Pre-Offer Home Inspection- Competitive Home Buying 2022

The real estate market for 2022 shows it is going to be much of the same. What does that mean to a home buyer that hasn’t bought in many years, or a home buyer entering the market for the first time?

Chaos!!

I met with a buyer looking to buy a condo who hadn’t bout a home in almost 20 years. When I described the market and what buyers are willing to do to compete for good homes, they were taken aback.

The buyer was completely against giving up their home inspection. This lead to a conversation about a pre-offer home inspection.

What’s Happening With The 2022 Real Estate Market?

Before we delve into talking about a pre-listing home inspection, let’s look at what is happening in the market.

The 2021 real estate market will continue into 2022. What does this mean for home buyers?

Well, many homebuyers are willing to take aggressive steps to get their offer accepted. Those steps include:

Offering over asking. Many home buyers are willing to offer over asking to compete. On average Essex County homes went, on average, 4% over asking.
Offering appraisal gap coverage. Appraisal gap coverage is where a buyer guarantees the buyer will buy the house even if the appraisal comes inf low.
Waiving Home Inspections. Aggressive offers include waiving home inspections. Meaning, the buyer, is willing to take the house as-is without doing their due diligence with the home inspection.

These are some drastic measures, homebuyers are willing to take to get an offer accepted.

Waiving Your Home Inspection Is A Big Deal

It’s a catch twenty-two. As a homebuyer, you want to make sure your offer is accepted on the home you want. But on the other hand, you want to make sure you are buying a safe and sound home.

The reality is, if you keep a home inspection contingency in your offer, it probably won’t get accepted. There are many home buyers willing to waive the home inspection contingency and offer a competitive price as well.

Why is that important to a seller?

Any contingency is a risk to the home seller. And a home inspection offers plenty of risk to the home seller. A home inspection can lead to a reduction on price for significant repairs.

Or worse yet, the buyer terminates the deal and the seller is left putting the home back on the market. A home that has had a home inspection and has been put back on the market becomes stigmatized by buyers, whether it is real or perceived.

Why A Buyer Should Think Carefully

So it’s a conundrum for a buyer. You want the house, but you want your home inspection.

Yet, you know full well if you keep your right to a home inspection, you probably won’t get the house.

You also know the home you are about to buy could have unforeseen problems after you close on it. Those issues can lead to repairs that could cost 10s of thousands of dollars or even more!!

Even if there is no one major, costly repair, homes can have multiple issues that can add up to a big repair bill. Make sure you have cash on hand after you close for any significant repairs if you forgo your inspection.

Or another solution is considering a pre-offer home inspection.

Pre-Offer Home Inspection

So what is a pre-offer home inspection?

The pre-offer inspection allows for you to get an inspection done prior to writing your offer. The inspection lets you make an offer knowing what issues a home might have and give you the comfort knowing nothing major is wrong.

But, by having the inspection before writing your offer, you can now waive your home inspection contingency. This allows you to compete with other home buyers willing to waive the home inspection contingency all together.

What To Know About Pre-Offer Home Inspections

The first thing to know about the pre-offer home inspection is that sellers may not allow it.

The seller is under no obligation to allow you to have a professional home inspection at all, never mind pre-offer. But I would imagine any seller working in good faith would allow an inspection before writing an offer. If not, you may be left wondering what is wrong. Maybe the seller is hiding something and you should walk away.

You will most likely be fighting time constraints. You may have only a day or two before offers are due and you have to work around other showings.

The inspection may be modified to fit it into a restricted time frame. Often the inspector will focus on major items and skip over the picky minute details of an inspection.

Typically because of the tight timeline, the inspection will be verbal only, with no written report.

The final thing to note about having an inspection before making an offer is you may not get the home and lose it to another offer. Doing an inspection on every home you make can get costly.

Should I Do An Inspection Prior To Making An Offer?

Whether you do an inspection before writing an offer or not is a decision you need to make.

Consult with your REALTOR the current real estate conditions in your area and what they are seeing in offers that are getting accepted. The whole point of a home inspection is to uncover latent material defects. Basically defects, that are unseen at a showing or undetected by the lay person.

In the past year and a half, I have had only one offer accepted as either an agent representing a buyer or as a listing agent, that had a home inspection contingency. All the other accepted offers had the inspection waived.

Those defects could range anywhere from minor to costing a significant amount of money to correct.

Let’s face it, a normal home buyer can’t determine the condition of a home by a 15-minute showing. It requires an expert to pick up on the details. If waiving your inspection contingency seems to be the norm, strongly consider having a pre offer home inspection to protect your future interest.

Other Real Estate Resources:

Your credit score is an essential factor when buying a home. Bill Gassett shares some credit basics and minimum credit scores required by different loan programs.
Some great real estate articles for the month of January compiled by Paul Sian.
Your final walk through may not seem like a big deal, but it is. Get 5 final walk through tips from Sharon Paxson.

Pre-Offer Home Inspection- Competitive Home Buying 2022 is provided by Kevin Vitali of EXIT Realty. If you would like to sell or buy a home, give me a call at 978-360-0422 and let’s get the process started.

Real Estate Services in the following areas: Northeast Massachusetts, Merrimack Valley, North Shore and Metrowest. Including the following communities and the surrounding areas- Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut, Groveland, Haverhill, Lowell, Melrose, Merrimac, Methuen, Middleton, North Andover, North Reading, Reading, Stoneham, Tewksbury, Tyngsborough, Wakefield, Wilmington, Westford

Down Payment Assistance

Buying a home can be a daunting task. Never mind finding just the right home that fits your budget.

But on top of that you have a down payment and closing costs to worry about. Buying a house may be a top priority for you and a goal you are determined to accomplish. Exploring your down payment assistance and grant options may help make buying your first home a reality.

Now you can stop paying your landlords mortgage and pay your own!!

By tapping into the available grants and programs to help fund a down payment, you can get much needed assistance with the upfront costs of buying a home. In some cases, I have seen buyers walk away with less than a $1000 out of pocket.

Do you have the income to support a mortgage, but not the funds for a down payment and closing costs? Consider any number of first-time homebuyer grants or down payment assistance programs.

What Is A Down Payment Assistance Program?

Most states and some towns or regions offer down payment assistance programs. The purpose of the programs is to allow low to moderate income home buyers the ability to buy a home.

The assistance is usually in the form of home buying grants provided by the federal government to states and municipalities.

Often, eligibility for assistance in a first-time home buyer program is based on the percentage of household income compared to the median income of a particular region.

The home buying grants by way of down payment or closing cost assistance comes in many forms.

What Does Down Payment Assistance Look Like?

Most likely, your down payment assistance will come in the form of a soft second mortgage. It will be subordinate to the first mortgage on your home.

The sale or refinance of your home will trigger the repayment of the mortgage. And, the forgiveness of the loan is possible if the loan has been held for a certain period of time.

How Do I Find First-time Home Buyer Programs Offering Down Payment Assistance?

Finding the right home buying assistance will take a bit of research. Most states have a non-profit housing program that offers specialized mortgages for first-time home buyers, home buying classes and seminars, access to down payment assistance and generally promote homeownership amongst the low to moderate income community.

To start, Google search terms like:

[Your State] first-time home buyer programs

[Your State] down payment assistance

[Your State] down payment assistance programs

[Your State] home buyer grants

In my state where I do real estate, Massachusetts, you would run across MassHousing a non-profit agency that works with low to moderate income families to be able to purchase a home.

Look into programs provided by your state. They will have first-time home buying grants available or at least guide you to where you many be able to find down payment assistance programs.

Down Payment Assistance On The Municipal Level

Also, Google down payment assistance for [your city]. Many cities may provide home buying grants for their community. It may be for the entire city or specific areas of the city.

Often the lower income communities will offer first time home buyer grants. But, it is still worth checking with any city, even higher income communities to see if any programs exist for first time home buyers.

It is possible to combine two programs and get enough money to cover down payment and closing costs. Some great low money down programs to consider are an FHA mortgage, MassHousing mortgage, a Home Possible mortgage or Home Ready mortgage.

