Frequently Asked Questions

Section 1: Buyers

1. What price home can I afford?

As a “rule of thumb” you can afford to buy a home equal in price to twice your gross annual income. More precisely, the price you can afford to pay for a home will depend on six factors:

Your income
The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender.
Your outstanding debts
Your credit history
The type of mortgage you select
Current interest rates

Lenders will analyze your income in relation to your projected cost of the home and outstanding debts. This will determine the size loan you can borrow. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, property taxes and hazard insurance. The sum of these costs is referred to as “PITI.”

Monthly homeowner association dues, if you’re purchasing a condominium or townhouse, and private mortgage insurance are added to the PITI. Your housing income-to-expense ratio should fall in the 28 to 33 percent range. 28 percent of your gross monthly income is allotted toward PITI. 33 percent of you gross monthly income is allowed for PITI and all long term debt. Some lenders will go higher under certain circumstances.. Your total income-to-debt ratio should not exceed 34 to 38 percent of your gross income.

2. How do I find out about the condition of the home I’m considering?

First and foremost it is strongly recommended that you hire a professional person to inspect the home. Many inspectors belong to the American Society of Home Inspectors (ASHI). They attend seminars and stay abreast of the latest developments.

Secondly some sellers complete a disclosure form revealing everything known about their property. Home sellers 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 encroachment of 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 settling, sliding or soil problems, flooding or drainage problems.

People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions, if the homeowners association has any authority over the subject property and ownership of common areas with others. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.

3. How low can I make my offer?

There are always some sellers who for some reason must sell quickly, however in general, a very low offer in a normal market is often rejected immediately. In a strong buyer’s market, the below-market offer may generate a counteroffer. In a strong seller’s market, offers are often higher than full price. While it is true that offers at or above full price are more likely to be accepted by the seller, there are other considerations involved:

1. Is the offer contingent upon anything, such as the sale of the buyer’s current house? If so, such an offer, even at full price, may not be as attractive as an offer without that condition.
2. Is the offer made on the house “as is,” or does the buyer want the seller to make some repairs before closing or make a price concession instead?
3. 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.
4. Are there any requests for seller concessions, such as asking the seller to contribute towards points and/or closing costs? If so, the offer is not really full price.

4. How and what do I negotiate?

Different sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few (maybe the cleverest) underprice their houses in the hope that potential buyers will compete and overbid. A seller’s advertised price is the best estimate of what they would like to receive.

If possible try to learn about the seller’s motivation. For example, a lower price with a speedy close may be more acceptable to someone who must move quickly due to a job transfer. People going through a divorce or are eager to move into another home are frequently more receptive to lower offers.

Some buyers believe in making deliberate low-ball offers. While any offer can be presented to the seller, a low-ball offer often sours a prospective sale and discourages the seller from negotiating at all. And unless the house is extremely overpriced, the offer probably will be rejected anyway.

Before making an offer, also investigate how much comparable homes have sold for in the area so that you can determine whether the home is priced right. Our Buyer Specialists will do this for you when working Path & Post.

5. What about my down payment, should I put more or less down, if we can afford it?

Various types of loan programs exist. Some require a minimum of 3 percent down payment (FHA Loans) or 5 percent on conventional loans. Veterans can purchase with no money down (VA Loan).

Mortgage interest and property taxes are fully deductible from state and federal income taxes. Smart Buyers have a reserve of cash after the down payment for making unexpected improvements. It may be more prudent to make a larger down payment and thereby reduce the amount of debt that must be financed. Once a buyer puts twenty percent or more as a down payment on their desired home, they will waive the requirement for mortgage insurance.

Mortgage insurance is a requirement on all loans, with the exception of veterans guaranteed loans. That means a full years premium for the insurance is collected “up front’ at the closing of escrow, plus you will be paying monthly as part of your PITI, principle-interest-taxes-insurance.

