Monthly Archives: February 2014

Stand Up and Buy Right!

Stand Up and Buy Right!

If, like all of us, you want to get the best house you can for the least amount of money, you need to make sure you are negotiating from a position of strength. Price is only one element in the negotiations and not necessarily the most important one. Often other things such as the financial strength and your down-payment or the closing date are just as important to a seller. That being said, it’s useless to be “pre- qualified” by a lender. This means that you have spent a few minutes on the phone with a lender who asks you a few questions. Based on the answers, the lender pronounces you “pre-qualified” and issues a certificate that you can show to a seller. Sellers agents and their sellers are aware that such certificates are not worth the paper they’re written on because the information has not been verified. The way to make a strong offer today is to get “pre-approved”. This means that all your financial information has been checked and verified by a qualified loan professional and a lender finds that if nothing changes they will lend you the money you need to purchase a home. That’s what you want.

Listing agents place ads to get you to call them – they want to handle both the seller and buyer end of a deal. When reading an ad know that what is not mentioned in the ad is usually more important than what is. For example, many homes have some drawback that any good agent will never mention in an ad, such as traffic noise, power lines, or outdated plumbing and electrics. Remember that the person writing the ad is representing the seller. When you look at a house with the seller’s agent they will not critique the property or point out any drawbacks you should know about – it’s up to you to find them out on your own.

Get a Buyer’s Agent. Your buyer agent looks out for you and your best interests during negotiations on price, inspections and contingencies. In Massachusetts a seller’s agent can work with you as a buyer agent for the property they are listing but they must disclose that in the event of any conflict of interest they work for the seller and look out for the seller’s interests above yours. A buyer’s agent doesn’t cost you anything … and they’ll look out for your interests above the seller’s.

Did you also know that many homes are sold without a sign ever going up or an ad ever being put in the paper? These “pocket listings” or “whisper listings” are often great deals and go to the clients of buyer’s agents who have their finger on the heartbeat of the market. When a buyer’s agent hears a great house will come on the market they call their client who is looking for that type of house and just might get them the exclusive. So in order to get the best buy and to save time not looking at unsuitable properties I always recommend that you hire your own buyer’s agent and if they’re good stick with them. (shameless plug for myself)

Your agent should show you everything available that meets your requirements. Don’t make a decision on any house until you feel that you’ve seen enough to pick the best one. Especially if a town is new to you, it is a good idea to get a feel for the town and its neighborhoods. A good agent has the patience and experience to work with you until you find the right house. Having said that, however, there are two circumstances where you may need to make a fairly quick or bold decision. There are times when a home comes on the market and as your buyer agent, as soon as I see it I know it is what you have been looking for – a reasonably priced house in a good location in great shape. This one won’t last and when I call, if you think you’d like it you should be willing to look at it now and make a decision quickly.

The other situation is that it’s your first or second weekend looking at houses when you find “the one”. It’s great – just what you were looking for. But….you’ve only seen five other houses and what if you find one weeks from now that you like more? Sad to say, I have had clients in this situation and who weeks or months later were saying, “Gosh I wish we had jumped at that house…. it was just what we wanted.” Sometimes the right one is one of the first few you see. Trust your gut if it is.

Here’s a list of my current BEST PRACTICES for BUYERS:

1. Arrange for your mortgage financing up front before you even start to look for a home. Your mortgage broker will help you focus on your ideal price range, your maximum loan and whether there are any credit issues you should correct before buying. They will also prepare a “pre-approval” letter … which you will provide the seller when you are ready to make an offer.

2. Familiarize yourself with the purchase contract details and ask questions. Ask your agent to explain the process of negotiating and counter offers.

3. Use buyer representation. It is important to have an agent who owes his total loyalty to you. Discuss your representation options with your agent. If you are purchasing one of your agent’s company listings  make sure you understand what your agent can and cannot do for you.

4. Review the seller’s disclosure before you make an offer. Your offer should reflect your knowledge of the condition of the property. The seller’s disclosure will tell you of  any known repairs or conditions that would affect what you would be willing to pay. You should know this before you decide on an offering price. If you are unsure go back with the agent and look at the home after you have reviewed the disclosures. Also note, not all brokers use seller’s disclosures … doesn’t make sense to me but there are no state/national laws requiring disclosure. If they don’t use disclosures it doesn’t mean they are hiding anything but you would be wise to assume there are problems not readily visible on a quick walk-through and adjust your offer accordingly.