While there is no guarantee you can combine programs, it is worth trying. Not only will you have essentially a no-money down mortgage, you may be able to get all or some of your closing cost covered.

Your Mortgage Officer And Home Buying Grants

Most mortgage officers have some knowledge of some down payment assistance or first time home buyer grants that may be accessible to you. But, there are always a handful of mortgage originators that specialize in home buyer down payment programs and grants.

If you can find out who those people are. They have a vast knowledge of available programs and how to work them and get them to close on time.

Eligibility

Eligibility into state and city programs offering down payment assistance can vary. But, you will often find some commonalities.

Eligibility requirements that are commonly seen.

Participants must be first time home buyers. A first time home buyer is defined as a person who has not owned a home in the past 3 years.
Income requirements are based upon your income compared to the area’s median income. A common percentage will be 80%. Determination of your income eligibility can be complex and will be determined by your loan officer.
First time home buyer class required before closing.
Home must be owner occupied.
The 2nd mortgage is due upon sale, refinance or the home it becomes no longer an owner’s primary residence.
Asset limits. Usually, a borrower can have no more than $50,000 to $75,000 in non-retirement assets.

Massachusetts Down Payment Assistance and First-Time Home Buyer Grants

First, let’s take a look at two popular statewide programs. The purchase of a home anywhere in the state is possible with either program.

Federal Home Loan Bank Equity Builder

The FHL Bank Boston Equity Builder program is available to anyone in Massachusetts that meets the eligibility requirements. Community banks across the state offer the EBL program.

It provides up to $15,000 in down payment assistance. By remaining in your home for 5 years the grant may be forgiven.

Selling or refinancing your home before the 5 years is up will require the loan to be repaid.

The EBL funds can be used with loan programs from MassHousing, as well as the Home Ready and Home Possible loan programs from Freddie Mac and Fannie Mae. Funds are limited and on a first-come first-serve basis.

MassHousing Down Payment Assistance

MassHousing is a semi-public agency created to provide affordable housing mortgage products to low to moderate income borrowers. The sale of bonds funds the MassHousing programs.

Since 1966 MassHousing has provided more than 27 billion dollars to provide affordable housing.

MassHousing is one of the first agencies a lender will turn to in Massachusetts to help fund a loan for lower income borrowers. Their loan products start with a low down payment for a little as 3%.

Besides offering mortgage products perfect for lower income borrowers, MassHousing also offers a very strong down payment assistance program.

The agency will provide up to $15,000 or 5% of a purchase for down payment or closing costs. If you are purchasing in a gateway city in Massachusetts, the number jumps to $25,000.

What Is A Gateway City?

A gateway city is one that is a small to mid-sized community that is an economic anchor for the region. Often the gateway cities have passed their economic peak due to social and economic change.

Once the hub of manufacturing and regional economics, the gateway cities have fallen on harder times as manufacturing shifted out of the communities.

The gateway cities of Massachusetts offer untapped potential moving forward and can provide growth moving forward.

The gateway cities in Massachusetts include Attleboro, Barnstable, Brockton, Chelsea, Chicopee, Everett, Fall River, Fitchburg, Haverhill, Holyoke, Lawrence, Leominster, Lowell, Lynn, Malden, Methuen, New Bedford, Peabody, Pittsfield, Quincy, Revere, Salem, Springfield, Taunton, Westfield, and Worcester.

First-Time Home Buyer Grants and Down Payment Programs by Massachusetts Towns and Cities

Many of the gateway cities offer down payment assistance as well. And, it is certainly worth a quick check to see what type of financial assistance is available to make a first time home buyer purchase.

To touch on a few:

Lowell– There are several programs available by different agencies in Lowell of up to $12,000 in down payment and closing cost assistance.
Haverhill– Financial assistance of up to $7500 may be available if you purchase in different areas of Haverhill.
Salem– The city will match your down payment of up to $7500. Assistance for down payments are not just limited to gateway cities.

Down payment help is not available through the gateway cities alone. Other communities offer down payment assistance as well.

North Andover- The town of North Andover will provide up to $10,000 dollars in assistance to eligible purchasers.
Medford- Up to $8500 dollars may be provided in assistance to go towards down payment or closing costs.
Newburyport- The city offer 10% or up to $15,000 dollars in funds for low income borrowers to purchase a deed restricted unit.

Financial assistance for first-time homebuyers is not limited to just these towns and cities. But, they do provide you with the idea that there are plenty of funds to tap into to help you with the upfront costs of buying a home.

Other Financial Assistance For First Time Home Buyers

I have touched upon some major resources for financial assistance for first-time home buyers to tap into money for down payments and closing costs.

But, assistance is not limited to these choices. There may be other federal or state grants available.

Also, community banks may have specialized community lending programs. While they may not provide down payment funds, they could provide some great terms and interest rates on a mortgage product.

Summary

You may find you have the capacity to make monthly mortgage payments. But, find you are a little light on down payment or closing costs.

Explore the many options for down payment assistance or grants for first time home buyers.

There is more assistance out there than you think. And, instead of waiting years to fund your first home purchase, you can get in now.

If you would like to explore down payment assistance, call me and I will set you up with one of my preferred lender that specializes in loan programs and grants that allow you to take advantage of these programs.

Other Real Estate Resources

What are decorating trends going to be for 2022? Explore what homeowners are looking for next year with Karen Highland’s article stay ahead of the curve and look at the decorating trends for 2022.
Winter can be an opportune time to sell your house as well as providing some unique challenges. Paul Sian provides winter tips for selling your home.
Sometimes the biggest challenge to homeownership is finding the funds for a down payment and closing costs. Michelle Gibson covers how you may use your 401k to purchase a home.

Is My Real Estate Agent Really Working for Me?

When it come time to buy or sell a house, most people call a real estate agent to aid in their home sale or purchase.

Whether you are buying or selling a home, understanding real estate agency is critical.

Buying a home and looking at homes is fun. Talking about the legal aspects is not. Do yourself a big favor and decide on how your real estate agent is going to work for you.

The only type of real estate agent that works soley for you that protects your interest is a buyer’s agent!

Secondly, you can run into other agents along the way and is important you understand the relationship you have with each agent.

Real Estate Agency is at the core of every real estate transaction, but is also the most overlooked aspect of purchasing a home by buyers. It is also what trips up home buyers the most and where critical mistakes are made by a homebuyer.

Homebuyers in particularly ignore real estate agency and how “their” real estate agent is supposed to interact with them. I use the term “their” loosely as the agent they are working with may not truly be “their” agent. A real estate agent can ac in several capacities.

Home buyers, I encourage you to read this article on understanding real estate agency. There are more options on how you work with an agent than you think. I am going discuss how a Massachusetts Real Estate Agent can work for you.

If you don’t know what anyone of them means you need to take the time to understand:

Selling Agent, Buyers Agent, Facilitator, Dual Agent, Designated Agency, Non Designated Agency

Note: agency laws vary from state to state, so check with your particular state, though most states have very similar agency laws to Massachusetts. Wheather your a first-time homebuyer in Massachusetts, a move-up buyer, a downsizer, etc… using a buyer’s agent can save you a ton of aggravation.

Understanding Real Estate Agency

What Is Agency in Real Estate?

First and foremost Real Estate Agency is to protect the consumer. It is at the crux of how an agent interacts with you. When you hear real estate agency you usually think about your local real estate office.

But, the the term goes much deeper from a business sense. Real Estate Agency is about a legal relationship that is formed.

Typically in the business world if some one is an agent, they have a fiduciary responsibility to a principal. An agent is obligated to act on behalf and for the best interest of their principal.

So in the real estate realm, agency is a legal relationship formed between the agent (real estate agent) and the principal (home buyer or home seller).

Along with an agency relationship comes some basic fiduciary responsibilities an agent has to a client.

