pay for your agent's services (in the
form of a commission, or percentage of the sales price of the home). All agents
in a transaction usually are paid by the seller from the sales proceeds. In
many states, this means that your agent legally is acting as a subagent of
the seller. But in some states, it's legal for an agent to represent the buyers
exclusively in the transaction and be paid a commission by the sellers. You
also can hire and pay for your own agent, known as buyer's brokers, whose legal
obligation is exclusively to you.
If you are a seller, you should interview at least three agents, all of whom
should make a sales presentation including a comparative market analysis of
local home prices in your area. The best choice isn't always the agent with
the highest asking price for your home. Be sure to evaluate all aspects of
the agent's marketing plan and how well you think you can work with the individual.
Back to top...
Question: How much does my real estate agent
need to know?
Answer:
Real estate agents would say that
the more you tell them, the better they can negotiate on
your behalf. However, the degree of trust you have with an
agent may depend upon their legal obligation.
Agents working for buyers have three possible choices: They can represent the
buyer exclusively, called single agency, or represent the seller exclusively,
called sub-agency, or represent both the buyer and seller in a dual-agency
situation.
Some states require agents to disclose all possible agency relationships before
they enter into a residential real estate transaction. Here is a summary of
the three basic types:
- In a traditional relationship, real
estate agents and brokers have a fiduciary relationship to
the seller. Be aware that the seller pays the commission
of both brokers, not just the one who lists and shows the
property, but also to the sub-broker, who brings the ready,
willing and able buyer to the table.
- Dual agency exists if two agents working
for the same broker represent the buyer and seller in a transaction.
A potential conflict of interest is created if the listing
agent has advance knowledge of another buyer's offer. Therefore,
the law states that a dual agent shall not disclose to the
buyer that the seller will accept less than the list price,
or disclose to the seller that the buyer will pay more than
the offer price, without express written permission.
- A buyer also can hire his or her own
agent who will represent the buyer's interests exclusively.
A buyer's agent usually must be paid out of the buyer's own
pocket but the buyer can trust them with financial information,
knowing it will not be transmitted to the other broker and
ultimately to the seller.
Back to top...
Question: What about a buyer's agent?
Answer:
In many states, it's now common for an agent
to represent the buyers exclusively in the transaction and
be paid a commission by the sellers. More and more buyers are
going a step further, hiring and paying for their own agent,
referred to as buyers brokers.
Back to top...
Question: Where can I get information
on buyer agents?
Answer:
For information on buyer agents, contact
the your area's Realtor association or National Association
of Exclusive Buyers Agents at 191 Clarksville Road, Princeton
Junction, NJ 08550; (800) 786-1570; www.naeba.org.
Back to top...
How To Buy Your Home: Condos & Townhomes
Are condominiums risky to buy?
Are condos a good investment?
Are one-bedroom condominiums a good
investment?
Can condos ban smoking?
Do condos have to be made accessible
to the disabled?
How do I figure out the homeowners association?
How do you choose between condos and
single-family homes?
Where do I get information on condo
association laws?
Where do I get information on
condos?
Question: Are condominiums
risky to buy?
Answer:
While condos never had the kind of appreciation
experienced by single-family homes in the go-go 1980s, most
ultimately have not lost value, say some experts. And with
high prices in many urban markets and more single home buyers
in the market than ever before, the market for condos is strong.
As with any home purchase, you should do your homework about the neighborhood
or development before you buy. In the case of condominiums, it is important
to read the past six months of homeowners association minutes to see how effective
the board is and to learn about any possibly detracting issues (such as protracted
litigation with the developer).
The condominium community has worked hard in the last few years to overcome
image problems brought on by disputes and lawsuits. Associations are becoming
more sophisticated about property management and taking steps to prevent legal
problems and disputes.
Other resources:
* Community Associations Institute, 225 Reinekers Lane, Suite 300, Alexandria,
VA 22314; (703) 548-8600; caionline.org.
* "The Condominium Bluebook," Branden E. Bickel, Piedmont Press;
2003; condobook.com.
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Question: Are condos a good investment?
Answer:
Condominiums have held their value as an
investment despite economic downturns and problems with some
associations. In fact, condos have appreciated more in the
past few years than when they first came on the scene in the
late 1970s and early 1980s, experts say.
