Local Buying Tips

What standards do appraisers use to estimate value?

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.

Can I find out the value of my home through the Internet?

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.

What is the difference between list price, sales price and appraised value?

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.

What are the standard ways of finding out how much a home is worth?

A comparative market analysis and an appraisal are the standard methods for determining a home's value. Your real estate agent will be happy to provide a comparative market analysis, an informal estimate of value based on comparable sales in the neighborhood. Be sure you get listing prices of current homes on the market as well as those that have sold. You also can research this yourself by checking on recent sales in public records. Be sure that you are researching properties that are similar in size, construction and location. This information is not only available at your local recorder's or assessor's office but also through private companies and on the Internet. An appraisal, which generally costs $200 to $300 to perform, is a certified appraiser's opinion of the value of a home at any given time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality.

How do you determine the value of a troubled property?

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.

What is the difference between market value and appraised value?

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.

Buying Your Home - Escrow & Closing Costs

How can I save on closing costs?

• 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.

Who pays the closing costs?

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.

What are closing costs?

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.

Why do I need a title report?

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 the 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.

Buying Your Home - Finding the Right Home

What are the pros and cons of adding on or buying new?

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?

Do we dig deep and buy a dream home or settle for a starter home?

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 the 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.

How do you choose between buying and renting?

Homeownership 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, homeowners 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 a substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.

How do I get the real scoop on homes I am looking at?

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.

Buying Your Home - Home Inspections & Warranties

Do I need a home inspection?

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.

How do I find a home inspector?

Your realty agent is one source. But keeping them independent from the agent may be a good idea. Inspectors are listed in the yellow pages. You can ask for referrals from friends. Ask for their credentials, such as contractor's license or engineering certificate. Also, check out their references.

What's a home inspection?

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.

Buying Your Home - Making an Offer

Can you buy homes below market?

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 being 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.

What is the difference between list and sales prices?

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

Are low-ball offers advisable?

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 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.

What is the difference between list price, sales price, and appraised value?

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 property and is based on comparable sales, the condition of the property and numerous other factors.

Is a low offer a good idea?

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 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.

What contingencies should be put in an offer?

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.

Who gets the furnishings when a home is sold?

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.

Whose obligation is it to disclose pertinent information about a property?

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.

How do you determine the value of a troubled property?

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.

What are some tips on negotiation?

The more you know about a seller's motivation, the stronger a negotiating position you are in. For example, a 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.

Buying Your Home - What You Can Afford

How much does my real estate agent need to know?

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.

What can I afford?

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.

When is the best time to buy?

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.

Buying Your Home - Working With a Real Estate Agent

Can I use an agent for a new home?

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.

How do I find a real estate agent?

Getting a recommendation from a friend or work colleague is an excellent way to find a good agent. 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. In any case, whether you are a buyer or a seller, you should interview at least three agents to give yourself a choice. A good agent typically works full-time and has several years of experience. If you are a seller, you should expect to review a comparative market analysis, which includes recent home sale prices in your area, when you talk to a prospective agent.

What about a buyer's agent?

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.

How do you find a good agent?

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.