Fiduciary Responsibility- A fiduciary responsibility is the highest standard of care. Your needs, as the real estate client must come before anything else.
Confidentiality- Anything that is known about you or discussed with you is confidential. Nothing can be disclosed without your explicit permission.
Obedience- Your agent must lawfully carry out your instructions.
Accountability- Your agent must always give you a complete accounting of your transaction.
Loyalty- Your agent must put you before a others, their own company, and their own beliefs. They must do what is best for you.

So when you are in an agency relationship with an agent their responsibilities are much like a lawyers responsibility to you. Realize just because you are talking to an agent an agency relationship is not formed.

A Real Estate Agents Obligation To Disclose Their Agency Relationship With You

A real estate agent is obligated, by law to disclose their agency relationship to you at the first face to face meeting to discuss a specific property.

This disclosure is done through the MASSACHUSETTS MANDATORY LICENSEE-CONSUMER RELATIONSHIP DISCLOSURE. Every state in the country should have some mandatory disclosure on how you and your agent are working together.

The disclosure covers the different agency and non-agency relationships. Their is a check box to pick the relationship and both agent and consumer sign.

If you call an agent about a property to schedule a showing, the first thing they must do is disclose the relationship to you upon meeting you at the property.

Both the real estate agent and the real estate client must sign acknowledging the disclosure has been presented. If a real estate agent does not present you with the agency disclosure , they are acting above the law and it is wrong!!

Do you really want to work with them? Where else will they short change you along the way if they are ignoring one of the basic real estate laws of informing you about agency relationships.

The one and only situation where the agency disclosure is not required is when you attend an open house. Then a sign must be prominently displayed stating the agent is working for the seller. This means the attending agent is most likely the listing agent and has a real estate agency relationship with the seller.

The sole job of the agent at the open house is to sell you the house for the price the seller wants. Period. They are not their to help you buy the house and guide you through the process to your benefit. They are there to get the best deal they can for the seller.

Of course they will be nice and appear helpful, they would love to sell their own listing to an unrepresented buyer and scoop a double commission.

Understanding Real Estate Agency- How Can Your Agent Work For You?

Here we are going to discuss the different agency and non-agency relationships in which an agent can work for you. In most cases a seller contracts a sellers agent. It has been the way it has been done for many many years. But over the years a buyer has many choices.

Sellers Agent

When a seller engages a real estate agent to as a Sellers Agent there is an agency relationship formed. The sellers agent owes the seller the basic fiduciary responsibilities spelled out above. It is the seller’s agents job to give an opinion of value, help prepare the home, properly market the property, expose it to the most amount of buyers, secure an offer, help negotiate the offer, negotiate repairs after a home inspection and bring the transaction to a smooth closing all to the benefit of the seller…. not the buyer, not themselves, but the seller.

Bear in mind there is one case where a sellers agent may not always act in the best interest of the seller and that is when it comes to property disclosure. A real estate agent is bound by law to disclose any material defects in a home even if it goes against the sellers wishes.

Buyer’s Agent

A buyer can engage the services of an agent to act on their behalf as a buyer’s agent. Again, when the agency relationship is formed the buyer’s agent owes the buyer the basic fiduciary responsibilities laid out above. A buyer’s agent can offer a whole slew of services from helping to set expectations arrange financing on a home, provide tools to find a homes for sale, prepare and negotiate an offer, help arrange professionals like home inspectors attorney etc…, negotiate an home inspection issues and bring the transaction to a smooth closing to the sole benefit of the home buyer.

Facilitator

A facilitator is a non- agency relationship as the real estate agent works for neither the buyer or seller. There job is to assist buyer and seller in putting an agreement together. There duties are more of a ministerial nature rather than consultive. A facilitator is bound to act honestly and fairly but has no loyalty and owes neither party confidentiality or even obedience.

Designated vs. Non Designated Agency (at the office level)

Designated Agency is a newer agency relationship that has been created. It allows two real estate agents from the same office to each represent a seller or a buyer in the same transaction. It is important to understand this agency relationship as it comes into play when one agent from the same office brings a buyer to a listing from another agent in the same office. Note that the mandatory state disclosure discloses whether the agents firm is a designated office or a non-designated office.

In this case each agent can represent their client fully as a buyer’s agent or a seller’s agent. At the end of the day the real estate broker of the designated office is a dual agent, but they rarely get involved with the buyer or seller so it is generally a non-issue.

A non designated agency, it is implied that all agent of the firm work for the client.

Dual Agency

Dual Agency happens in two ways. The first is if one agent is in an agency relationship with both the buyer and seller. Or, if two agents in a non-designated agency office represents a buyer and seller individually. Dual agency must be disclosed to both buyer and seller prior to the offer being tendered. And, both parties must agree.

When in a dual agency relationship an agent or agents cannot favor one party over another. They must remain neutral. A dual agent cannot satisfy all of their obligations to a party if the interest conflicts between buyer and seller. For example an agent cannot give the either the buyer or seller opinion of value, recommend vendors, give negotiating advice, etc….

When a buyer and seller are in a dual agency situation they are giving up many services and rights that are available to then from a buyer or seller’s agent.

Don’t Assume A Real Estate Agent Works For You

Never, ever assume a real estate agent works for you with out having a disclosure signed. Always make sure you understand the relationship the agent your speaking with has with you. For example a home buyer can buy a home with any of these types of agency.

Quite frankly so can a seller, though rare. I have seen sellers list their home with facilitators, knowingly or not, I am not sure.

Why? How you interact and what you tell your buyer’s agent will be very different than how you would interact and tell a seller’s agent or a facilitator. Neither owes you confidentiality and can use information you have disclosed against you.

Another situation is if you go directly to a sellers agent to buy a house with out the representation from a buyers agent, they cannot offer you many of the services a buyer’s agent can.

For example a seller’s agent cannot give you an opinion of value, they can only suggest and try to support the full list price. While they must present your offer they cannot negotiate on your behalf as well. They cannot provide you with preferred vendors or counsel you on the best way to negotiate. You are on your own.

I cannot tell you how many times as a sellers agent buyers have revealed things to me, such as they LOVE the house and they HAVE to get a house under contract by a certain time. As a seller’s agent if that buyer tenders an offer I have to disclose what the buyer said to me and it gives the seller a negotiating edge over the home buyer.

Final Thoughts on Understanding Real Estate Agency

The agency relationship you have with “your agent” is so important and is often overlooked by many home buyers. Why a home buyer would not want to be represented by an experienced buyers agent is beyond me. There is so much to a real estate transaction home buyers don’t even know what they don’t know.

I have seen buyer’s go directly to the seller’s agent to buy a house. They are not represented in any way by an agent. Yet they will call the seller’s agent “their agent”!! EEEK, if that is the case you are not getting it.

When you are selling a home it is usually a given your contracting with a seller’s agent. But it important to understand that the agents showing your home most likely represent the buyer. If you happen to run into the buyer and their agent as you are leaving or forever whatever reason you are not leaving for showings (which I don’t recommend), keep your mouth shut! Do not volunteer information. If you are asked a question direct them to ask all questions thru your seller’s agent.

I will also give my opinion on dual agency here. Don’t do it. While dual agency is legal, I think it is unethical. Can a lawyer act as a prosecutor and represent the defendant… no.

So why should a real estate agent be able to represent a both a buyer and seller in the same transaction their interest lie opposite of each other. In most cases dual agency is not worth it. You are giving up so many rights as either a home seller or home buyer. If you have ever heard it said…. you can’t serve two masters…. well this is the case with dual agency.

Slow down and down and make sure you understand real estate agency, don’t be so anxious to look at pretty houses without making a decided decision of how you want to work with an agent. How an agent works for you and their abilities can make or break you. Real estate agency is where your whole home buying or selling process begins. It can save you a ton of aggravation, time and maybe even money!

Other Resources on Real Estate Agents and Real Estate Agency:

Anita Clark- Top Reasons A Buyer Needs Representation
Kyle Hiscock- Buying a FSBO- Buyers Beware
Teresa Cowart- Using A Buyers Agent is a Smart Move
Joe Samson- Should I Use a Buyer’s Agent
Kevin Vitali- Realtor vs. Real Estate Agent

Is My Real Estate Agent Really Working for Me- Understanding Real Estate Agency, was provided by Kevin Vitali of EXIT Group One Real Estate of Tewksbury MA. If you would like to sell or buy a home give me a call at 978-360-0422 and let’s get the process started.