While there are lots of reports about homeowners association disputes and construction-defect
problems, the industry has worked hard to turn its image around. Elected volunteers
who serve on association boards are better trained at handling complex budget
and legal issues, for example, while many boards go to great lengths to avoid
the kind of protracted and expensive litigation that has hurt resale value
in the past.
Meanwhile, changing demographics are making condominiums more attractive investments
for single home buyers, empty nesters and first-time buyers in expensive markets.
Back to top...
Question: Are one-bedroom condominiums a
good investment?
Answer:
One-bedroom condominiums historically have
not been considered as good an investment as condos with two
bedrooms or more. But in high-cost markets, such as Manhattan
or the San Francisco Bay Area, one-bedroom condos have proven
to be equally good investments. Helping that along are changing
demographic trends. With more single home buyers in the market
today than at any time in history, there is more demand for
one-bedroom condos.
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Question: Can condos ban smoking?
Answer:
A homeowners association's board of directors
can restrict smoking if it applies to indoor common spaces
such as hallways or recreation rooms. Outdoor spaces are a
different story, say legal experts. Any restriction would probably
hinge on local laws (i.e. if a city banned smoking outdoors,
a homeowners association probably could restrict smoking in
its outdoor spaces).
Typical covenants, codes and restrictions (CC&Rs), which govern condo associations,
give the board authority to make and enforce reasonable rules for the use of
common property. But that would not apply to interior spaces owned by smokers
themselves. Resources:
* Common-interest development brochure available free from California Department
of Real Estate, Book Orders, P.O. Box 187006, Sacramento, CA 95818-7006; (916)
227-0852; dre.ca.gov.
* Various Internet sites specializing in common-interest developments, such
as those operated by the Community Associations Institute and CIDNetworks.
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Question: Do condos have to be made accessible
to the disabled?
Answer:
The 1990 Americans with Disabilities Act
does not require strictly residential apartments and single-family
homes to be made accessible. But all new construction of public
accommodations or commercial projects (such as a government
building or a shopping mall) must be accessible. New multi-family
construction also falls into this category.
In all states, the Federal Fair Housing Act provides protection against discrimination
for people with physical or mental disabilities. Discrimination includes the
refusal to make reasonable modifications to buildings that aren't accessible
to the disabled.
Two educational brochures, "Housing Rights" and "Discrimination
is Against the Law," are available through the Department of Fair Employment
and Housing by calling (916) 227-0551. California residents can dial toll free
(800) 884-1684. dfeh.ca.gov
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Question: How do you choose between condos
and single-family homes?
Answer:
Using appreciation as a measure, condominiums
in some areas have been as profitable an investment as single-family
homes in the past five years. And in some markets, condos appreciated
even more, according to some experts.
While single-family homes have been the preferred investment by home buyers,
changing demographics are helping make condos more popular, especially among
single home buyers, empty nesters and first-time buyers in high-priced markets.
Also, the condominium community has worked hard in the last few years to overcome
image problems brought on by homeowners association and developer disputes
as well as all too frequent construction-defect litigation.
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Question: Where do I get information on
condo association laws?
Answer:
Resources:
* "The Condominium Bluebook" by Branden E. Bickel, B& Piedmont
Press; 2000. Order
online.
* Community Associations Institute, Alexandria, VA; (703) 548-8600; caionline.org.
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Question: Where do I
get information on condos?
Answer:
The major interest group for condominium
projects and other so-called common-intereset developments
is the nonprofit Community Associations Institute, 225 Reinekers
Lane, Suite 360, Alexandria, VA 22314; (703) 548-8600; caionline.org.
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How To Buy Your Home: Fixer
Uppers
Are fixers a good idea in bad areas?
Are there any special tax breaks for
historic rehab?
Are there gov't programs for rehab?
Are there programs for fixer-uppers?
What are some guidelines to
follow when trying to find a contractor?
What are some resources for info
on home improvements?
What kind of return is there on
remodeling jobs?
Where are fixer-uppers found?
< Back to Home Buyers Info Center
Question: Are fixers
a good idea in bad areas?
Answer:
It depends. Distressed properties or fixer-uppers
can be found anywhere, even in wealthier neighborhoods. Such
properties are poorly maintained and have a lower market value
than other houses in the neighborhood.
Many experts recommend that before you make such an investment, first find
the least desirable house in the best neighborhood. Then do the math to see
if what it would cost to bring up the value of that property to its full potential
market value is within your budget. If you are a novice buyer, it may be wiser
to look for properties that only need cosmetic fixes rather than run-down houses
that need major structural repairs.