6. What is title insurance?

Title insurance is a form of insurance in favor of an owner, lessee, mortgage or other holder of an estate lien, or other interest in real property. It indemnifies against loss up to the face amount of the policy, suffered by reason of title being vested otherwise than as stated, or because of defects in the title, liens and encumbrances not set forth or otherwise specifically excluded in the policy, whether or not in the public land records, and other matters included within the policy form, such as lack of access to the property, loss due to unmarketability of title, etc. The title policy form sets forth the specific risks insured against. Additional coverage of related risks may also be added by endorsements to the policy or by the inclusion of additional affirmation insurance to modify or supersede the impact of certain exceptions, exclusions or printed policy “conditions.” The policy also protects the insured for liability on various warranties of title.

In addition, the policy provides protection in an unlimited amount against costs and expenses incurred in defending the insured estate or interest.

Before it issues a title policy, the title insurance company performs, or has performed for it, an extensive search, examination and interpretation of the legal effect of all relevant public records to determine the existence of possible rights, claims, liens or encumbrance that affect the property.

However, even the most comprehensive title examination, made by the most highly skilled attorney or lay expert, can not protect against all title defects and claims. These are commonly referred to as the “hidden risks.” The most common examples of these hidden risks are fraud, forgery, alteration of documents, impersonation, secret marital status, incapacity of parties (whether they be individuals, corporations, trusts or any other type), and inadequate or lack of powers of fiduciaries. Some other hidden risks include various laws and regulations that create or permit interests, claims and liens without requiring that they first be filed or recorded in some form so that the potential buyers and lenders can find them before parting with their money.

Since the cost for home owner’s title insurance is usually sharply reduced when taken simultaneously with the issuance of a purchase money mortgage, the risk is one that a well informed buyer should not take. In fact, several states have adopted statutory requirements which require a notice to home buyers as to the availability of title insurance similar to that being obtained by their purchase money mortgages.

7. What steps should I take when looking for a home loan?

It is strongly recommended that home buyers are prequalified or pre-approved for a loan as their first step in the process. By being prequalified, a buyer knows exactly how much house they can afford. They can make more informed decisions in the market place. This does not mean they will definitely get the loan because their credit reports, wages and bank statements still need to be verified before you can receive a commitment from the lender for the loan.

Almost all mortgage lenders prequalify people at no charge. In order to be pre-approved, an application will be taken. For a fee, your credit report will be pulled, your employment and income will be verified, your checking and savings accounts will also be verified. In other words, all the necessary documentation will be completed in order for you to obtain a loan. The only things remaining will be for you to find a home, obtain an appraisal on it to prove its value to the bank and perform whatever inspections you may want on the property. This process considerably shortens the time frame to closing.

8. Is it possible to negotiate interest rates?

Occasionally some lenders are willing to negotiate on both the loan rate and the number of points. This isn’t typical among many of the established lenders who set their rates. Nevertheless, always look at the combination of interest rate and points and get the best deal possible. This is reflected in what is called the APR or Actual Percentage Rate.

9. Is it better to buy a new home or a resale?

Sales price increases in either type of housing are strongly tied to location, growth in the local housing market and the state of the overall economy.

Some people feel that buying into a new-home community is a bit riskier than purchasing a house in an established neighborhood. Future appreciation in value in either case depends upon many of the same factors. Others believe that a new home is less risky because things won’t “wear out” and need replacement.

“Existing homes have been appreciating a little more than new homes but every once in awhile they’re at the same level and sometimes the new home prices go up a little quicker” according to the National Association of REALTORS® (NAR).

10. Fixer-Uppers: Are they good or bad?

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 if the expenses needed to bring the value of that property to its full potential market value are within your budget. Most buyers should avoid run-down houses that need major structural repairs. Remember the movie ” The Money Pit?” Those properties should be left to the builder or tradesman normally engaged in the repair business.

11. Can I borrow money to make repairs?

HUD’s Rehabilitation loan program, Section 203(K) is a program 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 frequently done as a combination loan. You purchase a “fixer-upper” property “as is” and rehabilitate it. Or, you may refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Investors are required to put 15 percent down. Owner-occupants have a required down payment of 3 to 5 percent. A minimum of $5,000 must be spent on major improvements.