Real Estate Services in the following areas: Northeast Massachusetts, Merrimack Valley, North Shore and Metrowest. Including the following communities and the surrounding area- Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut, Groveland, Haverhill, Lowell, Melrose, Merrimac, Methuen, Middleton, North Andover, North Reading, Reading, Stoneham, Tewksbury, Tyngsborough, Wakefield, Wilmington, Westford

Accepted Offer On A House, Now What?

It has been a journey to get where you are…. getting financed to buy a home, going to open houses every weekend, scouring the internet for a new home, and finally getting an offer accepted on a new home. But now what?

Getting your offer accepted is only half the battle.

After getting an accepted offer on a home and going under agreement there are many steps along the way is an opportunity to delay your closing or in extreme cases kill the deal. Lets take a look at the steps to take after an accepted offer that can be a stumbling block for some homebuyers.

What To Do After Getting An Offer Accepted On A Home

The first thing to remember is you have signed a legal and binding contract. There are dates that must be adhered to and steps to be taken to get to the closing table. If anything is missed, it could delay the closing or even get the contract cancelled and your home deposits will be forfeited.

13 Steps To Get To Closing Day After An Accepted Offer

Keep Your Credit Status Quo

It is very important to keep your credit profile status quo. Do not pay anything off, do not open new lines of credit, do not do anything with your credit without talking to your loan officer.

Seemingly innocent an innocent action like closing an unused credit card could impact your credit score significantly enough impact your credit score enough to have your mortgage denied. Or, don’t think opening a line of credit or credit card at a furniture store may not seem like a big deal if you have no balance on it.

Wait until after you close to make any changes to your credit.

Read Your Contract and UNDERSTAND It!

Take the time to read your contract and understand your obligations and important dates that must be met by you. Many missteps are made by homebuyers that unfortunately delay their closing or cause them to lose your deposits, all because they didn’t take the time to understand their contract and in some cases even read it!

Everything you need to know about the sale of the home you are about to purchase is spelled out in your contract. Pay close attention to the contingencies in your real estate contract as well as the associated dates.

But even past contingency dates, your contract will spell out how the home is to be delivered, how a sellers and buyer are to be notified, how the title needs to be delivered and much more.

Escrow Deposits

One of the first things you need to do if you haven’t already is make sure you good faith deposit gets where it needs to go. Most contracts have a provision where the buyer is putting an earnest money deposit in escrow. The contract is not binding until the deposit is received by the escrow agent.

In some states the escrow money is tendered with the offer. But, in many states, the selling agent delivers the check after the offer is accepted.

Make sure your deposit gets to where it needs to be, don’t let your deposit money be a reason your deal is cancelled.

Notify Your Lender

Immediately notify your lender that you have an accepted offer on a home. Your loan officer will get the application for your loan squared away and let you know what documents will be needed for underwriting of your home mortgage.

The lending process is going to be a constant from the time you put an offer on the house until you close on a home.

Be proactive and fill every request from the lender quickly. If your lender is not in constant contact with you, take the lead and contact your lender every few days.

Obtaining your mortgage is going to be the biggest step after have an offer accepted.

Home Inspection

You have a short period of time to conduct any home inspections. Schedule a home inspection as soon as you get an accepted offer on a home.

Typically, you will have a 5-10 day period for a home inspection. Do it as soon as possible, so it gives you time to do any due diligence after the home inspection.

One your inspection is done, take the time to carefully read your home inspection report, ask any questions of the inspector and the home seller and call any professionals if there are areas of concern.

If you have any issues with the home inspection, you may be able to negotiate a resolve with the seller or if it is a huge cause for concern totally back out of your contract. But do so in a timely manner, as spelled out in the home inspection contingency in your purchase contract.

The Appraisal

Once you have completed all home inspections, let your lender know that the appraisal can be ordered.

The appraisal is an important step in the lending process and it takes time. It confirms the home is worth at least what the bank is lending on for the home. Many lenders will require you pay up front for the appraisal. Pay the appraisal fee immediately.

You want to get the appraisal cleared and confirm the house appraises for the purchase price before the mortgage commitment is due. Do not release mortgage commitment if the appraisal process is not complete by the mortgage commitment date.

Insurance

Your lender is going to require you have insurance on your home before they lend you the money. In your lenders, eyes, worse than you not paying your mortgage, is the house being destroyed by a fire or other catastrophic event with no insurance coverage.

Don’t wait to the last minute to get insurance coverage. Get several quotes and compare prices and policies to get the best deal you can.

Make sure your insurance coverage coincides with the day you take possession of the property.

Title Search

A title search will be performed by the closing attorney to make sure the seller can deliver a clean title. But it should be done early in the process to discover any title issues, have them cleared up before closing.

While this piece of a closing is done behind the scenes, you should stay on top of it to avoid any last minute issues. Most title issues are minor, but they do take time to fix.

The most common issue is a previous mortgage has not been properly discharged. While not a big deal, it needs to be taken care of before you can close on your mortgage. And, that usually does not happen overnight.

Switch Utilities And Notify

About two weeks prior to moving, call the utility providers to make sure you have accounts opened and the utilities will be on for your arrival. It costs you nothing to switch account names, but if you forget and the utilities get shut off, it will cost you money to turn the utilities on.

This is also a good time to do an address change with the Post Office to make sure your important mail gets where it needs to go. Take the time to notify anyone that sends you important mail…. service providers, doctors, credit card statements, banking and investments statements, etc…

Switching utilities and taking the time to notify people of an address change won’t delay your closing, but it is an important step in the closing process.

Mortgage Commitment

Most purchase contracts has a mortgage contingency allowing for a buyer to receive mortgage commitment by a certain date. If mortgage commitment is not obtained by that date, then the buyer can void the contract with no recourse to them.

Your mortgage commitment is a formal letter from the bank committing to lend you money under certain conditions, for a period of time.

Often the conditions are boilerplate like re-pulling your credit report and verifying employment on or one day before you close on your loan. Other conditions may be more serious, like the bank is still trying to source down payment money and should be discussed with your attorney before releasing mortgage commitment.

Once you say you are all set on your mortgage, you are fully committed to close and if you should default all your deposit money is at risk.

Closing Disclosure

The closing disclosure or CD is one of the most time sensitive documents during the process. Your final CD must be signed 3 days before closing. The Federal three-day rule allows plenty of time to review the closing disclosure and discuss any discrepancies from the initial CD.

The closing disclosure spells out the terms of the loan as well as all the accounting of your escrow money deposit and your closing costs. Make sure you review and sign the same day you receive it.

Final Walkthrough

Don’t skip your final walkthrough. It may have been several weeks to a few months since you last saw the home. You want to take the time to make sure that everything is in working order and the house is being delivered in the manner you last expected and as your contract spells out (in case you agreed to the seller doing repairs or leaving something behind).

Once you close on your home, most contracts state that the home is being delivered as-is. You will not have any recourse after you close.

Schedule your walkthrough, preferably after the home has been vacated but also give enough time to rectify any issues if possible. Unfortunately, some buyers are still moving up to minutes before you close. If that is the case, delay the closing if possible to give time for you to properly view the home.

Closing Day

At this point everything should be all set. You should know how much money you need to bring as well as have had time to do a final walkthrough and review your final closing disclosure.

Make sure you have identification with you as well as a bank check with any money you had to bring for the transaction. The lender’s attorney will not accept a bank check for any monies that need to be brought to the closing.

Schedule your closing early in the day to give time for any last minute hiccups. In many states you do not own the house until the deed is recorded at the registry of deeds. Electronic filing with the registry of deeds has certainly sped up the recording process, but there is a filing deadline in the late afternoon.