Back to top...
Question: Are there any special tax breaks
for historic rehab?
Answer:
Qualified rehabilitated buildings and certified
historic structures currently enjoy a 20 percent investment
tax credit for qualified rehabilitation expenses. A historic
structure is one listed in the National Register of Historic
Places or so designated by an appropriate state or local historic
district also certified by the government.
The tax code does not allow deductions for the demolition or significant alternation
of a historic structure.
Resources:
National Trust for Historic Preservation, 1785 Massachusetts Ave, NW, Washington,
DC 20036-2117; (202) 588-6000, nationaltrust.org.
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Question: Are there gov't programs for rehab?
Answer:
The U.S. Department of Housing and Urban
Development's Section 203 (K) rehabilitation loan program is
designed to facilitate major structural rehabilitation of houses
with one to four units that are more than one year old. Condominiums
are not eligible.
The 203(K) loan is usually done as a combination loan to purchase a fixer-upper
property "as is" and rehabilitate it, or to refinance a temporary
loan to buy the property and do the rehabilitation. It can also be done as
a rehabilitation-only loan.
Plans and specifications for the proposed work must be submitted for architectural
review and cost estimation. Mortgage proceeds are advanced periodically during
the rehabilitation period to finance the construction costs.
For a list of participating lenders, call HUD at (202) 708-1112.
If you are a veteran, loans from the U.S. Department of Veterans Affairs also
can be used to buy a home, build a home, improve a home or to refinance an
existing loan. VA loans frequently offer lower interest rates than ordinarily
available with other kinds of loans. To qualify for a loan, the first step
is to apply for a Certificate of Eligibility.
Another program is the Fedeal Housing Administration's Title 1 FHA loan program.
Resources:
Rehab a Home With HUD's 203(K)" brochure, U.S. Department of Housing and
Urban Development, Washington, D.C.; brochure online.
Back to top...
Question: Are there programs for fixer-uppers?
Answer:
If you need home loan to buy a "fixer-upper" and
remodel it, look at the U.S. Department of Housing and Urban
Development's Section 203(K) loan program. The program is designed
to facilitate major structural rehabilitation of houses with
one to four units that are more than one year old. Condominiums
are not eligible.
A 203(K) loan is usually done as a combination loan to purchase a "fixer-upper" property "as
is" and rehabilitate it, or to refinance a temporary loan to buy the property
and do the rehabilitation. It can also be done as a rehabilitation-only loan.
Investors no longer may participate - only owner-occupants. Owner-occupants
are required to come up with only 3 to 5 percent. HUD requires that a minimum
of $5,000 be spent on improvements.
Two appraisals are required. Plans and specifications for the proposed work
must be submitted for architectural review and cost estimation. Mortgage proceeds
are advanced periodically during the rehabilitation period to finance the construction
costs.
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Question: What are some guidelines to follow
when trying to find a contractor?
Answer:
While hiring contractors recommended by
friends is usually a safe route, never hire a construction
professional without first checking him or her out. If your
state has a licensing board for contractors, call to find out
if there are any outstanding complaints against that license
holder. Also, call your local Better Business Bureau to see
if there are any complaints on file.
If you are satisfied with the answers you find there, interview the contractor
candidates. Ask what kind of worker's compensation insurance they carry and
get policy and insurance company phone numbers so you can verify the information.
If they are not covered, you could be liable for any work-related injury incurred
during the project. Also be sure that the contractor has an umbrella general
liability policy.
If they pass the insurance hurdle, next check some of their references. A good
contractor will be happy to provide as many as you want.
Finally, don't let yourself be rushed into making a decision no matter how
competitive the market may seem. Also, never pay a deposit to a contractor
at the first meeting. You may end up losing your money.
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Question: What are some resources for info
on home improvements?
Answer:
If you're getting ready to embark on a home
improvement project involving contracting help, "Ready,
Set, Build: A Consumer's Guide to Home Improvement Planning
Contracts" lays out a road map for selecting the right
contractor, obtaining competitive bids up to what to include
in a contract. There also is information on consumer rights,
liens and financing.
The book is available for $9.95 through Consumer Press and Women's Publications,
Inc., 13326 Southwest 28th St., Fort Lauderdale, FL 33330-1102; (954) 370-9153,
bookguest@aol.com.
