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/or the sale or closing of a buyer’s current home. For a land sale, buyers may also require soil percolation, soil compaction, and/or well testing.

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

If the contract has a financing contingency, the property will also need to be appraised. Even if you recently had your home 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 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 they want an opinion on something specific such as HVAC, plumbing, termites, or a pool. Typically a home inspection contingency is 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 really need to stay objective. If an inspector finds an issue, you are now legally required to disclose it to any future buyers. If the appraisal comes back low, we could try to argue the appraisal though it is rare for an appraiser change their figure. Also if the appraisal is initially lower than the offer, the buyer could still potentially walk.

Hopefully you will never find yourself in this situation, but if you do we will be there to offer you sound and practical advice to help you progress towards a closing.

Preparing for Your Home Closing

Closing is the final step in the process of selling your home. This is where the official transfer of ownership and possession usually take place. You will hand over your keys and the closing agent will pass them on to the new owners.

Walk Through

Typically a day prior 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 to be addressed and makes sure the home is in a similar condition as when they agreed to purchase the property. If anything was damaged during your move, please do what is necessary so this does not present an issue in the last 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 for funds 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, 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 as well. When complete, the closing agent will either present you with a check or wire any proceeds from the sale to your account.

If you have questions or are interested in putting your home on the market, please contact us.

What is Title Insurance & How Much is it?

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

Do not be worried. This is what title insurance is for. It protects you and the lender against these types of claims. If there ever was a dispute of title, the title insurance would kick in and pay for damages. Also, the chances of a claimant obtaining a judgment to move you off of your property are almost unheard of. Almost all real estate transactions require a title search and title insurance (99.9% that have a mortgage).

Title search and insurance rate do vary somewhat by county. You should expect to pay $350-$750 depending on the complexity of the title search. Title insurance should be .05% to .07% of the purchase price ($500-$700 per $100,000).

If you have title questions or would like a free preliminary report for a property, please contact us.

Should You Buy Mortgage Points?

Mortgage buy down points are a way to lower your interest rate by paying for interest upfront. Origination fees are a similar instrument used for the same purpose. You pay an upfront fee to lower your interest rate. Some lenders even include these in their quote without properly explaining them to borrowers which essentially makes their quote seem better than it really is.

Do not be confused as some loan products such as VA and USDA mortgages have a funding fee built in. These are not the same as buy down points or origination fees. So if you are comparing one of these types of mortgages, you will have a different type of funding fee that will be the same regardless of the lender you choose. However, a lender may still be allowed to include a separate funding fee or buy down points.

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 costs 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 plan to be in a home for a long time, this might make sense. Builders are also sometimes known to offer rate lowering promotions such as these. You could also have this paid for you part of a negotiated seller concession. Also, some lenders might let you roll this back into mortgage.

It is worth noting, that sometimes the price difference between rates is minimal. In such a 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% of the balance and get it rolled back into your mortgage it might make a lot more sense. Your payment would be $22 lower, no upfront cost, and you would make up the $1500 difference added to your note in only 5 ½ years.

A good loan officer will check into these sorts of savings opportunities for you. If you have questions about points or would like to as discuss other creative financing options, 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 square foot for their money. They usually have a smaller building footprint which equates to more usable yard space. They also tend to provide more separation in the home for perhaps a home office or second living space.

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

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. For a true split level, you only need half the roofing materials as you would for a comparable sized ranch. You can likewise expect to up save up to 35% on materials for the foundation. Another difference many buyers do not appreciate is the less evident savings are in 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 home. This generally means the span or overall length of the wood beams must be longer. This means they will probably have to be thicker to be able to support the same weight for a shorter distance.

If you’ve ever been to your local hardware store to buy lumber, you know the price goes up exponentially. While a common stud 2”x4”x8’ might only cost $3, a double in length 2”x4”x16’ might cost you $10 where as 2”x12”x24’ might be $60 or more. In addition, building codes may require specific more costly grades of lumber for certain larger applications.

Sometimes it feels as if you are trying to compare apples to oranges because in a lot of ways you are. Throw in a variation such as a single level with a bonus, and it gets even more confusing. So how do you accurately compare the pricing on these different style homes? Even if you know the style you want, you still need to be able to compare its value to other sometimes dissimilar homes in the area.

As a former new home representative and sales manager, I know comparing value for different style homes can sometimes be challenging, but we are here to help. If you would like assistance evaluating a prospective home or homes, please contact us.

Home Valuation by Roof Styles?

Most homebuyers do not spend too much time contemplating the roof. Unless it is unique or has something wrong with it, many buyers do not give it much thought. They simply inquire about the age and possibly have it inspected.

A brief moment examining the roof can tell you a lot about a home. This is not to 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 homes with different roof styles and do not assign this a value, it could end up costing 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 these 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 some of the more appealing building features come at cost – namely the loss of potential square footage.  Even if you are not familiar with construction, you can see why this style of home is more attractive and why it cost more to build.

On a 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 could add $25,000 or more depending on the detail and added cost to the structure.

Looking at homes from the top down may not seem exciting. But it should help you see beyond the décor and price per square foot into the real craftsmanship it took to build a home. Hopefully, this will help you see things from a different perspective and perhaps slow you down where you can pick up on things that other buyers miss.

This is one of the techniques I was taught as a sales manager in the home building industry. We used this as a tool to help better evaluate the competition. If you have other questions about home construction or would like assistance evaluating a prospective home or homes, please contact us.

Which Lot Should You Choose?

When looking for a home, many buyers set out to find the perfect home on the perfect lot, but as you might imagine it doesn’t always work out like that. Oftentimes 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 comes first and the lot while important is a farther 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. Also homes with a view typically appreciate faster and sell quicker than comparable homes without.

For many homebuyers, this decision comes down to cost. Are these benefits worth the additional cost? For example, let’s say a home that backs up to a preserve would cost you an 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.

Common types of home sites:

Cul-de-sac: These are situated at 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 the 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. Some of these are inverted pie shaped lots which often have larger 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; mountains, the ocean, a lake, river, a pond, or one that backup to preserve. Almost anything is better than a view of the neighbors. Future buyers will appreciate this added benefit as they always have. The added monthly cost should be minimal and will pay you back dividends when it comes time to sell.

If you would like assistance evaluating the cost and benefits of prospective home sites, please contact us.

How Much Acreage do You Need?

This is somewhat of a double edged question. If you do not purchase enough, you may be forever wishing you had. But if you buy more than you need, you will not only pay more but also 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 should walk or drive a few parcels of land. You need to see the difference between a five, ten, or even fifty acre parcel before deciding.

Think about your plans for the land. How does adding one, two, or ten more acres help you achieve your goals? There is no right or wrong answer, but it is something you should consider.

Also is this dream for both or just one of you? If you both are not 100% on board for a larger parcel, you may need to compromise. Maybe you promise your partner the home they want so you can get the land that you want.

Perhaps just as important is what shape is the property? Parcels come in all different shapes and sizes. Do you need a more square shaped parcel? Sometimes a narrower or odd shaped parcel might offer you more property for less.

You also need to consider the cost of utilities. How long of a power run do you need? Can you run a trench or do you need to clear a right of way. If you plan on putting in a septic now or in the future, you need to do a percolation test before closing. If you plan drilling a well, you should verify the depths and output of nearby properties.

You also should consider the cost of excavation. Is there a lot of large stumps that will need to be removed or grinded down? Is there presence of larger boulders on your property? Do you plan on putting in a road?

Buying a parcel of land can be intimidating but also very rewarding. There are many things you should consider, but we are here to help guide you through the process. If you have questions or need help with estimates for these and/or other associated costs, 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.