Summary

Pay attention to the closing steps to avoid any closing delays along the way. The escrow period between the time you have an offer accepted on a home and closing can be hectic. Usually you have 30 to 45 days to close and the pace can be fast.

While these steps may leave your head spinning, working with a competent Massachusetts Realtor or one in any state, will leave you in good hands. A REALTOR, acting in your best interest, will know the steps you need to take and will outline what you need to do.

The escrow period between the time you have an offer accepted on a home and closing can be hectic. Usually you have 30 to 45 days to close and the pace can be fast.

Accepted Offer On A House, Now What? has been provided by Kevin Vitali of EXIT Realty. Thinking of buying a home? Call Kevin, his 20 years of experience will get you effortlessly to the closing table. 978-360-0422.

Real Estate Services in the following areas: Northeast Massachusetts, Merrimack Valley, Essex County, Northern Middelsex County, North Shore and Metrowest including the following communities and the surrounding area including Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut. Georgetown, Groveland, Haverhill, Lawrence, Littleton, Lowell, Melrose, Merrimac, Methuen, Middleton, Newbury, Newburyport, North Andover, North Reading, Reading, Salisbury, Stoneham, Tewksbury, Tyngsborough, Wakefield, Winchester, West Newbury, Westford

Video and Audio Surveillance During Home Showings

Technology has come a long way and when it comes to home surveillance. It is easy to install a very comprehensive video and audio recording system using security cams or hidden cameras that are both equipped with microphones.

When it comes time to sell your home, you may already have some sort of surveillance on the interior or exterior of your home, whether it is made up if surveillance cameras in plain sight, hidden cameras, spy cameras or nanny cams.

With today’s technology, it can be so easy and inexpensive to be notified of a visitor in your home and be able to tap into hidden video cameras and microphones to spy on your home buyers and see what they are saying about your home.

Are you tempted to record your potential home buyers as they view your home? Are you thinking of using those spy cams to protect yourself from theft or to gain a negotiating edge?

Learn what you need to know about turning on those hidden cameras during a home showing.

Can I Secretly Record Home Buyers In My Home?

The answer is complicated and is very state dependent. Surveillance video and audio laws vary drastically from state to state. Audio and video recording are treated very differently from a legal standpoint, and a home seller should take note before recording home visits.

Video

Video cameras are prevalent everywhere. Stores, street corners, work etc…. Generally, it is alright to record anyone in public view and also to record in your own home.

In most states, taking a video of someone using a hidden camera whether they are made aware or not is usually not breaking the law. The people being captured on a video camera do not generally need to give consent. This includes home buyers at a showing of your home. Note, this applies to video only, audio adds another layer of complexity.

The one caveat is it is illegal to take video footage of a person in an area where they would expect privacy, like a bathroom, locker room, bedroom etc…

Audio

Audio is far more complicated than video and you need to be aware that there are wiretap laws to contend with. And, most hidden cams now have an audio feature as well. Just tap into your homes internet and you can watch a buyer live go through your home or have it uploaded to the cloud to watch later. Many states require at least one party involved to be aware that audio is being recorded.

12 states require all parties to be made aware their conversations are being recorded, including, Michigan. California, Connecticut, Florida, Illinois, Massachusetts, Maryland, Montana, New Hampshire, Pennsylvania, Nevada and Washington.

In general, you cannot secretly record conversations your potential home buyers and their agents have in your home. Recording audio of homebuyers in your home without permission violates federal and state wiretapping laws and can be a felony that can carry serious penalties to the home seller if caught.

Know The Law Before Spying Your Buyers

Before recording video and audio of buyers, during home showings research, laws regarding video and audio recording in your state or better yet consult with an attorney.

It may not seem like a big deal to you to check in on your homebuyers with the hidden cameras throughout your home on your phone or computer at work, but it can be a very serious crime.

Why Would Sellers Want To Snoop On Home Buyers With Hidden Cameras?

There are two obvious reasons why a home seller would want to use the in-home spy cams that allow them to record or tap into what home buyers are saying or doing in their home.

The first is security. You can monitor open house visitors and homebuyers during showings to see if they are there for reasons other than checking out your home to potentially buy it. You now have a record on video if anything shows up missing.

The second reason is to give you a negotiating leg up by listening to their conversations during a buyer showing. If the buyers tell their agent, they love the home and they have to have it, that certainly can give you a leg up in negotiations.

By monitoring what is said with hidden microphones, you take the guesswork out of what the buyers think of your home.

The Downsides Of Spying On Homebuyers

Spying on your homebuyers with video and audio recording comes with two downsides.

The first downside is if it is not done correctly you could be breaking the law. It adds a layer of risk to selling a house that you may not want to take on.

The second reason you may want to turn off the video and audio recording devices is it is just downright creepy.

Here Is The Rub

A homebuyer who knows they are being recorded feels uncomfortable in your home and do not feel welcome.

Often they rush through the showing without really paying attention to the home. They are more concerned about saying or doing something wrong, trying to find the cameras and figuring out why you feel the need to record their every word and movement.

When you sell your home, you want the buyers to feel welcome. During the showing you want the buyer to take ownership of the home in their mind. When buyers linger thinking of the possibilities of your home has for their family, it is a good thing.

As much as you feel you may be gaining an advantage, you could be disadvantaging yourself more than you may realize by using your in-home security cams to spy on home buyers.

Lending Tree conducted a survey saying that 44% of homebuyers would back out of purchasing a home if they discovered they were secretly recorded.

Bear that in mind before you decide to record your home buyers. Is it worth it?

Check Your Motives

Why do you want to spy on your homebuyers? Are you just being nosy, trying to give yourself an advantage or do you have legitimate security concerns?

If you are being nosy, let’s face it that’s a bit unsettling. You probably wouldn’t like it either.

Security concerns may be a valid reason to use surveillance equipment during showings, but you can probably get by with video and don’t need the audio.

Just ask yourself if you need to tune into your home buyer’s showings?

Disclosure For Home Sellers Using Hidden Cameras

If you decide you have to use your hidden cameras when homebuyers are in your house, do not do it without your listing agent knowing. Even if your cameras are out and the open where you think are obvious to see, makes sure you disclose. Listing agents have been dealing with this for years and most likely are aware of the best practices of recording audio and video in the home during the sale of real estate.

My take is, regardless if you legally need to or not, be fully transparent about the use of video and audio recording equipment being used in the home when a home buyer is present. Consider the following:

Disclose in the MLS listing sheet that video and/or audio surveillance will be used on your property.
Consider the buyer and the agent representing the buyer signing a disclosure that states they are being recorded, especially if audio is being used. Most states require the consent of at least one party being recorded.
Post multiple signs prominently around your home, letting buyers know they are being recorded while on the property.

Full disclosure will help lessen the sting of realizing they are being recorded, as well as help cover you with any consent laws your state may have.

Do not engage in any audio recording without disclosure!! Federal law prohibits any recording of conversations without the consent of at least one person involved in the conversation. And some states require all parties to give consent.

What Do Homebuyers Need to Know About Spy-Cams In A Home?

Earlier I referenced a survey by Lending Tree. They also surveyed home sellers using surveillance systems. 33% of sellers surveyed said they secretly used spy cams during their home buyers showings!!

While legally a home seller should probably disclose you are being recorded, there is a good chance you are secretly being recorded.

Hidden cameras for a home can be purchased for less than $25 a piece and many can now record audio. Most of these hidden cameras make it so easy to set up by using wireless technology. The spy cams can take the form of almost anything, a led lightbulb a smoke alarm, a USB block, etc… and can easily go undetected.

Treat every showing as if your every action and word is being secretly recorded.

Take any discussion you and your REALTOR have about a potential home out to the street, so you don’t disadvantage yourself when it comes time to negotiate a purchase.

To Spy Or Not To Spy With Hidden or Surveillance Cameras

As a real estate veteran of 20 years, I think it is an all-around bad idea to use your hidden cameras either secretly or knowingly to spy on your home buyers. It freaks out buyers and they don’t look at your home the way they should. It could also have serious ramifications for you legally if done improperly.