Remodeling magazine's annual "Cost vs. Value Report", available for
a nominal fee from the magazine; call (717) 399-1900, ext. 146 or visit Online
Store to order.
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Question: What kind of return is there on
remodeling jobs?
Answer:
Remodeling magazine produces an annual "Cost
vs. Value Report'' that answers just that question. The most
important point to remember is that remodeling a home not only
improves its livability for you but its curb appeal with a
potential buyer down the road.
Most recently, the highest remodeling paybacks have come from updating kitchens
and baths, home-office additions and extra amenities in older homes. While
home offices are a relatively new remodeling trend, for example, you could
expect to recoup 58 percent of the cost of adding a home office, according
to the survey.
Back to top...
Question: Where are fixer-uppers found?
Answer:
You can find distressed properties
or fixer-uppers in most communities, even wealthier neighborhoods.
A distressed property is one that has been poorly maintained
and has a lower market value than other houses in the immediate
area.
Ascertaining whether the property you're interested in is a wise investment
takes some work. You need to figure what the average house in a given area
sells for, as well as what the most desirable houses in that area are like
and what they cost.
Some experts suggest that buyers who take this route try to find a "cosmetic
fixer" that can be completely refurbished with paint, wallpaper, new floor
and window coverings, landscaping and new appliances. You should avoid run-down
houses that need major structural repairs. A house price that looks too good
to be true probably is. A smart buyer will find out why before buying it.
The basic strategy for a fixer is to find the least desirable house in the
most desirable neighborhood, and then decide if the expenses needed to bring
the value of that property up to its full potential market value are within
one's rehab budget.
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How To Buy Your Home: Forclosures
Are foreclosures an option?
Can I get a HUD home for as little as
$100 down?
Do you have to buy HUD homes through
a realty agent?
How do you find government-repossessed
homes?
How do you get financing for a foreclosure?
What about buying a foreclosure "as
is"?
What happens at a trustee sale?
What types of foreclosure are there?
Where can you find foreclosed HUD homes?
Where can you find foreclosures?
Where do I learn about HUD foreclosures?
Question: Are foreclosures
an option?
Answer:
A foreclosure property is a home that has
been repossessed by the lender because the owners failed to
pay the mortgage. Thousands of homes end up in foreclosure
every year. Economic conditions affect the number of foreclosures,
too. Many people lose their homes due to job loss, credit problems
or unexpected expenses.
It is wise to be cautious when considering a foreclosure. Many experts, in
fact, advise inexperienced buyers to hire an expert to take them through the
process. It is important to have the house thoroughly inspected and to be sure
that any liens, undisclosed mortgages or court judgements are cleared or at
least disclosed.
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Question: Can I get a HUD home for as little
as $100 down?
Answer:
If you are strapped for cash and looking
for a bargain, you may be able to buy a foreclosure property
acquired by the U.S. Department of Housing and Urban Development
for as little as $100 down.
With HUD foreclosures, down payments vary depending on whether the property
is eligible for FHA insurance. If not, payments range from 5 to 20 percent.
But when the property is FHA-insured, the down payment can go much lower.
Each offer must be accompanied by an "earnest money" deposit equal
to 5 percent of the bid price, not to exceed $2,000 but not less than $500.
The U.S. Department of Veterans Affairs also offers foreclosure properties
which can be purchased directly from the VA often well below market value and
with a down payment amount as low as 2 percent for owner-occupants. Investors
may be required to pay up to 10 percent of the purchase price as a down payment.
This is because the VA guarantees home loans and often ends up owning the property
if the veteran defaults.
If you are interested in purchasing a VA foreclosure, call (800) 827-1000 or
visit foreclosurefreesearch.com for
a current listing. About 100 new properties are listed every two weeks.
You should be aware that foreclosure properties are sold "as is," meaning
limited repairs have been made but no structural or mechanical warranties are
implied.
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Question: Do you have to buy HUD homes through
a realty agent?
Answer:
You can only purchase a U.S. Department
of Housing and Urban Development property through a licensed
real estate broker. HUD will pay the broker's commission up
to 6 percent of the sales price.
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Question: How do you find government-repossessed
homes?
Answer:
The U.S. Department of Housing and Urban
Development acquires properties from lenders who foreclose
on mortgages insured by HUD. These properties are available
for sale to both homeowner-occupants and investors.
