Contingencies, Inspections, and Appraisal

A contingency is a condition of the contract that must be met or time expired in order to keep the contract binding. Some of the more common contingencies include financing, appraisal, inspections, and the sale or closing of a buyer’s current home. For land sale, buyers may require soil percolation, soil compaction, or well testing.

Unless otherwise specified in the contract, buyers are responsible for paying for their appraisal and all testing. You should be flexible and accommodate for these appointments. You are not required to be present as in most cases either the buyer’s agent and/or I will be there.

If they contract has a financing contingency, the property will also need to be appraised. Even if you recently had your appraised, almost all lending institutions will require an appraisal ordered by their process. On commercial properties, a lender may also require additional testing prior to funding such as soil or environmental testing.

Most homebuyers these days will make their purchase contingent on a home inspection. This is usually done by a licensed inspector but not always. Sometimes buyers will have multiple inspections if want an opinion on something specific inspected such as the HVAC, termites, or a pool. Typically this contingency is set to be completed within the first week or two after the contract is accepted.

If the buyer is not satisfied with the inspection or appraisal, they may request a renegotiation of the contract. If this happens, you need to stay objective. If an inspector finds an issue, you are now legally required to disclose it to any future buyers. Even if we could argue an appraisal, which is very rare, it initially came back lower so the buyer could still walk.

Hopefully you will never find yourself in this sort of situation, but if you are I will be there to offer you sound and practical advice to help you progress towards closing.

Preparing for Closing

If you are thinking about closing, it means you are almost there. Closing is the final step in the process of selling your home. This is where the official transfer of ownership and usually possession takes place. You will hand over your keys and the closing agent will pass them on to the new owners.

Walk Through

Typically a day or two prior to or sometimes the day of closing it is customary for the buyers to do a final walk through. This is when they the buyer checks off on any items that were to be addressed. It is expected for the home to be in a similar condition as when they agreed to purchase the property. If anything was damaged during your move, please do what is needed so this does not present an issue hours before closing.

Utilities

You also need to remember to cancel or transfer all of your utilities and home services. Most of these will now allow you schedule your cancellation days in advance. If for some reason you are concerned they closing might be delayed, you can wait until the buyers have a clear to close from their lender. This means their loan has passed the underwriting phase and their loan is ready to be sent to the closing agent.

Closing     

You will need your driver’s license and a second form of ID just in case. You will need a cashier’s check if any funds are required to close. You may be allowed to write a personal check for smaller amounts. Please also remember to bring all of your keys, garage door openers, ect.

Although it is rare this late in the process and even if we have done everything right to prevent it, sometimes hiccups do happen. Perhaps the buyer’s loan gets delayed or something breaks during the move. We have seen it all and will be right there with you to handle any last minute issues in the most efficient and stress free manner possible.

A day or two prior to closing we should receive a preliminary settlement statement. This will outline all of the financial aspects of the transaction. Prior to closing we will verify everything is correct and make any corrections where necessary. At closing, the closing agent will go through the entire settlement package with you.

At this point there should be no surprises. We should essentially be verifying the preliminary settlement statement and going through all the appropriate disclosures. However, the closing agent will explain anything you need in further detail, and of course we will be right there with you as well. When complete, the closing agent will either present you with a check or wire any proceeds from the sale to your account.

What is Title Insurance & How Much is it?

A title search is done to investigate past transfers of title and claims on a piece of property. If there is an issue, it usually shows up here. Title insurance is then issued for the rare chance it does not. You might think we live in a day where most if not all claims on land titles have been resolved, but unfortunately this is not the case. They are however few and far between.

So do not be worried, the chances of you purchasing a home and later claim getting a judgment to move you off of your property are almost unheard of. This is what title insurance is for. It protects you and the lender against these types of claims. If there ever was an issue, the insurance would kick in and pay for any damages. Almost all real estate transactions require a title search and title insurance (99.9% that have a mortgage).

Title search and insurance cost vary somewhat by state and county. A title search should be around $350-$750 and title insurance should between .05% to .07% of the purchase price or $500-$700 per $100,000

Should You Buy Mortgage Points?

A buy down point is a way to lower your interest rate by paying for interest upfront. An origination is often a similar mechanism used for the same purpose. You pay an upfront fee to lower your interest rate. Some lenders even include these into their quote without properly explaining them sometimes to make their quote seem better than their competition.

Do not be confused. Some loan products such as VA, USDA funding fees built in. So if this is the loan type you choose, you will have the same funding fee regardless of the lender you choose. These are not the same as buy down points or origination fees.

The cost for buy down points and origination fees can vary. However, a general rule of thumb is 1 point buys down the rate 1/8 or .125% and cost 1% of the mortgage balance. To put that in perspective, on a $300,000 mortgage .125% would lower your month payments by $22 and cost $3,000 upfront. So it would take 136 payments to make back up the cost.