If you decide you need to know what home buyers are doing in your home through the use of spy cams, nanny cams, in-home surveillance systems, etc… first consult with an attorney to make sure you are with in the law and secondly disclose that you are using recording devices to your buyers.

Homebuyers, assume you are always being recorded and act accordingly.

Finally, in no way is this post to be construed as legal advice. Any questions about using hidden cameras, security systems and audio recordings should be answered by an attorney.

Other Real Estate Resources:

Your home’s foundation is a critical structural element of your home. The foundation supports the whole house. Paul Sian discusses what can cause foundations to fail in his latest post. Knowing what can cause foundation failure can go a long way in preventing issues cause by a poor foundation.

Selling a rental property adds a layer of complexity to selling a home…. tenants. Vicki Moore provides some great advice on selling a tenant occupied home as well as how to deal with tenants during the sale.

In todays competitive house market you may be looking at home in your budget that need signicicant repairs or cosmetics. Bill Gassett discusses the FHA 203K loan. An FHA Rehab loan can be a great way to finance your new home as well as finance repairs and upgrades.

Broom Clean Condition, What Does It Mean?

Many real estate contracts use the term broom clean or broom swept to describe the condition of how a property is to be left. But what does broom-clean really mean for a home seller or a home buyer?

It is a very ambiguous term. And, while you will often find the term broom clean condition in a contract there is no legal definition. It does leave the delivery in a gray area if any issues would arise. And if a home seller does not leave the home in broom clean condition, there could be consequences at the closing table.

What Does Broom Clean Mean?

Broom clean at a minimum means the property should be free of all personal items and debris. At a bare minimum, floors should be swept or vacuumed and all surfaces wiped clean.

Whenever the transfer of property is involved it is very important to read your contract. The details of the delivery of a home will be somewhere in your purchase contract. Also use your REALTOR and attorney as a resource if you have any question about what the expectation should be the transfer of a home should be.

Let’s take a quick look at the standard language of a Massachusetts Purchase and Sale Agreement in regard to the delivery of the premises. Remember, each state may be slightly different regarding the language.

Delivery of Premises in The Massachusetts Purchase and Sales Agreement

At the time for performance the SELLER shall give the BUYER possession of the entire Premises, free of all occupants and tenants and of all personal property, except property included in the sale or tenants permitted to remain. At the time for performance the Premises also shall comply with the requirements of paragraph 6, and be broom clean and in the same condition as the Premises now are, reasonable wear and tear excepted, with the SELLER to have performed all maintenance customarily undertaken by the SELLER between the date of this Agreement and the time for performance, and there shall be no outstanding notices of violation of any building, zoning, health or environmental law, bylaw, code or regulation, except as agreed.

So the term broom clean is used, but really there is no indication of what is to be expected. It is extremely vague, leaving no real guidance to what broom clean condition really means.

What Does Broom Clean Mean for Home Sellers?

At a bare minimum a seller should leave a home first and foremost free of all personal belongings and debris.

That means don’t leave the unwanted furniture that is too difficult to get rid of or the construction debris under the deck from a project 10 years ago or every household chemical and paint you have acquired over the years. The house should be delivered empty.

The floors should be vacuumed and/or swept, and surfaces wiped down. The expectation is set in the contract, by saying the home should be delivered in the manner that was least seen at the home inspection.

So broom clean would come down to are you leaving any evidence you were there? Are there food crumbs on the floor, food spills on the counter or refrigerator, hair in the bathroom sink, your kids dirty handprints on the wall, the accumulation of dust and cobwebs, etc….

If you are leaving anything that may be in question, avoid any trouble and just ask the buyers if they want it or if it should be removed.

Broom Clean Condition for Home Buyers

Broom clean condition would be a minimum standard. As a home buyer, do not expect a home to be professionally cleaned. The term broom clean is vague at best. What about the oven being cleaned, or the refrigerator being thoroughly wiped down, or the window cleaned inside and out?

It certainly would be nice if the seller did all of that for you, but, that would fall under a professional cleaning and not under broom clean condition.

You will most likely want to hire a cleaning service or do a thorough cleaning yourself after a seller has delivered a home to you in broom clean condition.

Fall Back To The Contract

When it comes to real estate and any dispute that may arise, often your purchase contract will have something to say about it. The purchase contract is a legal and binding agreement that will dictate how the transfer will take place.

If as a home buyer you have certain expectations of how the home is delivered, spell it out in your contract. I have had buyers negotiate a professional cleaning or the removal of certain items like a cord of rotten firewood by closing.

Technically the firewood would be classified as a personal belonging and should go, but if it is in question re-iterate in the contract that the firewood should be removed by closing.

Disputes

A home buyer should be allowed a final walk through of the home just prior to closing. Occasionally, a seller may not deliver the home in broom clean condition. This would put a seller at risk of defaulting on a contract.

A few dead flies on a window sill is not a reason to halt a closing, but a garage filled with personal belongings and debris may. Most final walk through issues involving the delivery of a home are solved by delaying the closing to rectify the issue, or a hold back of the sellers proceeds to give the buyer time to rectify the issue and be reimbursed any expenses.

If an issue should arise, consult with your attorney and real estate agent about the best course of action.

Summary

Broom clean condition is vague at best and leaves a lot to interpretation. As home buyer’s most likely you will be disappointed. You aren’t getting a full professional cleaning and the home will probably not be completely turnkey. You will want to do a thorough cleaning before occupying the home.

Home sellers, do unto others as you would have them do unto you. Leave the premises the way you would want to find it if you were the home buyer.

Other Real Estate Resources

Buying or selling a home means moving. Moving can be tedious. Being organized about your move can certainly take the sting out of moving. Danny Margaliono provides a moving checklist that will help create a smooth transition from one home to another.
If you are buying a first home or downsizing, the debate in your mind is should you buy a condo vs a single family home. Michelle Gibson provides some pros and cons of buying a single family home versus a condo.
This incredibly hot real estate market has buyers scrambling to secure a home. It may be tempting to put offers in on more than one home at the same time in hopes of one being accepted. Petra Norris discusses the downside of writing multiple offers.

Broom Clean Condition, What Does It Mean? Is written by Kevin Vitali of EXIT Realty. Are you thinking of buying or selling a home? Give me a call today and let’s get started on helping you achieve your housing goals. Call me at 978-360-0422

How To Save On Closing Costs As A Buyer

Buying a house is one of the most expensive purchases most people will ever make. The total price can be staggering, but it’s paid out over many months, so it feels more doable. But on closing day, you’ll be hit with quite a few upfront fees and costs that need to be in your budget.

Many buyers aren’t aware of the “sticker shock” of all the extra fees that come due at closing. These average out to roughly 3% to 4% of the home price. It might not sound like a lot of money. But on a $200,000 house, that’s an additional $6,000 to $8,000 that you’ll need to have available.

Luckily, there are some strategies that you can use to save on closing costs as a buyer.

Compare Costs

Within three business days after you apply for a loan, your lender must send you a Loan Estimate Form. This is an itemized report that shows all of the closing costs for your mortgage. Some lenders might even give you this before you apply for a loan.

You can use this form to “comparison shop” amongst multiple lenders; you don’t have to apply to just one. Compare their different fees, and you’ll find the one that works best for you.

When you find an offer you like, use it as leverage with other lenders. With a Loan Estimate Form backing you up, you can negotiate some of the fees with other lenders. Once they know you are shopping for a mortgage, they’ll be more likely to offer savings.

Shop Around Where PossibleHow To Save On Closing Costs As A Buyer

Pay special attention to Section C of the Loan Estimate Form: “Services You Can Shop For.” These are ancillary services required by your lender. And they’ll have fees listed according to their preferred providers.

However, you don’t have to use their recommended vendors. Instead, you can (and should) shop around for better prices. You can ask family, friends, and even your Realtor for recommendations. You can also look online, using professional organizations such as the American Society of Home Inspectors (ASHI).