You can only purchase HUD-owned properties through a licensed real estate broker.
HUD will pay the broker's commission up to 6 percent of the sales price.
Down payments vary depending on whether the property is eligible for FHA insurance.
If not, payments range from the conventional market's 5 to 20 percent.
One caution. HUD homes are sold "as is," meaning limited repairs
have been made made but no structural or mechanical warranties are implied.
Back to top...
Question: How do you get financing for a
foreclosure?
Answer:
One reason there are few bidders at foreclosure
sales is that it is next to impossible to get financing for
such a property. You generally need to show up with cash and
lots of it, or a line of credit with your bank upon which you
can draw cashier's checks.
Back to top...
Question: What about buying a foreclosure "as
is"?
Answer:
Buying a foreclosure property can be risky,
especially for the novice. Usually, you buy a foreclosure property
as is, which means there is no warranty implied for the condition
of the property (in other words, you can't go back to the seller
for repairs). The condition of foreclosure properties is usually
not known because an inspection of the interior of the house
is not possible before the sale.
In addition, there may be problems with the title, though that is something
you can check out before the purchase.
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Question: What happens at a trustee sale?
Answer:
Trustee sales are advertised in advance
and require an all-cash bid. The sale is usually conducted
by a sheriff, a constable or lawyer acting as trustee. This
kind of sale, which usually attracts savvy investors, is not
for the novice.
In a trustee sale, the lender who holds the first loan on the property starts
the bidding at the amount of the loan being foreclosed. Successful bidders
receive a trustee's deed.
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Question: What types of foreclosure are
there?
Answer:
Judicial foreclosure action is a proceeding
in which a mortgagee, a trustee or another lienholder on property
requests a court-supervised sale of the property to cover the
unpaid balance of a delinquent debt.
Nonjudicial foreclosure is the process of selling real property under a power
of sale in a mortgage or deed of trust that is in default. In such a foreclosure,
however, the lender is unable to obtain a deficiency judgment, which makes
some title insurance companies reluctant to issue a policy.
Back to top...
Question: Where can you find foreclosed
HUD homes?
Answer:
The U.S. Department of Housing and Urban
Development acquires properties from lenders who foreclose
on mortgages insured by HUD. These properties are available
for sale to both homeowner-occupants and investors.
You can only buy HUD-owned properties through a licensed real estate broker,
whose commission will be paid by HUD.
Down payments vary depending on whether the property is eligible for FHA insurance.
If not, payments range 5 to 20 percent. When the property is FHA-insured, the
down payment can go much lower. Each accepted offer must be accompanied by
an "earnest money" deposit equal to 5 percent of the bid price not
to exceed $2,000, but not less than $500.
You should be aware that HUD homes are sold "as is," meaning limited
repairs have been made but no structural or mechanical warranties are implied.
Back to top...
Question: Where can you find foreclosures?
Answer:
In most states, a foreclosure notice must
be published in the legal notices section of a local newspaper
where the property is located or in the nearest city. Also,
foreclosure notices are usually posted on the property itself
and somewhere in the city where the sale is to take place.
When a homeowner is late on three payments, the bank will record a notice of
default against the property. When the owner fails to pay up, a trustee sale
is held, and the property is sold to the highest bidder. The financial institution
that has initiated foreclosure proceedings usually will set the bid price at
the loan amount.
Despite these seemingly straightforward rules, buying foreclosures is not easy
as it may sound. Sophisticated investors use the technique so novices may find
themselves among stiff competition.
Resources:
* "The Smart Money Guide to Bargain Homes, How to Find and Buy Foreclosures," James
I. Wiedemer, Dearborn Financial Publishing, Chicago; 1994.
* "Real Estate Principles," Charles O. Stapleton III, Thomas Moran
and Martha R. Williams, Dearborn Financial Publishing, Chicago; 2001. Purchase
online.
* "Real Estate Investing From A to Z," William H. Pivar, McGraw-Hill,
2003. Purchase
online.
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Question: Where do I learn about HUD foreclosures?
Answer:
One good source is their web page hud.gov.
Back to top...
How To Buy Your Home: New
Homes & Vacation Homes
Can you negotiate the price on new homes?
Do builders give financing?
Should I buy a vacation home?
Should I hire a home inspector for a
new home?
What about new versus previously owned?
What are considerations to buying a new
home?
What are some new-home cautions?