If you are payment sensitive or you know you will be in this home for a long time, this might make sense. Builders are also sometimes known offer rate lowering promotions such as this. You could also have this paid for you part of a negotiated seller’s concession. Some lenders might even let you roll this back into mortgage.

It also is worth noting, that sometimes the price difference between rates is minimal. In such case, a buy down point might cost a lot less. Using the same example, if you could buy a 1 point buy down for .5% and get in rolled back into your mortgage it might make a lot more sense. Your payment $22 lower, no upfront cost, and you would make up the difference in 5 ½ years.

A good loan officer will check into these sorts of savings opportunities for you. If you have questions or we can help match you with a loan officer specific to your needs, someone we trust, please contact us.

One or Two Story Floor Plan?

This is a question many homebuyers contend with. On a practical note, split level homes are great for growing families and those who are looking get the most size for their money. Two story plans also have a smaller building footprint which means a larger yard. They also can provide some separation if that is something you are looking for say from your kids.

You do however lose some usable square footage on the stairs as well entry and exit landings. Split level homes tend to feel a little more broken up when compared to the openness of a one level. Some feel they do not offer the same curb appeal as a single level. They also do not appeal as much to the aging population.

However, this is often a question that boils down to cost specifically cost per square foot. Generally speaking, split level offers considerable more square footage for the money, but why is that? When considering which option best suits your needs, it is important to consider where the savings is coming from.

The most obvious savings are in the foundation and in the roof. In a true split, you only need half as much materials as you would for a comparable sized single level. You also can expect up save up to 35% on materials for the foundation. The other less evident savings is in the lumber.

Single level homes especially newer designs tend to be more open style floor plans. These tend to include larger rooms with fewer walls than a two story homes. This generally means the span or overall length of the wood beams is longer. This also means they probably will also have to be thicker to be able to support the same weight as would a shorter distance.

If you’ve ever been to you local hardware store to buy lumber, you know the price of goes up exponentially. While a common stud 2”x4”x8’ might only cost $3, a double in length 2”x4”x16’ would cost you $10 where as 2”x12”x24’ might be $55. Then you also have to remember building code may require specific grades of lumber for certain applications.

It can be a lot to think about. The point is comparing these two can sometimes feel like apples and oranges, especially when you throw in a few hybrid variations such as the popular single level with a bonus. As former new homes agent and sales manager, I know. If you need someone to help you see though the fluff and assist your process to make a solid decision for your family, please contact me.

Home Valuation by Roof Styles

You probably are not the type of buyer that looks at the roof, and you are in good company. Many buyers simply inquire about the age and possibly have it inspected. But unless it is unique or has something wrong with it, most do not give it much thought.

However, a brief moment examining the roof can tell you a lot about a home. This is not to for you simply look at the quality or condition of the shingles. It is more to get you to step back and see the quality of the build. If you are comparing two similar homes with differing roof styles and do not assign that a value, it could cost you thousands when it comes time to sell.

An open gable is a common and inexpensive style roof.

 

A hip roof is more labor intensive and requires more skill to build.

Now place either of there next to a hip and valley roof you easily see a big difference not only in the roof but also the structure of the home.

There really is no comparison when it comes to curb appeal of this home.  Also notice how the more appealing building features come at cost namely the loss of potential square footage when compared to other designs. It is easy to see why this style of home is more attractive and why it would cost more to build.

On a typical 2500 square foot home, an upgrade from a gable to a hip roof might add an additional $10,000 in value.  A similar upgrade to hip and valley roof might add $20,000 or more depending on the detail and added cost to the structure. While it may not be exciting, looking at homes from the top down should help you to see past some of the décor and provide a glimpse into the real craftsmanship it took to build a home.

If you need help evaluating a prospective home you are interested in please contact me.

Which Lot Should I Choose?

When looking for a home many buyers set out to the perfect home on the perfect lot, but as you might imagine it doesn’t always work out like that. Often times buyers fall in love with a home and compromise on the home site. This is quite understandable as for most prospective homeowners the home itself is first and the lot while important is a few down on the list.

Even if a view or premium home site is not at the top of your list, you should still consider it in your selection process. While the benefits are often aesthetic, they are tangible as well. Studies have shown people who live in a home with a view are generally happier and are less stressed. Home with a view also typically appreciate faster and sell quicker than comparable home without.

For many homebuyers, this decision comes down are these benefits worth the additional cost? For example, let’s say a home that backs up to a preserve would cost you additional $10,000. Although it might sound like too much, at 4% on a 30 term that is only $48 a month. Similarly, a stunning vista that is $25,000 more actually only cost an additional $119 a month.

Aside from that you have a few options.

Cul-de-sac: These are situated as the end of the street so they usually have less traffic and no through traffic. Also many of these lots are pie shaped.