Here are the services you can shop around for:

Home inspection
Survey
Title search
Title insurance binder
Lender’s title policy
Settlement agent (also called an escrow agent or closing agent)

The two priciest items on this list are the title search and the settlement agent, so those are the ones where you stand to save the most money.

Ask the Seller for Help

Every local market is different, so it’s important to understand the real estate trends in your area. But in a slower market, buyers have the upper hand. You can use this to your advantage and ask sellers to help cover some of the closing costs.

A seller might be willing to lower the sale price, for example, to help with closing costs. Or they may be willing to help pay for some of the costs out of the proceeds of their sale. You can make this more palatable to the seller by combining this request with other elements of your offer. For example, you can ask the seller to help pay for closing costs in exchange for waiving contingencies or offering a more flexible closing date.

Of course, if the market is hot and the seller is receiving multiple offers, your request will likely be denied. Talk to your Realtor about the local market and your chances of success with this cost-cutting strategy.

Think Twice About Points

Mortgage points, also known as discount points, are fees you pay in exchange for a lower interest rate on your mortgage loan. The lower interest rate will then reduce your monthly payment.

Depending on the amount, you can save hundreds of dollars each year on your mortgage payment. Over the life of the loan, that can add up to tens thousands of dollars.

While this may seem like a great way to save a lot of money, there are a couple of instances where buying discount points won’t make financial sense.

First, if you’re planning on moving out of the house soon, you might not save enough. Say you spend $3,000 on points and save $50 per month. You’d have to stay in your house for 60 months, which is five years, if you want to break even. If you move before then, the money spent on points won’t be worth it.

You might also want to reconsider buying points when mortgage rates are already low. Since your interest payments are going to be lower than the norm, the points might not make enough of a difference to be worth the money you’ll have to spend upfront.

Consider a No-Cost Mortgage to Save on Closing Costs

It is possible to get what’s known as a no-cost mortgage. But that term is slightly misleading. The loan does have closing costs, you just don’t have to pay them upfront. Instead, the lender will give you credit for the closing costs in exchange for a higher interest rate.

This can be helpful if the down payment and moving fees have left you strapped for cash. But, that higher interest rate will raise your monthly payment. Throughout your mortgage, it can end up being much more expensive than simply paying the closing costs.

This is an option to consider only if you have no other recourse. Try to avoid it if at all possible, but know that it’s an option if necessary.

Delay Closing

One of your many closing fees will be prepaid daily interest charges. This is the prorated interest that accrues on your mortgage from the closing date to the first full month of your loan. And it has to be paid upfront, at closing.

You can save hundreds of dollars just by moving your closing date to the end of the month. For example, if you close on April 29th, you’ll only owe two days worth of interest (the 29th and the 30th).

Of course, it’s not always possible to move your closing date until the end of the month. But if the seller is flexible, it’s something to consider as a way to save on closing costs.

Talk to Your Bank

Banks prefer to keep their existing clients as clients whenever possible. If you’re considering using your personal bank for your mortgage loan, ask them about incentives or rebates.

Closing costs can seem daunting, but with smart tactics and negotiation skills, you can save thousands.

How To Save Money On Closing Costs As A Buyer was written by Anna Compagine Cohe. Anna is a Content Writer at UpNest, where agents compete and you win. Anna has an extensive background in the real estate industry. She is a published author who specializes in real estate, personal finance, travel, and wellness. When she’s not writing, Anna can be found reading, walking on the beach, or spoiling her teenagers and their rescue dogs.

Appraisal Gap- Get Your Dream Home Under Contract!

The beginning half of 2021 has been a red hot market seller’s market. Low inventory and low-interest rates is making competition fierce among homebuyers in just about every market in the United States.

Having good financing may no longer be good enough to secure the home of your dreams. Many buyers are finding themselves in a bidding war and willing to pay more than the list price. But, buyers arent just offering above the sale price, they are willing to remove their home inspection contingency, use an escalation clause, offering to pay the seller’s closing costs, let the sellers stay rent-free past closing, etc….. Now, a recent trend is buyers are now willing to remove the home appraisal contingency and offer appraisal gap coverage to the seller.

Before we delve into appraisal gap coverage let’s look at a few things first.

What Is An Appraisal?

An appraisal is a valuation of a home by a licensed appraiser. It ensures the lender you are financing your home through, that the home you are looking to purchase is in the range of market value. Basically, it is letting the mortgage lender know that they are lending on a property at fair market value and the loan amount is equal to or less than the home is worth taking into account your down payment. The appraisal is a safety net for the bank to recoup their money if you should stop paying your mortgage.

Because a lender requires an appraisal, an appraisal also becomes a safety net for the home buyer as well, giving the home buyer confidence they are not overpaying for the home. The appraisal process is an important part of securing a home loan.

An appraisal report is where the subject home (the home that is being purchased) uses recent comparable sales to come up with an appraised value of a home.

What Is An Appraisal Gap?

An appraisal gap can occur in hot real estate markets when there is a high demand among home buyers for good homes and it is a competitive market. In hot real estate markets, a buyer will often find themselves in a multiple offer situation and the buyers are competing to get the seller’s attention. In my particular area, you can almost guarantee that the offer competing, buyers will be over asking and in some cases quite significantly.

The appraisal gap is the difference between the appraised value of the home and the purchase price if the appraised value is lower than the contract price. While an appraisal gap can happen in any type of real estate market it is more likely to happen in a strong seller’s market. For example:

A home buyer and home seller agree to a sales contract price of $500,000 which is $50,000 over the asking price of a home. For example:

The appraised value is only $485,000.

This leaves a gap of $15,000.

The buyer’s lender is providing will only lend on a purchase price of $485,000. This leaves a $15,000 deficiency that needs to be covered. Either by the home buyer bringing the entire difference of $15,000 to the closing table or the seller reducing the contract price to the lower price of the property value assigned by the lender. Or, a combination of both.

What Is An Appraisal Contingency?

A real estate contingency is where there is a requirement for an event to happen for the contract to be in full force. If the event does not occur then the contract is null and void and all deposit monies are returned with no further recourse from either party.

Many standard real estate contracts have a mortgage contingency and/ or an appraisal contingency. It basically states that you are putting a certain percent down as a down payment for the bank and you have a certain amount of time to obtain a loan commitment prior to the closing. Or, if it is an appraisal contingency the sale is contingent on the sale appraising at or above the purchase price. If there is a windfall between the appraised price, the down payment and the purchase price, the buyer may not be able to obtain financing from their lender.

In either case, in the event a property does not appraise, as spelled out with the financial details in the contract, the buyer could be able to nullify the contract and receive their home deposit money back. The seller always take some risk by accepting a contract with a mortgage or appraisal contingency.

Why Would A Seller Be Concerned With An Appraisal Gap?

Of course one of the biggest goals of a home seller is to net the most amount of money they can out of a home sale. The home seller and listing agent work to get just the right asking price on a home, based upon recent sale prices of similar homes.

But, in a hot housing market, you will find home prices pushing up quickly, as well as buyers willing to submit a highly competitive offer on a home. We are seeing homes have 30 offers over the asking price. And, you might think, that the seller would choose the highest offer as the best offer. But, the best offer is not always the one with the highest price.

A seller has other terms to consider. Is it a cash offer vs an offer financed with a conventional loan backed by Fannie Mae? Are the buyers retaining the right to a home contingency? …..and many other considerations that go into selecting an offer. A cash buyer generally does not have an appraisal contingency clause in their sales contract making it an extremely attractive offer.

It limits the risk to the home seller.

But a buyer financed by the lender will have a mortgage contingency clause. The clause states that if the buyer cannot secure financing by a certain date that the buyer can withdraw their contract and receive all of their earnest money deposit back. A low appraisal can trigger the mortgage contingency clause. This leaves the seller high and dry with no contact or sale on their home. This makes it a little harder for bank financed offers to compete with cash offers.

While a cash offer may be a slightly lower offer, the bottom line is the seller does not need to be concerned with a low appraisal and the hassles of a deal not closing.

