You are not required to retain the services of a real estate agent when looking to buy a home but it is highly recommended that you do so as buying a home is likely to be the largest purchase you will ever make. Seeking the expertise and advice of a professional agent during this process would be prudent for several reasons. For example, a buyer’s agent often has access to information that is not available to you such as accurate and timely comparative sales of other property that sold in the area. An agent will also have access to the listing history of a particular property of interest which shows the agent how many price changes have occurred and the frequency of those changes. When dealing with the laws of large numbers, a small mistake in judgment can cost you hundreds or even thousands of dollars.
It is also important to note that purchasing a home often becomes an emotional experience for both you and the seller. The presence of a real estate agent will prevent you from unknowingly providing suggestive body language or making outright statements that could compromise your leverage or position during negotiations with the seller or seller’s agent. If a deal is reached and issues arise after you have entered into the purchase and sale contract, such as during a home inspection, your agent’s experience and expertise can be of great value in resolving the difference or differences between you and the seller. Having a professional agent representing your interests through these and other similar situations can often determine whether or not the deal reaches a successful conclusion.
It is important to note that a buyers agents commission is typically paid for buy the sellers agent and not the buyer.
Determining how much home you can afford has slightly varied over time but most lenders today allocate approximately 28% of your gross monthly income to housing expense. Housing expense includes principal, interest, taxes and insurance (PITI).
It is strongly recommended that home buyers get pre-qualified or pre-approved for a loan early on in the home buying process. Some might say that it should be the first thing that you do since knowing how much you can afford for a home will often dictate the parameters of your house search. Most sellers will also want an offer to be accompanied by a pre-qualification or pre-approval letter from a reputable lending institution in order to help determine your financial capability in purchasing the home.
It is important to note that simply because you get pre-qualified or pre-approved does not mean that the lender will definitely give you a loan. It is merely the preliminary step in potentially obtaining a loan from the lender. The lender will still need to obtain and verify further information including, but not limited to, credit reports, wages, and bank statements before a loan commitment will be provided to you. Once the lender has provided you with a loan commitment free of any conditions then you are financially well on your way to purchasing your home.
Pre-qualification is an informal or undocumented conversation between perspective applicants/buyers and a lender representative to see how much you may be able to borrow for the purchase of a home. You can be ‘pre-qualified’ over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford.
Pre-approval is a lender’s actual commitment to lend to you. It involves assembling the pertinent financial records such as paystubs and tax returns and going through a preliminary approval process with the lender. Being pre-approved for a loan gives you a definite understanding of what you can afford for the purchase of a home and shows the seller that you are serious about buying subject property.
It is strongly recommended that you hire one or more professional persons to thoroughly review and inspect the home prior to purchase. These professionals range from a licensed home inspector, who typically performs a wide range of inspections, to the more specialized individuals such as lead paint inspectors and, if applicable, well and septic inspectors. In addition, most states require sellers to complete disclosure forms informing potential buyers of known defective or deficient conditions that currently or previously existed with the property. In addition, these disclosure forms may also require a seller to disclose certain legal or health related matters involving the property, including but not limited to, the presence of environmental hazards; walls or fences shared with adjoining landowners; certain title matters known to the seller such as encroachment, easements and restrictions running with the property; known zoning violations or citations pertaining the property; and whether seller has obtained all necessary permits for any additions or repairs made to the property. A seller’s failure to properly disclose can result in a legal claim being brought against seller by buyer.
If you are buying a condominium you must also be given the opportunity to read and review the condominium declaration, by-laws and rules and regulations. You should also request that the seller provide you with the condominium’s current budget so as to determine whether the condominium itself is financially sound. Purchasing a unit within a condominium with little or no reserves can lead to special assessments being issued to you by the condominium association in order to pay for necessary repairs and unforeseen expenses. In addition, you should request that the seller contact the condominium association to provide you with information as to whether there are any lawsuits pending against the condominium. Purchasing a condominium unit without first obtaining the above-mentioned information could cost you hundreds and even thousands of dollars.
