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What Real Estate Agents Do For Buyers . . . MSN Real Estate October 19, 2011

I saw this article on MSN Real Estate a few days ago, and thought it was a pretty good one for first time home-buyers to review.  Everyone has heard "It is a Buyer's Market", but fewer people than one would expect actually choose a Buyer's Agent to assist them with their purchases.  Likely this is because few people understand Buyer's Agency, or that - unless they specifically enter into a Buyer's Agency agreement - the Real Estate Agent helping them is a Seller's Agent and is obligated to represent the Seller in the transaction.   If you would like more information about Buyer's Agency in Georgia or South Carolina, please call 706-376-PROS (7767) or email Julie@PropertySourcePros.com anytime, and I can help guide you through the process . . .

What real-estate agents do for buyers; First-time homebuyers research online but use real-estate agents for complex tasks.  By Michele Lerner of Bankrate.com

Homebuyers, including first-time buyers, usually use the Internet for the preliminary work of finding homes for sale and collecting information on neighborhoods and recent sales.  But those buyers, particularly if they are first-timers, should use real-estate agents to indentify long-term value in properties, negotiate prices and ensure that deals go through.

Functions of buyer's agents: "Many first-time homebuyers will not be purchasing their dream home as their first place, and (they) often have difficulty seeing the true value in homes," says a real-estate agent in Seattle.  "Since may of these buyers will be moving in the future, I think it is a good idea to think about resale when the buyer is purchasing.  Buyers may not be aware of things like the problem of living on a busy street, or know to check on issues with homeowner-association covenants."

A buyer's agent can point out potential issues that could affect the resale price of a home and suggest changes to increase the home's value.

"I have a three-legged approach to working with buyers," says an associate broker in Arlington, Mass.  "I start by getting to know what the buyers want by picking up on the hidden signals that a prospective buyer shows when they see a home.  They may not know what they want, but they can feel what they want.  When I'm showing a house that absolutely does not work, I dig into why it doesn't work.  When we see other houses that may be a better fit, we discuss what does work for them and why." 

The other two parts of the approach are negotiating a transaction and bringing that transaction to settlement.  "The most important function of a {buyer's agent} is negotiating a good deal on behalf of the buyer and educating the buyer about the market," says a managing broker in McLean, VA.  "First-time buyers should rely on their Realtor to provide them with data about comparable homes that have sold, how long a home has been on the market, what homes haven't sold and all the activity that has been happening in the local real-estate market.  Ultimately, it is the buyer's decision what price and terms they wish to offer.  However, buyers should be able to rely on their Realtors to guide them toward an educated offer on the home."

The agent points out that negotiation occurs not only at the beginning of a transaction over price and terms, but also possibly after a home inspection, an appraisal and at other times between contract and closing.

Fair-housing laws and real-estate agents:  While real-estate agents can help buyers in myriad ways, there are some things they cannot do:  "Fair-housing laws prohibit discrimination.  Thus, an agent cannot steer a client to or away from particular neighborhoods based on their knowledge of an area's demographics.  Further, agents cannot explicitly describe a neighborhood based on racial, religious, age or other demographic criteria.  The agent can point buyers to websites and other reference sources where buyers can discover this informaiton for themselves."  As one realtor interviewed says, "Our job is to talk about the home, not the people."

Working with other professionals:  First-time homebuyers need to recognize that they must work with other professionals during the homebuying process, such as an attorney, inspector, and mortgage lender.  "Agents are not lawyers, home inspectors, mold experts, financial advisers or tax advisers.  While a real-estate agent can give some general background information in each of these areas, they cannot claim to be an expert and must suggest that the buyer retain the services of one of these other professionals should the need arise."

The biggest concern for most buyers today is whether a home will keep its value.  An experienced buyer's agent can provide a buyer with the local market knowledge needed to make an informed decision about what to buy and how much to spend. 

I made some changes and paraphrases for this blog post.  Read the original article online at: http://realestate.msn.com/what-real-estate-agents-do-for-buyers

Owner Financing vs Lease Purchase??

