FAQs

• Buying a Disstressed Home

  • Q: Can you negotiate the price of a bank owned home?

    A: Everything in real estate is negotiable. However, banks are more sophisticated about pricing than they were years ago. So those "Get a great deal on a foreclosure!" days aren't what they used to be. Lowball offers generally don't go very far.

  • Q: How would I go about finding someone to finance a sheriff sale property?

    A: You don't. You have to show up with a cashier's check or certified funds. I suppose if you had another asset that you could borrow against AND you could get a loan large enough using that asset as collateral, you could do it that way. But you're actually financing the other asset and not the foreclosure property

  • Q: Can you negotiate the price of a bank owned home

    A: Everything in real estate is negotiable. However, banks are more sophisticated about pricing than they were years ago. So those "Get a great deal on a foreclosure!" days aren't what they used to be. Lowball offers generally don't go very far.

• Buying a Home

  • Q: I have to make a choice between an updated home in an older neighborhood or a newer home in a more modern neighborhood. The home in the older neighborhood has almost everything I want and is much larger, but which makes the most sense as an investment?

    A: If your goal is to buy a home for it's resale value and the one you are thinking of buying in the older neighborhood is at the upper end of values for that neighborhood, then it may not be the wisest choice. If it is similar or lower in price to the others, then there should be no problem, because pricing should be considered in relation to the local neighborhood and not compared to homes in other neighborhoods (for the most part) Plus, is it a neighborhood on the decline, or are others going to be fixing things up, too, so that it is a neighborhood that is improving? It could turn out to be a very good deal as long as you don't "overpay" because of the recent improvements. Remember that you also buy a home for it's value to you as a "home," and that is something else you should consider. Which neighborhood would you AND your family feel most comfortable in?

  • Q: When buying a new home, what upgrades should we go for? What holds the most value? Do we upgrade the lot? Pick more square footage in the house? Add an extra bedroom?, etc.

    A: A lot depends on why you are buying the house. Are you buying it mostly as a home or mostly as an investment? There is a difference. For the most part, upgrades are high-profit items for builders. They aren't designed to enhance the value of the house, but make you happier with the house you do buy. If you are looking at your home as an investment, then you buy from the smaller to medium size in the tract and spend only a minimal amount on upgrades. If you are looking at your purchase as a home, then you select upgrades that will enhance your quality of living. One rule of thumb is to always upgrade the carpet and padding.

  • Q: I need to buy a house with a good resale value. How do I determine if my house will increase in value within the next five years so that we can upgrade? I can buy a smaller house in a great location or get twice as much house in a good location. Which is a wiser decision?

    A: It's like buying stocks. How do you really know which ones will increase most in value over the next five years? As with any investment, there are risks. The most often quoted rule is that location is the most important factor. You want to make sure that the house does not back to busy streets and is as close to the interior of the tract as possible. Avoid corners and intersections. Choose the middle of the block or a cul de sac. You'll want to be sure it has at least two bathrooms (if you are buying in an older area). Sometimes it is just timing that works out best for you. For example, if you buy a home before a major surge in local prices.

  • Q: I have a contract to purchase a house, but the three owners are having a "family feud" and cannot agree on anything. The sale of my own house closes soon and the lock-in on my loan is up in a few days. What can I do?

    A: You may have to rent a motel or move in with friends or family until the issue is resolved. There is risk in buying real estate, especially when you make your own moving plans very firm. No one can guarantee a sale will close on an exact day because situations can come up unexpectedly, just as it happened to you. Fortunately rates have declined since you locked in your interest rate. Most lenders will extend a lock (once it expires) at the higher of the current market rate or the rate you originally locked the loan. So most likely, you will not be hurting any on your interest rate because of the delay. In short, you're pretty much stuck and you have to hope the sellers can work out their problems.

  • Q: I agreed to buy a house and now I’ve changed my mind. How do I cancel?