There are those who believe that there is no such thing as too low of an offer. While any offer can be presented to the seller, a low-ball offer could discourage the seller from negotiating with you by simply rejecting the offer outright.
A more practical approach in determining what type of offer to present to a seller is to first determine what is the fair market value of a subject property. This can be achieved by doing a comparative market analysis of the homes in your area with similarities in style, condition, square footage, etc. sold for within the last several months. You may still want to consider other factors and circumstances that may influence a seller’s willingness to accept an offer once this is determined. Typically, an offer to purchase a home is often accompanied by contingencies that are prerequisites to a buyer being legally obligated to purchase a home from the seller. The amount and/or type of contingencies will influence the seller in determining whether the buyers offer price is reasonable. For example, a seller may find a lower price offer to be more attractive than a higher priced offer where the lower priced offer was not contingent upon the buyer obtaining a bank loan or selling their existing home.
There are also non-contractual considerations to consider before making an offer, such as determining the seller’s level of motivation to sell the home. A lower offer with a speedy closing date may be more appealing to a seller who must move quickly due to a job transfer. People going through a divorce or who are eager to move into another home are frequently more receptive to lower offers.
In conclusion, knowing the fair market value of the property relative to a buyers contractual requirements and non-contractual considerations that may exist within the particular transaction are factors that a buyer should consider before presenting an offer to a seller.
This question is often one answered with, “It depends.” It depends on a person-by-person basis due to each individual’s financial situation, financial background, if they will reside in this home, and what loan programs they qualify for.
There are numerous loan programs that exist, each with different requirements. The so-called “FHA loan” can get you into a home with just 3.5 percent down but this still means you will need several thousands of dollars to put down on a $200,000 home. However, FHA loans allow you to receive your down payment as a gift and still qualify for the loan, but of course your benefactor should be prepared to document the source of funds. Veterans can still purchase with no money down with some loan programs (VA Loan). In both cases—VA loans and FHA loans—you will still have to come up with closing costs, which are frequently 4% of the loan amount and are charged to the borrower. Conventional loans, or any loan not guaranteed by the government, typically range from 5% to 20% requirement for the down payment.
Putting down as little as possible allows buyers to take full advantage of the tax benefits of home ownership. Mortgage interest and property taxes are fully deductible from state and federal income taxes. Buyers using a small down payment also have a reserve for making unexpected improvements. In some situations it may be more sensible to make a larger down payment and thereby reduce the amount of debt that must be financed.
You should speak to a professional loan officer to assist you in reviewing your financial options prior to making an offer as lender guidelines are constantly changing.
Mortgage insurance is an insurance policy that protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies, or is otherwise unable to meet the contractual obligations of the mortgage. Mortgage insurance may come with a typical “pay-as-you-go” premium payment, or may be capitalized into a lump sum payment at the time the mortgage is originated, or a combination of both. It is generally a requirement on all loans, with the exception of veterans guaranteed loans. If a buyer puts down twenty percent or more as a down payment on their desired home, they will waive the requirement for mortgage insurance.
Title insurance differs in several respects from other types of insurance. While most insurance is a contract where the insurer indemnifies or guarantees another party against a possible specific type of loss such as an accident or death at a future date, title insurance generally insures against losses caused by title problems that have their source in past events. It is meant to protect you or a lender’s financial interest in real property against loss due to title defects, liens, or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.
The most common type of policy is for the protection of an owner and lender. In order to protect their investment, lenders require title insurance in the form of a loan policy to protect their interest in the collateral of loans secured by real estate. A loan policy provides no coverage or benefit to you as the home buyer so the decision to purchase an owner policy is independent of the lender’s decision to require a loan policy. It is important to note that the cost for obtaining an owner’s title insurance is usually sharply reduced when taken simultaneously with the issuance of a loan policy. Unlike other typical forms of insurance, there are no annual premiums and it is typically only paid once at the time of closing.