So, we've all heard the nightmare stories of dealing with obtaining bank loans these days.  Add to that, the fact that foreclosure properties have flooded the market and driven down prices for Sellers, and you get a large number of Sellers battling back by actively participating with Seller financing to move their property.

Recent lending adjustments only rarely allow Sellers to contribute costs to Buyers to allow them ease of buying (perhaps to assure that REOs are being considered if anything is being sold).  That leaves us with two primary methods for Sellers to facilitate the sale of their properties:  Owner Financing or Lease Purchase.

Most people don't know what the difference is, or even what those terms mean.  I have many Sellers who are participating in both programs; I have closed many under both terms over the past few years, and there are distinct differences.  So, pull up a chair, grab some coffee, and find out . . .

Owner Financing:

With Owner Financing, there is an actual closing.  The Buyer takes title to the property with the Seller providing a (typically short term) first "mortgage".  Essentially, with owner financing, the Seller becomes the bank. 

This is the better of the two options for everyone involved in the process, but the process has two basic requirements which are difficult to meet: 

1. The Seller must own the property outright, or be close enough to paying off his own mortgage that a downpayment can satisfy the pay-off.  You see this most often with inheritance properties or investor owned properties, though many times on Lake Hartwell a Seller has owned a lake property long enough to have paid it off or they purchased their second home with cash. 
2. The Buyer must have a substantial downpayment.  Remember I said with owner financing, there is an actual closing.  The Buyer must have a downpayment large enough to convince the Seller to take it off the market, but also large enough to pay the closing costs, inspections, and to pay the Realtor Commission (yes, providing our services is actually how we make a living!).  Seems unbelievable a Buyer could have money yet be unable to obtain a loan, but it happens.  I've seen it most often with a Buyer who relocated to the area and has a home they cannot sell elsewhere, but also with a Buyer who has a small mar on their credit which needs time to season, and sometimes even a Buyer who wants to work their way with equity below the "jumbo loan" mark so they can obtain a better interest rate.

On the rare occassion when you have a Buyer with money and a Seller who owes no money, Owner Financing is a perfect scenerio.  The Buyer is responsible for taxes, insurance, upkeep, and maintenance.  The Seller makes more money from the sale because they pocket two to three years of additional interest income.  It can close very quickly, and the Buyer is able to gain equity as they continue to make payments so refinancing is easier than a purchase loan. 

The downside is - just like any loan - the Buyer could fall behind on payments.  For my clients, I work to prevent this from happening in two ways: I thoroughly check the credit and background of the potential Buyer, and I assure the Buyer is paying, on average, at least a 15% downpayment- which they are not likely to walk away from and lose.

However, if it does happen, in Georgia the Seller can foreclose quite simply by accelerating the balance due, running notice of foreclosure in the local newspaper for four weeks, and foreclosing on the court house steps. The Seller still retains the initial downpayment, the monthly payments made prior to the foreclosure, and they take the house back, ready to be sold again.  I love owner financing and all of my clients who offer it!

Lease Purchase:

Lease Purchase is an entirely different animal.  There is no closing.  The Seller continues to own the home and is responsible for taxes, insurance, maintenance, etc.  The Buyer has no deed to the property, and generally doesn't pay much more than a security deposit to get into it.  The Buyer does have slightly more "pride of ownership", but it is still primarily a tenant/landlord mentality.

The lease purchase is typically used instead of owner financing when the Seller is not in a position to pay off the loan on their home and the Buyer is not in a position to put down a large downpayment.  We see these more often in situations where Sellers are a little desperate to get out from under it and the Buyers LOVE the home, but are not able to get a loan to purchase it.  Though, often investors or builders who were left with inventory but aren't willing to make the "business decision" to let it go back to the bank will also participate in this process just to keep getting by in hopes of a better tomorrow.