    A: This may not be the answer you were expecting... For the answer to this, you have to look at your contract. The contract is the legal agreement you have made with the seller. Most contracts have certain contingencies where a cancellation is acceptable. To cancel for reasons other than that, there are often consequences and such a decision should not be taken lightly. Keep in mind that while you have been preparing to close the transaction, the seller has taken his home off the market and may have entered his own contract to purchase a home. This can create a chain of sales and purchases, all depending on you to fulfill your obligation. If you do not fulfill the contract, your decision may affect many more people than just one seller. For the legal consequences of canceling a contract, you may have to consult an attorney.

  • Q: We were set to close and the seller now wants to set up new closing date. Can I get them to come down off the price of the house and anything else you think that would help me?

    A: The seller may have had legitimate reasons or perhaps not. You can attempt to renegotiate the price if you choose to, and this can be looked at several ways. Once you make your offer to purchase the house at a lower price, this can be looked at as a new offer, which can nullify your original offer. Most likely, you are going to just have to decide whether you like the house enough to go ahead with the purchase.

  • Q: The seller is unable to find a replacement property by the time the sixty day escrow closes. They have requested an extension of thirty days. If we do not agree to that extension, will we lose the appraisal fee, the home inspection fee, and our deposit?

    A: You'll probably get your deposit back, minus a small cancellation fee. However, the appraisal and home inspection have been done and those guys don't work for free, so that money is gone. Since both the appraisal and home inspection were done for that specific property, if you choose not to extend and buy a different property you will have to pay those fees again. Suggestion: Do you want to extend and wait around another thirty days and find the seller still has not purchased something? Remember in your purchase contract that you had time conditions placed upon you. For example, it may have been two days to apply for a loan, seven days to review the disclosures, fourteen days to get a home inspection, and so on.

  • Q: One hour before closing I signed an addendum to remove tires from the property. There were about 6 to 8tires that I had removed. Mysteriously, about 30 tires have appeared on the property. Am I responsible for their removal? I have witnesses that can state they were not on the property on settlement day.

    A: It just goes to show you how crazy real estate can be, doesn't it? Most real estate contracts detail exactly when you are to turn over possession of the property to the seller. Turning over possession usually occurs sometime after the transaction actually closes. Often this is three days after closing. If the tires showed up before the transfer of the property (as stated in the contract), you should probably remove the tires.

  • Q: I am looking at putting an offer in on a house listed for $134,900. The house is vacant and I believe it has been on the market for over 6 months. My realtor is saying is should bid 134,000 with the seller paying my closing cost and paying for a 2/1 buy down. I want to try and offer less. What do you think?

    A: Your closing costs should be approximately $4000 or so (depending on what type loan you get, how many points, etc.). The 2/1 buydown (assuming it is an annual buydown) will cost the seller about $4000, too. By paying for these costs, if you offer a price of $134,000, the seller is netting the same as he would on if he accepted an offer of $126,000 and paid no costs. If you think the house is worth less that $126,000, then make a lower offer. If you think it is worth more than $126,000, then you would be getting a deal with your Realtor's suggestion. Your Realtor provides advice. You decide what to offer based on that advice.

  • Q: If you make an offer on a house and the owner comes back with a counter offer and you agree to it can the owner still change his mind and sell to someone else?

    A: A seller is free to withdraw the counter-offer any time prior to your acceptance of it. The communication method for acceptance is usually described in the contract. If your acceptance was communicated to the seller in the method required by the contract (prior to the seller withdrawing the offer), the seller should honor the contract with you and not entertain other offers. But people don't always do what they should. The problem then becomes whether you try to enforce your contract or not, which requires legal advice and expenses. For that, you have to consult an attorney. Although you could probably technically enforce the contract, you have to reach a decision on whether it makes sense to expend the time and money to do so. Or does it make more sense to realize the seller is unethical and just move on to buy something different?

  • Q: If the purchase contract states that the seller is paying for the hazard report and a buyer's home warranty, who is responsible actually ordering them?

    A: Probably, you'll both have to agree. But home warranties don't vary that much in price, so the seller shouldn't mind if you order it. The seller will probably want to order the hazard report, assuming that you mean checking for radon gas and things like that.