What do you think of a vacation home
as an investment?
What is the return on new versus previously
owned homes?
Where can I get a list of home builders?
Question: Can you
negotiate the price on new homes?
Answer:
It can be difficult to negotiate the sales
price with a developer because they may claim their prices
are based on fixed construction costs. But it doesn't hurt
to try.
Experts say builders more likely to be flexible on price at the very beginning
and the very end of a development project. Early on, most developers want to
move people in quickly so the project picks up momentum. Later, developers
may be more inclined to accept lower offers when only a few units remain.
If negotiating the price doesn't work, buyers commonly negotiate for better
amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say
a developer will rarely pass up a deal over a couple hundred dollars' worth
of carpeting, for example.
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Question: Do builders give financing?
Answer:
Builders often include financing programs
to help move more buyers into a project early on. If it's a
buyer's market in your area, you can be sure that developers
will offer incentives such as low-down-payment financing.
Back to top...
Question: Should I buy a vacation home?
Answer:
Today a vacation home can be purchased for
investment purposes as well as enjoyment. And yes, there are
tax benefits.
Some people buy a vacation home with the idea of turning it into a permanent
retirement home down the road, which puts them ahead on their payments. Another
benefit is that the interest and property taxes are tax deductible, which helps
to offset the cost of paying for a second home. A vacation home also can be
depreciated if you live in it fewer than 14 days a year, or 10 percent of the
rented days - whichever is greater.
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Question: Should I hire a home inspector
for a new home?
Answer:
Most experts recommend having a home inspected,
new or old. For new home, ask the builder to provide copies
of any inspection reports on the property, architectural plans,
surveys and pertinent construction documents for your inspector
to review. Your inspector should either be a professional home
inspector, an engineer, an architect or a contractor.
If you hire a professional inspector, look for one who belongs to one of the
home inspection trade organizations. The American Society of Home Inspectors
(ASHI) has developed formal inspection guidelines and a professional code of
ethics for its members. Membership to ASHI is not automatic; proven field experience
and technical knowledge about structures and their various systems and appliances
are a prerequisite.
Rates for the service vary greatly. Many inspectors charge about $400, but
costs go up with the scope of the inspection.
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Question: What about new versus previously
owned?
Answer:
Although new homes typically have a higher
sales price than comparable existing homes, buyers are willing
to spend more upfront with an understanding that part of what
they are paying for is assured low maintenance costs. A builder's
warranty, along with brand-new roof, appliances, furnace and
other operating systems that make major repairs unnecessary,
work together to counteract possible slower appreciation initially.
Data from the U.S. Census Bureau's American Housing Survey suggest that operating
costs per house are lowest for brand-new homes, slightly higher for relatively
new existing homes but lower on average for older existing homes. Measured
per square foot of living space, however, operating costs are consistently
higher for progressively older existing homes.
Utility costs are the largest component of operating costs. Energy consumption
per square foot depends on size of the home, insulation, window quality, air
leakage and efficiency of the furnace. Operating costs also include expenditures
for both routine maintenance and major repairs.
Back to top...
Question: What are considerations to buying
a new home?
Answer:
Builders may have a target market in mind
for their new-home projects. Some may tout communities as glamorous
to upscale urban professionals seeking amenities such as a
golf course, hot tubs and tennis courts. Yet a playground and
swimming pool might be central to a project geared toward families
while the next one offers seniors a walking trail and an easy-to-care-for
yard.
Do not be tempted to move into a "glamorous" community where you
might be able to afford the house but not the lifestyle. In addition, similar-looking
new houses often come complete with restrictions imposed by the developer on
house color, landscaping, renovations and anything else a homeowner possibly
could do to make their house deviate from the preferred look.
Marketing experts try to appeal to buyer's tastes by their promoting images
for their developments. Don't buy into it. Form your own opinions and only
buy a home where you feel comfortable. After all, you're going to have to live
there.
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Question: What are some new-home cautions?
Answer:
When you buy a resale home, you can find
out a lot more about the property and the neighborhood before
you buy than when you buy a new home.
Land to support new-home developments usually
is located on the outskirts of town. Potential buyers should
ask the developer about future access to public transit, entertainment
activities, shopping centers, churches and schools. Find out
how far it is to the nearest library, for example.
Local zoning ordinances also should be reviewed. A rather remote area can turn
into a fast-food-chain haven within a couple of years. Try to ensure that the
neighborhood, if not strictly residential, will not begin sprawling out of
control.