Major repairs can be: a new heating system, roof, replacement windows, etc. You may then also finance additional repairs and improvements i.e.: new carpeting, kitchen cabinets, appliances, etc. You must of course “qualify” for the total amount you will be borrowing through this program.

Two appraisals are required. These appraisals will be on the property “as repaired” not “as is.” Plans and specifications for the proposed word must be submitted for architectural review and cost estimation. Once approved mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

12. Is there a good “return” for my remodeling efforts?

Remodeling a home improves its livability and enhances curb appeal, making it more salable to potential buyers. Some of the popular improvement projects are updated kitchens and baths, enlarged master bedroom suits, home-office additions and increased amenities in older homes.

The resale market is often difficult because you are competing with new construction. You need to give your home every competitive advantage you can if you are selling an older home.

13. Are foreclosures a good or bad idea?

The incidence of foreclosures is cyclical, based on national and regional economic trends.

Buying directly at a legal foreclosure sale can be risky and dangerous. The process has many disadvantages. There is no financing so purchases require cash. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title. The property’s condition is not well known and generally, an interior inspection of the property is not possible before the sale.

Additionally Estate (probate) and foreclosure sales are exempt from some disclosure laws. The law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it.

14. When buying a home how much does my real estate REALTOR® need to know?

The degree of trust you have in an REALTOR® depends 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.

Here is a summary of the three basic types:

1. In a traditional relationship, REALTORS® 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 cooperating broker, who brings the ready, willing and able buyer to the table.

2. Dual agency exists if two REALTORS® working for the same broker represent the buyer and seller in the same transaction. A potential conflict of interest is created if the listing REALTOR® has advance knowledge of another buyer’s offer. Therefore, the law states that a dual REALTOR® 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.

3. A buyer can hire an REALTOR® who will represent their interests exclusively. A buyer’s REALTOR® may require a retainer which is refunded once the buyer purchases a house. The amount of the retainer differs from REALTOR® to REALTOR®. A buyer’s REALTOR® can perform enhanced services for the buyer, such as preparing a market analysis on the home they are buying. All information provided to the buyer’s REALTOR® shall remain confidential and will not be relayed to the Seller’s REALTOR®.

Section 2: Sellers

15. When is the best time to sell?

Property sells year round. It is mostly a function of supply and demand, as well as other economic factors. The time of year you choose to sell can make a difference in the amount of time it takes and the final selling price. Generally the real estate market picks up in the early spring.

Mid to late summer as school starts back, the market usually slows. Plus, many prospective home buyers take vacations during mid-summer.

After the summer slowdown, sales activity tends to pick up for a second, although less vigorous, season which usually lasts into November. The market then slows again as buyers and sellers turn their attention to the holidays.

The supply of homes on the market diminish because sellers often wonder whether or not they should take their homes off the market for the holidays. There are still buyers in the market place, but now those buyers have fewer homes to choose from. Homes on the market during this time have considerably less competition. Generally speaking, you’ll have the best results if your house is available to show to prospective buyers continuously until it sells.

16. What are the most important factors to consider when selling a home?

The two most important factors are price and condition in selling a home. The first step is to price it properly. Then, go through the house to see if there are any cosmetic defects that can be repaired.

A third factor is exposure. Along with every other purchase made today, real estate shopping has changed. It is important that the home gets the exposure it deserves with a modern marketing plan.

Choose a REALTOR® that you believe will get the job done, not the one that quotes you the highest price – sometimes just to buy your listing.

17. How much is my home worth?

For some quick results, you can try our Home Valuation tool. This information is not intended to be viewed as an Appraisal or Comparative Market Analysis, but a quick estimation of value range based on public data.

There are two methods many people use to determine their homes value, an appraisal and comparative market analysis.

Appraisals vary in cost and are defendable in court. They average about $350 for a single family home. Appraisers review numerous factors and base information on recent sales of similar properties, their location, square footage, construction quality, excess land, views, water frontage and amenities such as garages, number of baths, etc.