Because there is no closing until the pre-determined end of the lease purchase time frame (which is difficult to estimate since we are more often than not just hoping the Buyer can get a loan in the future), no one really gets paid.  Sellers and Realtors are holding on indefinitely waiting on a payoff, and Buyers are not gaining equity towards the home (another lending adjustment . . . there are only certain situations in which lease purchase payments are allowed to apply towards equity or earnest money in the home.).

In my opinion, the worst part of the Lease Purchase scenerio, however, is the horror stories I've heard from Buyers who actually put down a decent downpayment, improved the property, and paid faithfully over the time frame, only to end up with the bank's representative on their front steps offering them "cash for keys".  Some Sellers, despite their best intentions, just aren't able to use the money of a lease to prevent them from loosing the house to foreclosure.  So, there has been more than one crying Buyer on my porch steps claiming another Realtor set this up with this lease purchase scenerio, but now the Seller is being foreclosed on and they only have 2 weeks to move out of their house and find another.

I, personally, will not even entertain the idea of a lease purchase for my listing clients unless they allow me to manage the property - including making mortgage payments and escrowing to pay taxes and insurance when due.  It isn't that I don't trust my clients, it's just that after a while, as a lease purchase drags on, the Sellers - more often than not - see the Buyer as a person who falsly lead them to believe they would be able to get a loan when circumstances may still not allow it, didn't put enough earnest money down to put them in a better position, and have nothing in the house.  I personally have a property on lease purchase right now and adore the tenant/buyers, but am so ready for them to finally just buy the house!!!

Mix the unsure time frame of closing and the fact that times are like they are, and Sellers could too easily find the temptation is there to use the monthly rent money for the new set of brakes their car needs or the new set of braces their child needs.  In my opinion, Lease Purchases need to be run through a Realtor Trust Account, or both Buyer and Seller are simply setting themselves up for failure.

That being said, in the hands of a reliable Realtor, a Lease Purchase can help both a willing Seller and a willing Buyer find one another and help one another through until the time comes when the ever difficult to obtain bank loan finally comes and they both accomplish their goals.  So, along those lines, Lease Purchases are another God-Send allowing us to work around the banks' criteria to eventually bring two great people to a successful meeting of the minds.  

With everything I've said, please don't get me wrong - many people still obtain bank loans every day and close on their properties (within 45 to 60 days) the old fashioned way.  There are still 100% bank loan products out there, and definitely FHA 3% down loans.  But, if you really want to sell or buy and are concerned you aren't going to be able, call me and let's look outside the box to determine if there is something else we can do to move things along! 

Act Now to Take Advantage of the National Tax Rebate and Avoid Paying Rent Throughout Your College Student's Education

According to the Office of Student Financial Aid at the University of Georgia, average room and board expenses in Athens total $615 per bedroom / per month – 12 full months per year.   Meaning, rental houses in Athens easily pay for themselves while continuing to hold or increase their value throughout the entire period of ownership.  This is why I have always recommended putting investment money in rental houses in Athens, Georgia.

The intelligence of these investments applies particularly to parents of college students because of the vast savings afforded by purchasing rather than renting in a college town (an area where I have more than a little bit of experience)!

My parents helped me to purchase my first Athens rental property while I was in college at UGA.  The rent paid by my roommates covered the mortgage payment, escrow payment, and my portion of the utilities throughout my entire time in college.  Once out of college, I moved out, and used the additional rent to supplement my income while I settled into my career.  Then, I sold the property for a $35,000 profit over purchase price and used that money to pay for the down payment on my first home with my husband (and new car!).  

By being smart investors, my parents made a one time cash investment of $7,000 and avoided paying rent or utilities for my entire time in Athens – an average savings of $7,300 per year.  Eventually, they also received their cash investment back, AND their intelligent investment provided me a nest egg to promote a strong start to my future without having to get into debt over my head or ask them for financial assistance. 

In addition to the obvious savings my parents enjoyed, and the nice start in life afforded to me by their investment, home ownership allows your young adult to build crucial positive credit while helping them learn responsibilities of home ownership. 