  • Q: I am interested in buying a home which the seller is listed "as is." Will a bank require a home inspection before approving a loan? Will a bank approve a loan on a home needing repairs?

    A: A bank doesn't require you to get a home inspection in order to obtain a mortgage. If there are obvious major problems that affect value, the appraiser may note it in the appraisal report. However, their job is not to inspect the home, just to determine value. Although the bank doesn't require a home inspection, if your purchase contract mentions a termite report, the lender will require that to be performed and pass before you close. A termite report lists more than pest infestations. It also mentions obvious structural defects, such as wood rot, etc. These are classified into two groups - category 1 and 2. All items in category 1 must be repaired prior to closing. However, the lender does not stipulate who must pay for those repairs.

  • Q: What should I be aware of that the house inspector should be doing during the inspection of the house I am interested in buying? The Inspector should be checking the following things:

    A: The Inspector should be checking the following things: • Drainage • Foundation • Roof & Water Leaks • Paint • Plumbing • Wiring • Heating • Fireplace • Tile

  • Q: What, precisely, can be claimed as a tax deduction when you buy a home?

    A: This is really a question you should ask a local CPA or whoever does your taxes. We encourage you to follow up with a professional tax advisor as we are not qualified or authorized to give advice in two areas - legal matters and tax matters. Briefly put, providing you itemize deductions, own and occupy the home, you can deduct both property taxes paid on the home and interest paid on your mortgage. You can deduct the points and prepaid interest you make during the actual purchase, whether you pay them or the seller pays them on your behalf. There are certain limits and restrictions which do not affect most people, but this is another reason you should contact a tax professional regarding your question.

  • Q: Where can I get information about the asking prices of properties that have sold during the last six months? I have found information on the selling prices, and would like to compare them to the asking prices.

    A: The only place I can think of where you can obtain that information is the Multiple Listing Service. For that, you need to be a member, but you could ask an agent to obtain the information for you. I cannot think of any reason why an agent would not be willing to give you that information, so just ask one. There really is not a concrete value in knowing the asking prices. There are different strategies in developing an asking price, plus a lot of properties start out over-priced to begin with. Comparing properly priced houses to over-priced houses, then lumping them together in some sort of analysis would skew your figures. I can see how you could intend to use such knowledge for the purposes of negotiation, but with an informed listing agent, it should be a fairly ineffective strategy. For example, recently I saw a web site where the agent was hawking his ability as a listing agent. He said the average home in his area sold for 93% of asking price, but his average listing sold for 97% of asking price. The implication was that he got more money for his sellers. The truth is probably just that he priced his homes correctly to begin with.

  • Q: How do you know whether the price of a home per square foot is reasonable or if you are about to make a bad decision?

    A: Though this seems like an easy question, it is not as simple as it sounds. Keep in mind that much more goes into the market value of a house than its square footage. For example, two houses next door to each other can have the same square footage, but if one has two bathrooms and the other has only one, guess which one will probably be worth more? It will also cost more per square foot. However, if you compare recent sales of similar homes, the cost per square foot should be similar to those properties. You can ask your agent to provide you with comparable sales data.

• Buying a New Home

  • Q: Can you negotiate when making an offer on a new home?

    A: Making an offer on new construction is not the same as making an offer on a resale. Most of the time, the margin for profit is so small on new construction (per unit) that there is basically little or no negotiating. You can try, of course, because "everything in real estate is negotiable," but do not expect too much.

  • Q: New Construction: If a walk-through inspection reveals a problem, but I choose to go through with closing anyway, can I retain a percentage of the down payment (or mortgage amount) - - not to be paid until the repairs are made?

    A: If you want to go through with closing, you will not be able to hold any of your money back or the lender will not fund the loan. You just have to trust that the builder will make the changes, and they normally do.

• For Sale by Owner

  • Q: I’m selling my home "by owner," and a real estate agent who wants to show my home to a buyer said something about "agent protection." What does this mean?