A comparative market analysis on the other hand is an informal estimate of market value performed by a REALTOR®. It is based on sales and listings that will compete with your property that are similar in size, style and location. A range of values will be determined thus arriving at a probable market value. We offer this service free of charge, with no obligation.

The analysis or opinion should be in writing and should involve professionally accepted appraisal practices.

18. What should I do to get my house ready?

The way you live in a home and the way you sell a house are two different things. First and foremost, declutter counter tops, walls and rooms. Too many “things” make it difficult for the buyer to see their possessions in your rooms or on your walls, however don’t strip everything completely or it will appear stark and inhospitable. Then clean and make attractive all rooms, furnishings, floors, walls and ceilings. It’s especially important that the bathroom and kitchen are spotless. Organize closets. Make sure the basic appliances and fixtures work and get rid of leaky faucets and frayed cords. Make sure the house smells clean. Hide the kitty litter and pet evidence.

The second important thing to consider is curb appeal. People driving by a property will judge it from outside appearances and make a decision as to whether or not they want to see the inside. Sweep the sidewalk, mow the lawn, prune the bushes, weed the garden and clean debris from the yard. Clean the windows (both inside and out) and make sure the paint is not chipped or flaking. Also make sure that the doorbell works.

We have a complete Seller’s Guide to help you prepare to sell your home.

19. Should I make repairs?

Minor repairs before putting the house on the market may lead to a better sales price. Buyers often include a contingency “inspection clause” in the purchase contract which allows them to back out if numerous defects are found. Once the problems are noted, buyers can attempt to negotiate repairs or lowering the price with the seller. Any known problems that are not repaired must be revealed as a material defect. You do not have to repair the problem, only reveal it and the house should be appropriately priced for that defect.

20. What are my obligations to disclose?

Items sellers often disclose 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; any restrictions on the use of property, including but not limited to zoning ordinances or association rules.

It is wise to review the seller’s written disclosure prior to a home purchase and ask questions if it does not satisfy you entirely.

21. Must I disclose the terms of other offers?

No, sellers do not have to disclose the terms of other offers. You may disclose the existence of other offers, so that all parties are aware that they should be submitting their best offer.

22. Are there standard contingencies in an offer?

Yes, the two basic contingencies in a purchase contract are financing and inspections, also known as due diligence period.

23. Should I be flexible in granting contingencies?

This depends on if you are in a buyer’s or a seller’s market, the condition of your home, the price you hope to get, how motivated you are to sell, as well as the quality and quantity of the offers you are getting.

Any contingencies that are negotiated are written into your contract. Both the buyer and seller can place requirements on the table during the negotiation phase.

A frequently seen contingency is regarding the sale and closing of the buyers home before they can purchase yours. Whether this requirement is reasonable, or even achievable, depends on the individuals involved. Financial capabilities usually play a major role in negotiations. Few people can afford to own two homes simultaneously, except for some all-cash buyers.

24. What do I do if my house isn’t getting activity?

Even in a slow market, price and condition are the two most important factors in selling a home.

If a home is not getting the activity it needs in order to sell it is probably because it is overpriced for the market. The first step is to lower the price. Then go through the house and see if there are cosmetic defects that you missed that can be repaired.

The second step is to make sure that the home is getting the exposure it deserves via a modern marketing plan.

A third option is to remove the home from the market and wait for overall housing conditions to improve and catch up to the price your asking.

Finally, frustrated sellers who have no equity and are forced to sell because of a long term illness, divorce or financial considerations should discuss a short sale or a deed in lieu of a foreclosure with their mortgage lender and their REALTOR®. A short sale is when the seller finds a buyer for a price that is below the mortgage amount and negotiates the difference with the lender. In a deed-in-lieu-of-foreclosure, the lender agrees to take the house back without instituting foreclosure proceedings. These are considered more radical options than lowering the price.

FAQ

Frequently Asked Questions

Section 1: Buyers

Section 2: Sellers