Or, even if there are no cash offers to contend with, there may be an offer with a higher price on the table where there is a question of whether the home will appraise or not.

It presents a level of risk for the seller. In a slower market, a low appraisal could trigger a renegotiation of the purchase price between the buyer and seller. But in today’s market sellers do not need to concern themselves because there are many buyers willing to provide appraisal gap coverage for any appraisals with lower values.

This allows the seller to get the agreed upon price in their purchase agreement and the buyer bringing additional cash to the table to cover the gap.

Buyers with plenty of cash behind them have often chosen to waive the appraisal contingency in the event there is an appraisal gap. But this was usually a buyer’s decision based on wanting to strengthen their offer. In today’s crazy market, it has gone beyond that and it is almost expected that the home buyer waive their appraisal contingency in some hot real estate markets.

Appraisal Gap Coverage

So that begs the question what is appraisal gap coverage?

This is where a buyer agrees that they will cover the gap between a low appraised value of a home. Meaning if there is a $50,000 difference the buyer will bring the additional $50,000 to the closing table.

A buyer can agree to cover any deficiency or if they are working with limited funds cap the amount of the appraisal deficiency they are willing to cover. A clause can be added to the buyer’s offer stating: Purchaser agrees to pay $10,000 over the appraised value if the appraisal comes in lower than the purchase price. The purchase price is not to exceed $XXX,XXX.

Often an appraisal gap between the agreed-upon contract price and the appraised value can be estimated by an agent representing you. Be prepared to provide proof of funds showing you can cover an appraisal gap above and beyond your down payment and closing costs.

At the end of the day providing a seller with appraisal gap coverage may help you be the winning bidder on a home. It allows a seller to move on with confidence with your offer.

Appraisal Gap Insurance

There is a possibility to keep your original purchase price and the original lower appraisal. Your mortgage lender can lower your loan to value ratio and you pay additional Mortgage Insurance to cover the lower appraisal. You can cover your appraisal gap with your mortgage by paying additional Mortgage Insurance for only several thousand dollars.

The Mortgage Insurance can be covered with an upfront payment or financed monthly.

It is a complex scenario, but discuss the possibilities with your mortgage lender.

Does A Lower Appraisal Mean You Are Overpaying For A Home?

A lower appraised value on a home does not necessarily mean you are overpaying for a home. In competitive bidding wars, there is usually a whole slew of buyers willing to pay close to what you are willing to pay for a home. Fair market value is an indication of what the market is willing to pay for a home and that is established by other home buyers willing to pay close to the same amount you are for a home.

Remember home appraisals use past sales history of comparable homes which are a lagging indicator of a property’s value. The key factor is other buyers are willing to pay the same of close to what you are willing to pay for a home.

On the other hand, if you are offer is $50,000 dollars higher than the next offer then I would say you are overpaying. But in a seller’s market with multiple offers, the winning offer is usually the same or similar to the next competing offers only inching out the other offers by slightly better terms or price.

Summary

Use an appraisal cap coverage clause could be one of many ways to help strengthen your offer. Discuss with your real estate agent and mortgage broker the possibility of using an appraisal gap clause in your contract that will cover some or all of the difference between a lower property appraisal and the purchase price. It could be the tipping point that gets your offer accepted.

If you feel you would like to add an appraisal gap clause to your contract just make sure you have the funds to cover the differential.

Why Should You Need A Realtor To Buy Or Sell A Home?

The question of whether you need a REALTOR to sell or buy a home is often controversial. But we think it is needed. The main thing is that you must clearly understand what you expect from working with a realtor. What can a realtor be entrusted or entrusted with? We will help you figure it out.

What do you have to do:

It seems that the transaction is simple:

Find a home or buyer
Draw up a sales contract
Register a deal
Make a calculation

You can handle the home selling process – if you have the necessary knowledge and extensive experience in real estate transactions. But more often than not, a real estate transaction is the most expensive and rare transaction in a person’s life, so the experience you need is simply not there. And at each stage, many risks and difficulties await you. Here the REALTOR will come to the rescue.

Cooperation with a REALTOR has many advantages for both the buyer and the seller. To get them, you need to draw up an agreement with a REALTOR or agency, in which you clearly write down all the services you want to receive and fix the amount of the commission.

How will you benefit from working with a realtor?

If you buy a property:

✅ Save time:

It can take up to 3 months to search for real estate, prepare documents and complete a transaction. Are you ready to call every day for all more or less suitable ads, go around the city in search of housing, stand in line for documents and worry that you may be deceived?

✅ Reduced cost:

The REALTOR acts in your best interest and will certainly help you get a discount from the seller of the apartment. Knowing the real estate market and the psychology of the seller, the realtor can give the right arguments to reduce the cost. In a successful scenario, the price of an apartment can be reduced by 100 thousand rubles, and in large cities and much more.

✅ Selection of a suitable option:

The REALTOR will not take you to numerous homes and will immediately begin to offer options that suit your requirements. Location, price, layout, ecology, infrastructure – an experienced realtor will take into account everything that is important for your comfortable life.

✅ Impartial assessment:

The REALTOR has already looked at hundreds of properties and will not share your enthusiasm for the apartment just because it has a large kitchen. A specialist will inspect the apartment with a professional eye and will voice all the shortcomings. For example, proximity to an industrial zone, a disadvantaged area, a corner location and dampness of an apartment, lack of parking or a playground.

✅ Everything under control:

The REALTOR will make sure that the property is transferred in the form that you agreed with the seller. Checking the payment of debts for utility bills and electricity, monitoring the statement of the seller and his family members, signing the act of acceptance and transfer of property – this is the realtor’s area of responsibility.

If you are selling real estate:

✅ Save time:

A realtor knows exactly on which sites to place an ad, depending on the type of your property, the urgency of the sale. Knows how and when to connect paid promotion. This will help speed up the exit to a trade. In addition, a realtor can show your property to potential buyers without your participation. This is very convenient if you do not live in the apartment you are selling.

✅ Favorable selling price:

If you are a seller, a realtor can help you determine an adequate market price for your property. You will not be able to miscalculate the cost and not delay the sale. In addition, the realtor can provide valuable advice on how to increase the value – for example, he can offer and even arrange for minor cosmetic repairs.

✅ Best Buyer:

An experienced realtor will immediately understand how the buyer is ready for the deal and will not waste your time. He will warn if a deal with a specific buyer may be delayed – for example, if the buyer first needs to sell the apartment himself. In addition, the realtor will definitely help in alternative or complex transactions – for example, with minor owners.

✅ Everything under control:

The realtor will help prepare for the transaction – collect documents, draw up a purchase and sale agreement, control registration and settlement with the buyer.

How much does a REALTOR’s services cost?

The cost of a REALTOR’s services, on average, is 2-5% of the price of an apartment. It may depend on the region, the type of property and the services that are included in your contract. It is very important to sign a contract with a REALTOR. In the contract, it is necessary to list in advance all the services that you want to receive and fix the amount of the commission. If a REALTOR takes a percentage of the cost, and not a specific amount, write down what percentage and from what kind of value (for example, from the selling price or from the price in the contract, if for some reason they may differ).

How to choose a REALTOR:

When choosing a REALTOR, pay attention to the agency’s reputation and experience. Please feel free to ask any questions you may have. Ask what guarantees you will receive. Profile sites can also help in choosing a REALTOR. You can get referrals from friends and family. You can find local agents online where you can also see their customer ratings and reviews.

Short:

If you have free time, you can buy a home or sell it yourself.

You will have to pay for the work of a REALTOR. But, if you are making a deal for the first time, you may have difficulties, which will help the realtor to deal with. It can turn the important and difficult process of buying or selling a home into a predictable and enjoyable experience.

Author Bio:

The article is written by Vaneet Sethi. He is a Successful Real estate agent. He started his career as REALTORr under Century21 Coastal Realty Ltd. and grew up as a successful real estate agent with a number of happy clients. Now he managed his own company i.e. Abbotsford Houses. The aim of the company to provide the best homes for sale in Abbotsford BC and its surrounding area.

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