    A: This probably refers to the agent wanting to protect their right to a commission should you elect to sell to their client. In our home selling library, we have an article on types of listings. One of those is a "one time show." This is something the agent will probably come in and get you to sign before bringing in their clients. It identifies the client, the commission, and prevents you and that buyer from negotiating directly at a later time, with the intent to cut the agent out of the deal and not pay a commission.

  • Q: On a FSBO (for sale by owner), what is financial obligation, if any, to sell to client with buyer agent?

    A: When a buyer's agent has a client who makes an offer to buy your home, the offer will also ask you to cover the agent's commission - either directly or indirectly. Since the traditional arrangement usually includes two agents and the customary commission is approximately six percent of the sales price, the commission asked for in this transaction should be approximately half. There is only one agent involved. On the one hand, you save money over traditional agent marketing. On the other hand, you don't make as much as if you sold the home at its full market value. Then, on the other hand again, sellers working with agents usually get a higher price for their home than seller who work by themselves. It is a difficult decision for you to make. Anyway, the offer will ask you to either pay the commission directly to the agent and their broker, or apply a "credit" to the buyer so that the buyer can pay the commission. Either way it comes out of the proceeds of your sale.

  • Q: We are thinking about selling our home on our own. If a buyer comes in with a Realtor do we still have to pay their agent the 3% commission?

    A: That depends on whether you choose to "cooperate" with agents or not. If you do not, agents will not bring buyers to your house. If you do cooperate, some agents will bring buyers, but if their client makes an offer and closes the deal, they will expect to earn a commission. A three percent commission is customary, but you can attempt to negotiate, too.Before an agent brings a client to your house, they will probably stop by and ask you to sign a "one time show" agreement. This prevents you and the buyer from negotiating directly in an attempt to not pay the agent’s commission.

  • Q: Where can I find information on selling my own home?

    A: My favorite place is the local bookstore rather than on-line. Most FSBO (for sale by owner) books are quick reading and Robert Irwin is an author who has covered it a couple of times. I recommend you buy a couple of books so that you cover the topic thoroughly.

  • Q: How do I make an offer on a "for sale by owner" home? I have already received pre-qualification, and am ready to buy, but need the specifics for buying from an owner, not an agent.

    A: The owner of the FSBO should have prepared for this contingency and have the proper forms available. You can also obtain forms from your local stationery store. Plus, there is a form available on line, but they charge a $4.95 fee.

  • Q: How do I sell my house by owner?

    A: You want a quick answer? People write entire books on this topic and one of the better ones is "Sold by Owner," by Robert Irwin. It's like golf - it sounds easy. You just whack the ball a bunch of times until it goes into the hole. You may land in a sand trap or go out of bounds, but if you keep whacking at it, the ball eventually goes in the hole. Buying and selling real estate is the same way. If you are willing to do all the work, you can muddle through and get it done.

  • Q: Is there a percentage a seller will mark up the price of a home? For example, if the asking price is $114,000 is an initial offer of $95,000 too low?

    A: Although you can always offer whatever you want, yes, $95,000 is generally too low too offer for a home priced at $114,000. It's like buying a car. You want to dicker with the salesman a little, but there is more room to dicker on a more expensive car than if you were going in and buying the least expensive car. Sellers usually mark up the price a little because they realize most buyers aren't going to make a full price offer (though in different markets you can get offers ABOVE the listing price). In your example above, you were offering almost 15% below the listing price. They don't mark it up that much, just a few percent. Before you make an offer, get your Realtor to go over the comparable sales of other similar homes in the same neighborhood. That is the same data the seller looked at when he priced his house, too. Make certain allowance for whether houses are selling briskly or slowly, and make an offer based on that data. Note: When you look at comparable sales, you don't know for sure if the seller paid closing costs for the buyer or provided some other financing incentive, so keep that in mind.

• Selling a Home

  • Q: My house recently went into escrow that was supposed to last 60 days. One week before closing we were notified by the real estate agent that the house did not appraise for the amount agreed upon in the sales contract. The buyers are refusing to obtain another mortgage company or another appraisal at my cost. Do they forfeit their 2500.00 that is in escrow to me, or is it a technicality and they get their money back?