If you have a son or daughter in college, I highly recommend looking into purchasing a property in the area.  And, do it NOW to make another $9,800 that is only available for purchases by December 1st.  Even if you lend the downpayment money to your college student - as long as they are first time home buyers living in the house, they should qualify for both the National $8,000 tax rebate and the Georgia State $1,800 tax rebate offers.  But, they have to CLOSE before December 1^st to qualify.

With that benefit, plus the rent, your savings should total ~ $40,000 over a 4 year college career.  This doesn’t even take into account the savings for students who are currently on out of state tuition – add another $80,000 in savings for that.  Plus equity gained and profit after the sell . . . for any family with the means, this investment simply makes good sense!

The market is perfect for Buyers right now, thus the property should produce a very nice profit in the future if they wait for a good market to sell. 

In review:  assisting your college age son or daughter with purchasing before December 1^st rather than renting or living in the dorms saves an immediate $9,800; another $7,300 per year throughout their college careers, and then saves your young adult incalculable amounts in interest rates, fees, PMI, etc. by having a nice nest egg for their future.  All the while, teaching them crucial lessons for adulthood.  This is what I call a win-win-win-win situation!

Contact Julie Haley TODAY to make the most intelligent investment you can make in your child’s future.  Julie@JulieHaley.com

One More Time - Let's Revisit the Tax Rebates Available before It's Too Late!

The good news is, the real estate market seems to be rebounding nicely.  If you've read my post regarding the 28 properties which went under contract or sold in Hart County during the last 2 weeks of September, this is not news to you!

While not the only factor, I feel the national first time home buyers tax rebate is at least partially responsible for this rebound.  Unfortunately, this offer only applies to properties which close before December 1st. 

If you think you still have plenty of time to find the right property and close before December 1st, think again!  Mortgage lenders are trying to mend their evil ways, resulting in slower processing, knit-picking underwriters, and more intensive due diligence inspections.  The average first home purchase closing takes 4 weeks.  If the property you choose is a foreclosure or short sale, it could take twice as long. 

With the tax rebate currently applying only to properties which close by December 1st, home buyers hoping to take advantage of this offer need to be under contract THIS WEEK to assure receiving the benefits.

This is why I want to make issues of the tax rebate offer my theme for the next week . . .

I won't go over the basics of the program again.  To find out those basics, see my earlier blog under the archives for "April 2009" or under the category "Buyer's Tips".  However, I will add that I have since read articles which indicate the tax rebate can be used in instances where the lender borrows money from a family member to purchase!  Naturally, you still need to check with your personal tax advisors, but the information has come from reliable sources.

This is important for newlyweds and particularly college students to research.  I've written articles in the past describing the many positive aspects for parents of college students to purchase a house rather than spending money on rent.  I am going to pull that one out of the archives, dust it off, and repost it over the coming days.  If you include the GA State tax and the National tax rebate, your college student can make enough in rebates by buying a house to pay for a full year of college tuition AND books, with more left over!  Now - more than ever before - it is crucial for parents of college age sons and daughters to discuss the possibilities of purchasing over renting!

As this is my theme for the next two weeks, you will find articles going in depth on even more of these subjects every day.  In the meantime, contact me at julie@juliehaley.com for further discussions.  Don't wait; the clock is ticking fast . . .

The Effect of the Tax Rebate on the Property Ladder, You, Me, and Even Retirees in Florida

Most have heard Congress recently passed legislation allowing qualified first time home buyers to receive a tax rebate of up to $8000.  Google it and research the benefits if you haven't done so.  Unlike the 2008 version, this rebate doesn't have to be repaid!  It is an excellent attempt to propel the real estate business, and I believe it will have a great impact if the lenders will use their bail out money to join in the common cause.  Even though the tax rebate only applies to first time buyers, sellers of all types of properties should see benefits as a result of the property ladder . . .