Corner: These usually come with more land, a side entry, and are great for showing off your curb appeal. Obviously, you may have more traffic.

Interior: These are simply lots between the corner and cul-de-sac lots. Often many of the better views are on the interior lots. This is typically due to lay of the land and because developers want to maximize profits by having more than just a few premium lots at the ends of the streets.

In the curb: These are homes on the bend of a curb. They can be great lots but you need to pay attention to traffic flow. You don’t want to always be nervous pulling out of your driveway. So are inverted pie shaped lots which often make for sizeable backyards.

Funky: These might seem like a deal, but they are usually discounted for a reason. They have an irregular shape, a view of the side of the neighbor’s house, are steep, or something else undesirable. Be very wary of these because when it comes time to sell, it might take a special buyer and/or a special price to sell one of these.

If you can afford it and it is not overvalued, most experts would agree it is a good idea to purchase a premium home site. It can be a view of anything a mountains, the ocean, a lake, river, a pond, or one that back up to preserve. Almost anything is better than a view of your neighbor.

Future buyers will appreciate this added benefit as they always have. On a payment, the added cost will likely be minimal, and pay you back dividends when it comes time to sell. If you would like to set up a search for a homes with a specific type of home site contact me.

How Much Acreage do I Need?

This is very important question. If you do not buy enough, you will always be wish you had more. If you buy more than you need, you will not only have paid more but also have to continue to pay more for maintenance, taxes, and insurance.

The truth is many buyers have a hard time conceptualizing the size of land. You really need to see the difference between a five, ten, or even fifty acre parcel before deciding.

Think about what your plans are for the land. How does adding another acre or two or ten help you achieve your goals? There is no wrong answer, but it is one I would encourage you to really think through.

Perhaps just as important of a question is the shape of a property. Parcels come in all shapes and sizes. Do you need a more square lot or would the same size narrower lot work as well?

You also need to consider the distance and cost to run utilities to your property. If you plan on putting in a septic, you will also need to do a percolation test before you close. If you plan on drilling a well, is a good idea see what the depth are for nearby properties.

If you would like for us to check into these on cost for a specific parcel or area, please contact us.

Moving up to a larger home

If you are ready to move up to a larger home, here are some things you might want to think about.

The ideal scenario is you sell your current home and move right into your new one. I have helped countless sellers do just this, but it does not always happen that way. Real estate closings are not perfect.

They involve people, and sometimes things happen. I have seen both buyers and sellers wait until the last minute to mention an important detail to their agent or lender. When you are on a time crunch, a small issue can become a larger one. Remember in the real estate world, things are often a process.

Although it is rare, be prepared just in case you have to find a temporary for a few days. If you need to close before your new home before you are able to close a bridge loan maybe an option. This allows you hold two mortgages for a short period of time. I generally am not a fan because of the additional cost, but if you are in jeopardy of losing dream home it might be worth it.

Most of the time instances such as these can be prevented, but every once in a while things happen that are out of our control. I tell clients to hope for the best but prepared for the worst. I am not trying to scare you but prepare you just in case. The idea is that you will be less stressed because you have already considered what to do in a worst case scenario.

There are also a few things preventative measure you can as well. You should get prequalified perhaps even before you put your home for sale. You want to know what you can afford, and you want to make sure there are no surprises on your credit report. If you check your credit early, you may have time to take care of any issues that are present.

This is something you want to know and not assume. Even if you have done nothing to adversely impact your scores, you still need to check them. Errors, identity theft, and memory lapses are things that happen to real people. One uncorrected item on your credit report could potentially cost you thousands over the life of a mortgage.

Once you put in an offer, you should stay in touch with your lender. If they ask you for something, provide them with exactly what they ask for and/or contact them for clarification. Please do not put it off because you do not understand why they need it. You can be upset or complain, but lenders typically require all the documentation they ask for.

If you are purchasing a more expensive home, you also want to maximize the proceeds from your current home. This includes any necessary improvements or upgrades. You should consider paint, outdated hardware, mulch, and shrubs. You also should organize your home as clutter is a deterrent to most buyers, especially those who might pay top dollar.

Managing an IRA owned property

Probably the easiest thing to do is to have your IRA admin hire a management company for you. Now obviously it can be the one you select on the terms you have agreed to but not signed beforehand. The management company will collect any rents, pay expenses, and of course deduct their fee. The rest will go into your IRA.

The other thing you can do is have any rents sent directly to your admin, and they can pay all of your expenses including utilities. Of course they will be a fee for this, but it shouldn’t be too bad considering most of them will be probably be put on a direct withdraw or bill pay system. This is a fee you should discuss when you shopping for an admin before you purchase the property.

You can then either have the checks mailed to you admin, or if you want be collect them you can. But you still have to have them made out to your IRA.