Distressed properties or fixer-uppers can be found everywhere. These properties are poorly maintained and have a lower market value than other houses in the neighborhood. It is often recommended that buyers find the least desirable house in the best neighborhood. You must consider what are the expenses and both labor and materials needed to bring the value of that property to its fullest potential market value, and if they are within your budget. Most buyers should avoid run-down houses that need major structural repairs as the money required to bring these properties to standard cannot always be assessed on the surface and the costs often grow exponentially during the project.
Be sure to find out who your real estate REALTOR is representing before you tell them too much. The degree of trust you have in an REALTOR may depend upon their legal obligation of representation. An agency working with a buyer has three possible choices of representation. The REALTOR can represent the buyer exclusively, called buyer agency, or represent the seller exclusively, called seller agency, or represent both the buyer and seller in a dual agency situation. Some states require REALTORS to disclose all possible agency relationships before they enter into a residential real estate transaction.
There is no fast and firm rule as to when the best time is to sell your home. However, the time of year you choose to sell can make a difference in the amount of time it takes and the final selling price.
It is not a surprise that most sales occur during the warmer months, particularly in the spring where the weather is most comfortable and people are revived after the long winter months. The increased market activity typically lasts into the dog days of summer when the market experiences a lull in activity. The end of July and August are often some of the slowest months for real estate sales due to a high rate of vacationers during this period. In late August into early fall, the market tends to pick up again as vacationers return, families settle back into their daily routines and the weather is still very much desirable for home buyers and sellers. As the weather turns colder and the holiday season approaches, market activity begins to slow and reaches its slowest peak in the coldest months of winter.
Having a competitive asking price relative to the condition of the property and marketing the home to the public through open houses, proper signage and sufficient internet visibility are some of the most important considerations when selling your home. While these factors may seem easy to understand they can often be overlooked by sellers. As a result, it is important to consider these factors when selecting a real estate agent to sell your home and not merely the one who quotes you the highest listing price.
There are two methods many people use to determine their homes value: an appraisal and a comparative market analysis.
Appraisals can vary in cost and area and are conducted by a licensed appraiser. The average cost for an appraisal is a few hundred dollars—typically between $300 to $400 for a single family home—and slightly higher for multi-family dwellings. Appraisers review numerous factors specific to the home and base information on recent sales of similar properties, their location, square footage, excess land, and amenities including, but not limited to, garages, number of bathrooms, garages, and water views.
A comparative market analysis, on the other hand, is an informal estimate of market value performed by a licensed real estate agent or broker. It is based on the sales of previously sold homes and current listings that will compete with your property in size, style, amenities and location. A range of values will be determined thus arriving at a probable market value.
The way you live in a home and the way you sell a house are two different things. First, you should check to determine whether all appliances and necessary mechanical systems within the home are fully operational whenever possible. It is also important to keep the home clean and free of debris, particularly the kitchen and bathrooms, and remove excessive everyday furnishings, appliances, personal belongings and décor from countertops, walls, closets and rooms. Inserting some pleasant fragrance into the home through fresh flowers or freshly baked goods may also provide the buyer with a sense of warmth during their visit. The objective of all this is to allow the potential buyer an opportunity to appreciate the particular characteristics of the home itself, while allowing them to feel an emotional connection to the home long after they have left the showing.
It is just as important not to forget the exterior of the home as it will provide the potential buyer with their first impression and may influence a potential buyer’s decision on whether or not to even view the interior of the home. Attending to the landscaping surrounding the home by raking leaves, removing or trimming overgrown shrubbery and cutting and repairing the lawn where needed are just a few measures that should be addressed before listing a home for sale. Other tasks that a homeowner should consider before listing the home for sale include power washing the exterior of the home, windows and doors; painting or replacing trim and exterior doors; and replacing damaged or missing gutters. In certain circumstances even large tasks such as painting the entire home and repairing walkways, chimneys, and stairs may be worth considering in order to provide the potential buyers with the belief that the home has been cared for and maintained appropriately. Simply providing that necessary “curb appeal” can draw sufficient interest and the highest selling price.