What I've been terming "The Property Ladder" works like this: 

• Once a first time home buyer is preapproved for a loan, they choose a Realtor and buy a starter home listed for sale - the first wrung of the ladder.
• The seller of the starter home is then able to buy a bigger house perfect for their growing family - the next wrung up the ladder. 
• This allows the Seller of the bigger house to finally move to the house of their long-term dreams - the next wrung up the ladder. 
• The seller of the dream house is now a happy retiree able to buy a condo in Florida, a lake home in Hartwell, and a couple of rental investment homes in Athens, because the rental income pays their annual tax bills on all of the properties.

When the banks began pulling back on funding and tightening regulations, more first time home buyer candidates had to remain renters.  Thus all of the houses on the market took longer to sale: from starter homes to family homes to dream homes, and so on, and so on. 

Obviously, moving the starter homes is an opportunity for everyone hoping to sell; Family homes, Florida vacation homes, Hartwell Lake homes, townhomes, mansions, and even double wides.

Because qualified applicants can file for the rebate with their 2008 tax return, or lower their withholding over the course of 2009 by the amount of their rebate, the tax rebate should help first time home buyers with the expenses of first time home ownership.  I should also add that most foreclosures can be purchased at large bargains, but often need work.  This requires cash many starter home purchasers don't have after going through the process of putting a downpayment on a house.  This rebate allows them a means to pay for those repairs and begin filling some of the empty shells left after foreclosures.

Oh - and parents of college students - I think this is a great opportunity to experience the benefits of the rebate while helping your college student grow their credit:  Gift them the funds and assist them with Buying the house they currently rent (I even know of a lender who can offer 100% financing!).  Have their roommates continue to pay rent, and your college student will have an income stream while also receiving a tax rebate that will assist in their education expenses for the year - and gain equity throughout their college career.   BTW: A good property management company (All Hart Realty, for instance!), can manage it for him or her, collect rents from their roommates, pay the mortgage, make repairs, and simply cut a check to your son or daughter every month for you.

Encourage everyone you know who can benefit from the tax rebate to buy!  Contact me anytime, and I'll work with you to help determine your elligibility.

How low can you possibly go on a real-estate bid?

In the current housing market, it is not necessarily an insult to make a lowball offer. Here is some advice to aid your negotiations.

Homebuyers are looking for a steal, home sellers are looking for an out and home builders and banks are selling homes at cut-rate prices. Combined, these conditions have triggered a wave of lowball offers to buy homes in distressed U.S. housing markets.

Conventional wisdom is that the lowball offers don't work. Homebuyers are warned not to "insult" sellers, who are counseled not to counter offers from "disrespectful" buyers. Real-estate salepeople are stuck in the middle, often unwilling to engage in prolonged negotiations that might not earn commissions.

But conventional wisdom doesn't always hold true. With a severe slowdown in sales, some experts now offer new advice.

What is a lowball offer?

The term "lowball" doesn't have a formal definition in real estate, though some salepeople suggest that any offer that's less than some large percentage of either the fair market value or asking price of the property is a lowball offer.

Karen Monsour, a real-estate agent with Exit Realty Properties in Coral Springs, Fla., says any offer that's 25% less than the asking price falls into the lowball category. By this definition, an offer of $220,000 to buy a house priced at $300,000 would fit the bill, as would an offer of $1.5 million to purchase a house priced at $2.1 million. If an offer is that low, the seller's "aren't going to be happy, and most of the time, they aren't going to take it," Monsour says.

Others say the term "lowball" is more subjective. Miriam Bernstien, an associate broker with Remax Prime Properties in Scarsdale, N.Y., suggests that just about any offer could be labeled as "lowball" if it provokes the seller to outrage or anger.

"The best definition I've ever heard is that "lowball" is an offer that's so low that the sellers can't contain themselves. They get angry," she says. "You can't come up with a percentage becasuse not every property that comes on the market is (priced) high. It's very specfic to each house."

Broker's negotiating skills benefit buyers, sellers

Monsour says she encourages buyers to offer at least 85% of the asking price because anything lower than that is "an insult to the seller."