5. Ask the seller to provide a home warranty when you write the offer. This will cover you for some items that malfunction during the first year of ownership. Cash used for down payment, closing costs, and other home necessities can deplete your cash reserves. A home warranty will reduce the risk of a future drain if a warranted item needs repair that first year.

6. Get the property inspected by a licensed professional home inspector. They will let you know the true condition of what you are buying. Follow the inspector’s advice if he/she recommends that you have another expert inspect a troublesome item. During the inspection you should also ask your inspector to explain how to work or maintain appliances or systems in the home, they are a wonderful resource to help you learn “how to drive the house”.

7. Ask your buyer’s agent to prepare a market analysis of the property before you make the offer. A seller’s agent cannot do this for you. You should know what similar properties are selling for so that you don’t overbuy. Also, if the seller remains firm on his price, you will be able to tell if the value is really there.”

Days on Market … Why do I Care?

Days on Market … Why do I Care?

Properties with great locations, perfect condition and priced at market value do not last on the market and thus their days on market are very short. You can use days on market (DOM)  statistics as a way of determining what the market (read that – buyers) think of any one of these three variables.  Typically, properties with a large DOM will command lower prices than a property with small DOM’s because buyers perceive the property as over priced or less desirable. DOM is often used when developing a pricing strategy. DOM can also be used as a “thermometer” to gauge the temperature of a housing market.That’s why you care about DOM.

Okay, so how is DOM figured?  In simple terms, DOM  is the number of days on the market that a property is “active” from the list date of the current listing. A home can be withdrawn from the market, a listing may expire or it may be taken “temporarily” off the market for completely valid reasons. The MLS stops counting days for any of the these reasons in addition to a property changing status to “under-agreement.” If a property then comes back on the market – BOM in MLS terms (a contract is voided for home inspection, financing, or some other reason) counting days resumes.

If a listing is taken off the market then comes back on the market more than 90 days later with a new MLS number  the DOM is reset to zero but the MLS continues counting days from the first (original) list date – called Property History. Agents used to cancel stale listings and put them on the next day with a different MLS number and buyers would think it was a “new” listing. But those days are over with the transparency of the internet … you can find out the true DOM easily.

In a buyer’s market, the DOM are generally higher because inventory takes longer to sell. In a seller’s market, the DOM are fewer.  In the current market conditions terrific homes in active price points are getting offers within 15 days.  Mediocre homes in those same price points are taking 30-180 days. And fixer-uppers/as-is/dated/bad location/overpriced homes in those same price points are taking much longer. There are currently 20 homes on the market in Metrowest that have DOM over a year, and one even has 1696 DOM (I hope that agent doesn’t need a paycheck).

Bottom line if you’re a seller, bringing a house to market it is vital that you bring it to market in the best condition possible, with good marketing and priced right. Anything less than that may put less money in your pocket.

Bottom line if you’re a buyer, pay attention to DOM and use it as a negotiating tool. Knowing it may put money in your pocket.

Seller Credits Explained … Can You Pay for Buyer’s  Closing Costs?

Seller Credits Explained … Can You Pay for Buyer’s Closing Costs?

In general, most underwriting guidelines allow for the seller to pay a buyer’s closing costs. However, no matter what you negotiate, the amount of the credit at the closing table cannot exceed the buyer’s actual costs.

The following guidelines currently apply:

Conventional financing:

  • 90.01% + 3% credit
  • 90% or less 6% credit

FHA financing

  • 6% credit

VA financing

  • 4% credit

 

A seller should not give money back to the buyer at closing for repairs, decorating allowance, new carpet, etc. A closing cost credit is the only way for the seller to give money to the buyer without affecting the purchase price.

If a concession falls outside of these parameters, then the underwriter will subtract the dollar figure from the purchase price and run the loan to value ratio. If the ratio now exceeds the threshold for the loan program, the buyer may need PMI or not qualify for the loan program.

If you have a relocation customer whose company is paying their closing costs, then the amount of the seller concession will be limited. The buyer can not be reimbursed twice.

Closing costs are all of the buyer’s one-time fees associated with obtaining their mortgage. It does include escrows and pre-paids.

Allowable Costs:

Points Tax Service Fee

Appraisal Underwriting & Processing Fees

Credit Report Municipal Lien

Attorney’s Fee Plot Plan

Title search Recording & Courier Fees

Flood Certification First year’s insurance binder

Title Insurance Tax, Insurance & PMI escrows

For More Detailed Information feel free to call or email Tom Coburn, William Raveis Mortgage Broker, mobile: 508-380-7975  email: tom.coburn@raveis.com

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