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Question: What do you think of a vacation
home as an investment?
Answer:
You can buy a vacation home today for investment
purposes as well as enjoyment. And yes, there are tax benefits.
Some people buy a vacation home to use as a permanent retirement home later,
which allows them to get ahead on their payments. Another benefit is that the
interest and property taxes on a vacation home are tax-deductible.
Some real estate experts predict that vacation homes will appreciate in value
due to rising demand from the aging Baby Boom generation. You also can depreciate
the property if you live in the house fewer than 14 days a year, or 10 percent
of the number of rented days - whichever is greater.
You also need to consider whether you can afford to carry two mortgages, pay
for the extra utilities and maintenance costs, and how this investment fits
into your total personal finance picture.
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Question: What is the return on new versus
previously owned homes?
Answer:
Buying into a new-home community may seem
riskier than purchasing a house in an established neighborhood,
but any increase in home value depends upon the same factors:
quality of the neighborhood, growth in the local housing market
and the state of the overall economy.
One survey by the National Association of Realtors shows that resale homes
do have an edge over new homes. The trade group's figures show the median price
of resale homes increased4.3 percent between 1999 and 2000, compared to 2.8
percent for new homes in the same period.
Back to top...
Question: Where can I get a list of home
builders?
Answer:
For a list of home builders, contact
the National Association of Home Builders at 1201 15th St.,
N.W., Washington, DC 20005; (800) 368-5242, nahb.org; or
your local Building Industry Association office.
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How To Buy Your Home: What
You Can Afford
How do you determine the value of a troubled
property?
How long do bankruptcies and foreclosures
stay on a credit report?
How much does my real estate agent need
to know?
How much will I spend on maintenance expenses?
What can I afford?
What is Fannie Mae's low-down program?
What is the standard debt-to-income ratio?
When is the best time to buy?
Where do I get information on housing
market stats?
Question: How do
you determine the value of a troubled property?
Answer:
Buyers considering a foreclosure property
should obtain as much information as possible from the lender,
including the range of bids expected.
It also is important to examine the property. If you are unable to get into
a foreclosure property, check with surrounding neighbors about the property's
condition.
It also is possible to do your own cost comparison through researching comparable
properties recorded at local county recorder's and assessor's offices, or through
Internet sites specializing in property records.
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Question: How long do bankruptcies and foreclosures
stay on a credit report?
Answer:
Bankruptcies and foreclosures can remain
on a credit report for seven to 10 years.
Some lenders will consider an borrower earlier if they have reestablished good
credit. The circumstances surrounding the bankruptcy can also influence a lender's
decision. For example, if you went through a bankruptcy because your employer
had financial difficulties, a lender may be more sympathetic. If, however,
you went through bankruptcy because you overextended personal credit lines
and lived beyond your means, the lender probably will be less inclined to be
flexible.
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Question: How much does my real estate agent
need to know?
Answer:
Real estate agents would say that
the more you tell them, the better they can negotiate on
your behalf. However, the degree of trust you have with an
agent may depend upon their legal obligation.
Agents working for buyers have three possible choices: They can represent the
buyer exclusively, called single agency, or represent the seller exclusively,
called sub-agency, or represent both the buyer and seller in a dual-agency
situation.
Some states require agents to disclose all possible agency relationships before
they enter into a residential real estate transaction. Here is a summary of
the three basic types:
- In a traditional relationship, real
estate agents and brokers have a fiduciary relationship to
the seller. Be aware that the seller pays the commission
of both brokers, not just the one who lists and shows the
property, but also to the sub-broker, who brings the ready,
willing and able buyer to the table.
- Dual agency exists if two agents working
for the same broker represent the buyer and seller in a transaction.
A potential conflict of interest is created if the listing
agent has advance knowledge of another buyer's offer. Therefore,
the law states that a dual agent shall not disclose to the
buyer that the seller will accept less than the list price,
or disclose to the seller that the buyer will pay more than
the offer price, without express written permission.
- A buyer also can hire his or her own
agent who will represent the buyer's interests exclusively.
A buyer's agent usually must be paid out of the buyer's own
pocket but the buyer can trust them with financial information,
knowing it will not be transmitted to the other broker and
ultimately to the seller.
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Question: How much will I spend on maintenance
expenses?