Yet her disdain of lowball offers doesn't preclude a little pre-negotiation negotiation between herself and the seller's representative in lieu of a formal written offer. The agents orally agree on a price that's close enough to open a formal negotiation, with the proviso that that price may be adjusted as the terms of the deal, which Monsour calls "bargaing tools", are discussed. This approach can move a lowball offer into a price range that's acceptable to the buyer and the seller. The stategy works in part because Monsour, like most real-estate agents in Flordia, acts as a transaction broker who has no fiduciary duty to either the buyer or the seller, but instead aims to bring the transaction to fruition.

Bernstein takes a different tack, but one that also can turn a lowball offer into an acceptable deal. Rather than discourage lowball offers, she believes buyers "should be able to put in whatever offer they want and provoke a discussion." After that, it's up to the broker to present the low offer in a manner that's friendly and nonconfrontational. Today's tough markets mean brokers need to be adept at "schmoozing" and negotiating with their colleagues, she says.

Insititutions may be more open to lowball offers

If the seller is a financial institution, rather than a private homeowner, the risk of insult may be lessened, according to Ian Maker, an REO specialist with Re/Max Gols in Rancho Cordova, Calif., (REO, real-estateowned, refers to homes that have gone through forclosure and are owned and sold by lenders.)

"My job is to get offers on their desk. I present them with the facts, and it's their choice to decide what they want to take," he says.

Home builders and investors also may be less emotional than homeowner sellers--but not always. Some builders "put their heart and soul" into each home they build and "become emotional" about lowball offers, Bernstein says. Other builders "can afford to wait until they get" the price they want, she adds.

Buyer may offer more if seller responds

The new thinking for sellers is similar. While a lowball offer may be unwelcome, it could be an opportunity to open a dialoogue with a buyer who "ultimately may give (the sellers) what they want," Bernstein says. A seller who has "a bad reaction" to a low offer, "may lose a good buyer who could make a deal," she says. 

The outcome could depend on the real-estate saleperson's willingness to negotiate, a task that not all agents greet with enthusiasm. A lot of brokers "dismiss the offer has to low" when they should say "Yes, it's low, but let's discuss it and let's see how much more money this person has to give you," Bernstein says. Some buyers will come in with a low offer, but then "come up huge amounts if they really want to buy the house," she adds.

Some sellers respond to a lowball offer with a counteroffer that cuts only a nominal amout off the asking price. Others refuse to counter at all or counter at a higher price just to make a point to the buyer. Bernstein suggest an alternative approach that aims to create good will: Thank the buyer for the offer and indiciate that a counteroffer may be forthcoming if the buyer will "come up with a little more" at the outset.

Lowball offers: 'You just never know'

The bottom line on the lowball offer is that each real estate deal, like each house is unique. That means buyers and sellers need to know the strengths and weaknesses of their own and each other's negotiating positions. If a sellers home is in prime condition, has only just come on the market and is attractively priced, a lowball offer may be rightly dismissed from a position of strength. But if the same home is still on the market with no takers six months later, a motivated seller may be more inclined to give a lowball offer a second look.

Make offers a good tip for buyers and sellers: "Don't let (the deal) die on your end." If the seller wants to sell the property, evey offer deserves a counteroffer, and if the buyer wants to purchase the property, every counteroffer merits consideration. The objective is to keep the lines of communication open until a deal is agreed upon.   

A Buying Guide For First timers

Step 1: Spiff up your credit

Good Credit can lower your mortgage interest rates, potentially saving you hundreds of dollars a month. Order a credit report (usually free online). You can dispute any mistakes, but the most important thing is to build up good credit from here out.

Lenders want clients who can pay their bills on time and and who don't owe too much to anybody else. Automated bill-paying services help. Stop applying for credit cards just for a free t-shirt or shuffling your debt around. Consider closing some of your accounts, but that's tricky. Maxine Sweet, Vice President of public education at Experian, says lenders don't want you to owe near your limit, which can happen if you consolidate to one card. Your score can dip temporarily when you make any big changes even for the better so work on your credit long before you seek a mortgage, she says.