A seller is under a legal obligation to disclose in writing to all potential buyers all of the known defects that exist with the home. Sellers must also keep in mind that a sales contract will often include a contingency “inspection clause” whereby a buyer will have the opportunity to have a licensed home inspector search or inspect the home for deficient conditions. A deficient condition found during a buyers home inspection, especially one that is material in nature, may often result in a buyer terminating the sales contract; require the seller to lower the purchase price; or, in some circumstances, cause the seller to repair the deficient conditions before finalizing the sale of the home. Therefore, whether or not a seller should make repairs to a home prior to listing it for sale often comes down to the size, scope and nature of the deficient conditions and the cost associated with said work. The decision must be made on a case by case basis. Typically, a home with little to no deficient conditions will result in a quicker sale and a potentially higher sales price.
As previously mentioned in Question 2, a proper asking price relative to the condition of the property and sufficient exposure of the home to the public through open houses, proper signage and internet visibility is critical in getting a home sold in a timely manner. If you are not receiving sufficient viewing requests from buyers, then you must re-evaluate whether the home is overpriced and/or lacks sufficient marketing to generate interest in the property. If you are receiving sufficient showing requests but not generating offers from buyers, then this may be a sign that the home’s appearance and/or condition may not be up to market standards at that particular asking price. You may want to go through the house with a fresh new look to see if there are cosmetic defects that were missed or went unrepaired at the outset. Or, in the alternative, a reduction in the asking price may be warranted.
If you are still unable to generate the desired activity after taking the above-mentioned factors into consideration, then removing the home from the market until overall housing conditions become more favorable may be in order.
Under certain circumstances, it may be possible for a homeowner to sell their home for less than what they currently owe the lender on their mortgage. A sale of this nature is often referred to as a “short sale”. Typically, a “short sale” requires a home owner to demonstrate to their lender that they are unable to make the mortgage payment due to some economic or financial hardship they have sustained, such as the loss of a job. A home owner who may be interested in a short sale should seek the advice of an attorney.
The expenses associated with selling a house depend on the state in which the home is being sold. In Rhode Island and Massachusetts, the expenses paid by a seller at the time of closing are very similar between the two states. The most common expenses are the real estate commission fees, excise tax stamps, attorney fees, and recording fees.
The real estate brokerage fee is a professional fee paid to the broker by the seller for the broker’s efforts in selling the home and typically ranges between 4% and 6% of net selling price. The fee is determined between the two parties at the time the contract is entered into between the listing agent and seller.
The tax stamp is the excise tax charged by the state to the seller for selling the home. In Rhode Island, the tax stamp is $4.00 per thousand on the sales price while in Massachusetts it is $4.56 per thousand on the sales price, except in a few counties that charge more. This tax is collected from the seller at the closing and is paid to the recording clerk at the time of the recording of the deed. If the tax is not paid then the transaction will not be finalized.
The attorney fee is the professional fee charged to the seller for the seller’s legal representation in negotiating the purchase and sale between buyer and seller, the production and review of closing related documents, and the attorney’s presence at the closing. The extent of representation needed by the seller will depend on the seller’s comfort level but, in order to transfer the property to buyer, it is important to note that it is the seller’s responsibility to produce the deed at closing.
Finally, there may be recording fees charged to the seller for certain documents that must be recorded at the time of closing. The most common recording fee paid for by seller is the fee associated with discharging the seller’s mortgage. The costs vary per state and per document but typically the fees are no more than a few hundred dollars.
It is important to note that there may be further adjustments or costs charged against seller at the time of closing. For example, there may be tax adjustments made between buyer and seller for taxes used by the seller but not yet due for payment. The seller would provide a credit to the buyer at the closing so that the buyer could make that payment to the municipality at the appropriate time. A final water and sewer payment may also be collected from the seller based on the final readings taken prior to closing. And, of course, a mortgage payoff will be collected and paid to the seller’s lender in order to release the mortgage from the property. A seller should discuss these potential costs with their representatives as each transaction will differ.
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