Answer:
Experts generally agree that you can plan
on annually spend 1 percent of the purchase price of your house
on repairing gutters, caulking windows, sealing your driveway
and the myriad other maintenance chores that come with the
privilege of homeownership. Newer homes will cost less to maintain
than older homes. It also depends on how well the house has
been maintained over the years.
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Question: What can I afford?
Answer:
Know what you can afford is the first rule
of home buying, and that depends on how much income and how
much debt you have. In general, lenders don't want borrowers
to spend more than 28 percent of their gross income per month
on a mortgage payment or more than 36 percent on debts.
It pays to check with several lenders before you start searching for a home.
Most will be happy to roughly calculate what you can afford and prequalify
you for a loan.
The price you can afford to pay for a home will depend on six factors:
1. gross income
2. the amount of cash you have available for the down payment, closing costs
and cash reserves required by the lender
3. your outstanding debts
4. your credit history
5. the type of mortgage you select
6. current interest rates
Another number lenders use to evaluate how much you can afford is the housing
expense-to-income ratio. It is determined by calculating your projected monthly
housing expense, which consists of the principal and interest payment on your
new home loan, property taxes and hazard insurance (or PITI as it is known).
If you have to pay monthly homeowners association dues and/or private mortgage
insurance, this also will be added to your PITI.
This ratio should fall between 28 to 33 percent, although some lenders will
go higher under certain circumstances. Your total debt-to-income ratio should
be in the 34 to 38 percent range.
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Question: What is Fannie Mae's low-down
program?
Answer:
Fannie Mae is expanding the availability
of low-down-payment loans in an effort to help more people
nationwide qualify for a mortgage.
Two new programs will help potential buyers overcome two of the most common
obstacles to home ownership, low savings and a modest income.
To address many first-time buyers' struggles to save the down payment, Fannie
Mae developed Fannie 97. The program provides 97 percent financing on a fixed-rate
mortgage with either a 25- or 30-year loan term through Fannie Mae's Community
Home Buyers Program.
Fannie Mae's new Start-Up Mortgage will assist buyers with a 5 percent down
payment who are at any income level. Yet applicants do not need as much income
to qualify and less cash for closing than with traditional mortgages. Borrowers
will receive a 30-year, fixed-rate mortgage with a first-year monthly payment
that is lower than the standard fixed-rate loan.
Freddie Mac, Fannie Mae's counterpart, also offers low-down-payment loan programs.
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Question: What is the standard debt-to-income
ratio?
Answer:
A standard ratio used by lenders limits
the mortgage payment to 28 percent of the borrower's gross
income and the mortgage payment, combined with all other debts,
to 36 percent of the total.
The fact that some loan applicants are accustomed to spending 40 percent of
their monthly income on rent -- and still promptly make the payment each time
-- has prompted some lenders to broaden their acceptable mortgage payment amount
when considered as a percentage of the applicant's income.
Other real estate experts tell borrowers facing rejection to compensate for
negative factors by saving up a larger down payment. Mortgage loans requiring
little or no outside documentation often can be obtained with down payments
of 25 percent or more of the purchase price.
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Question: When is the best time to buy?
Answer:
Here are some frequently cited reasons
for buying a house:
- You need a tax break. The mortgage interest
deduction can make home ownership very appealing.
- You are not counting on price appreciation
in the short term.
- You can afford the monthly payments.
- You plan to stay in the house long enough
for the appreciation to cover your transaction costs. The
costs of buying and selling a home include real estate commissions,
lender fees and closing costs that can amount to more than
10 percent of the sales price.
- You prefer to be an owner rather than
a renter.
- You can handle the maintenance expenses
and headaches.
- You are not greatly concerned by dips
in home values.
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Question: Where do I get information on
housing market stats?
Answer:
A real estate agent is a good source
for finding out the status of the local housing market. So
is your statewide association of Realtors, most of which
are continuously compiling such statistics from local real
estate boards.
For overall housing statistics, U.S.
Housing Markets (meyersgroup.com) regularly publishes quarterly reports
on home building and home buying. Your local builders association probably
gets this report. Finally, check with the U.S.
Bureau of the Census in Washington, D.C.; (301) 763-3199; census.gov. The
Chicago Title company also has published a pamphlet, "Who's Buying Homes
in America." Write Chicago Title 601 Riverside Ave., Jacksonville, FL
32204; (888) 934-3354; ctic.com.
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