    A: First, look at your purchase contract. Most Realtors put deadlines in the contract during which certain things must occur, such as appraisal or loan approval. Review the contract to see if they lived up to those types of terms in the contract. Second, press to find out why it took 55 days to get an appraisal. This just seems wrong. Request the name and phone number of the appraiser so your agent can make inquiries. You’re probably not being given the true reason for cancellation. Escrow normally cannot release the deposit money without the permission of both sides. Continue to press until you feel you are being given the real reasons for not closing the transaction. Keep in mind that if you are asking for legal advice, that can only be obtained from a lawyer.

  • Q: The buyer now wants out of the contract to buy my home. The contract has been signed by both parties. What are my rights, and do I have to keep my home?

    A: When people break contracts, you can't generally force them to go through with the transaction. What you can do, if you can prove damages, is try to recover the damages in court or through arbitration. You can attempt to talk to the buyers and find out what the problem is and try to resolve it. It may be something easily you can easily resolve, but maybe not.

  • Q: My husband and I have already signed a contract to sell our home. However, we have since changed our minds and no longer want to sell. Can we get out of selling our home?

    A: First, look at the contract and see if there are any contingencies that allow you out of the contract. You can always decide not to sell. You just don't know exactly what the buyer's reactions are going to be. You don’t know if they will attempt to enforce the contract. You don’t know if there will be legal repercussions. You might want to get an attorney's opinion at some point, since we do not provide legal advice. If you do cancel, think about ways to soften the blow to the potential buyer who has put up an earnest money deposit, may have already paid for a credit report and appraisal, and may be charged a cancellation fee by the settlement agent. They may have already given notice (if they rent) or sold their own house, too. If you reimburse them for some of their hard costs, maybe they will not try to enforce the contract.

  • Q: What are the terms of the pest inspection? If after a few years you are living in the home, are the sellers responsible if termites are found?

    A: Assuming you had a pest inspection performed when you bought the house, the terms of the guarantee would be with the pest inspection. You will probably find it with your other documents from when you bought the house. Expecting the seller to be responsible for something a couple of years after the fact is not really sensible. The only way a seller should be liable is if they knew of an infestation, but did not disclose it.

  • Q: We put our home up for sale and the square footage is way off! Is a garage usually considered in the square footage in a home? It is attached to the home.

    A: Although a garage is attached to the home, it is not considered part of the home's square footage. That is because only livable space is considered in the square footage calculation. Calculating the square footage of a home is not as easy as it sounds. Neither real estate agents nor homeowners should attempt the calculation (at least not if you want a reliable figure). Rarely are houses perfectly square, which is one reason for the difficulty. Appraisers map out the house on a piece of graph paper, calculate all the edges, come up with "mini-areas" for each rectangle - and then add them all together. Plus, there are other intricate rules. If there has been an addition to the house and the owner did not receive a building permit, then that section of the house may not be allowable as part of the square footage. The same with attic and basement conversions, lofts, and so on. It is best to rely on a licensed appraiser to recalculate the square footage of a house. When a home's square footage is advertised, the figure usually comes from previous sales, perhaps as far back as the builder. Homeowners and real estate agents don't usually recalculate the square footage. Like we said, it is very very difficult to calculate the square footage of a home.

  • Q: How can I find out how much my house is worth? There are no comparable homes in my area.

    A: This may be a bad sign for you, especially if you think your house is worth more than other houses in your neighborhood. Homes maintain their value better if the neighboring properties are fairly similar. In your situation, you may actually have to talk to several Realtors, get their opinions, and come up with some sort of consensus. Without knowing why there are no comparable properties in your area it is difficult to give another suggestion. If your lot or home is over-improved for the area, that means the value will most not likely be what you think it is. If your home is much larger, you might not get the same cost per square foot as other homes in the area. So I would talk to a bunch of Realtors and get their opinions. I would not recommend hiring an appraiser, however, even though a lot of books recommend this. Appraisers are better at "justifying" a price than in determining market value.