Step 2: Start saving for a down payment and closing costs

Home buyers traditionally had to put up a 20% downpayment. Now it's more like 5-10%. Some don't put anything down. There's nothing typcal today, says Pat Vredevoodg Combs, president-elect of the National Association of Realtors.

You'll always get a better deal if you make a downpayment. Until you paid 20% of your home, your lender will probadly want you to buy insurance on your mortgage. The buyer also has to come up with closing costs, about 1-2% of the price.

Step 3: Calculate how much house you can afford

Housing eats up more of everyones paycheck these days, but as a rule of thumb buyers spend 25-30% of their pre-tax pay on housing. That translates roughly to a mortgage of 3 to 4 times your salary. Consider your entire budget: How is your credit card bill, student loan or kids tuition? How much will your new palace cost to maintain? Will you get a big break on your taxes from the mortgage interest rate deduction?

Step 4: Shop for a mortgage

New loan offerings make it easier to buy a home, but harder to pick which mortgage is right for you. The standaard 30-year fixed rate mortgage allows predictable payments. If you're planning on moving quickly, consider an adjustable rate mortgage, which has low interest and payments for the first few years. Buyers have really low starting payments with thise who want to buy more house than they can afford. Compare terms and rates from several sources. A pre-approved mortgage will let you pounce on the right house. Your lender usually calculates your monthly expenses including principle, interest, taxes and insurances. You'll pay a monthly bill into an escrow account instead of getting clobbered by annual taxes.

Step 5: Shop for a home

Make a list of the features you want or don't want. A realtor can be a great help, so much so that some start planning here months or years before they're ready to buy. The buyer pays the sale commission, which typically runs 5-7%, split between the seller's agent, and the buyer's agent. So especially first time buyers get the service basically for free. Some also shop from people who are selling their own homes, figuring the lack of a commission means a lower price.

Some agents specialize in buyers. To put customers at ease about potential conflicts of interest, some go as far as not working at firms that take any listings. Kathleen Chiras, a spokesperson for the National Association of Exclusive Buyer Agents, says the potential for a double commission gives agents a reason to sell homes that are not neccessarily the best house for that person.

Step 6: Make an offer

How much did similar homes sell for nearby? How long has this house been on the market? (Weary sellers may be more flexible.) Your realtor can evaluate market conditions and help you make a reasonable offer.

Step 7: Sign a contract

You sign and pay a deposit that is held a neutral third party. In some states, you'll want a real estate lawyer to go over the deal. Typically buyers can back out if the home inspector finds big trouble or if they can't find financing or, or in a new twist, Combs says, homeowners insurance.

Step 7: Take a close look at your house

Make sure your contract is contingent on a home inspection for a detailed, objective evaluation of your home's infrastructure. Afterwards, negotiate with the seller over the needed repairs. Be sure the title of the house is free of any liens. Your bank will appraise your house, too. 

Step 8: Show for homeowners insurance

Shop around, but your own car or life insurer will probadly give you a good package deal. As always, a higher deductible saves you money. 

Step 9: Sign papers

You'll meet at a lawyer's office or title company, sign a big stack of paers and receive the keys to your new home.

How Does Escrow Work?

If you've ever made an informal bet with a friend, you may have asked a third person to hold the money until the wager was resolved. When you take out a mortgage to buy a home, you're doing something simiar by opening an esrow account.

How it works

When you put money in escrow it is held by a neutral thrid party (called an escrow agent) who works for both the lender and the borrower. The agent's role is to carry out the instructions agreed upon by both sides. The money is released when all the terms of the agreement are met. Escrow can be involved in anything from multimillion-dollar building projects to purchases made on online sites.

When it's used

When your mortgage closes, your lender will usually require you to open an escrow account to cover property taxes and homeowner's insurance. You'll make an initial deposit, followed by payments to the account every month. (Usually these are added to you regular mortgage payment.) The escrow agent will then release these funds as your taxes and insurance premiums come due.

Its purpose

The idea is to protect the lender by ensuring that you pay your taxes and insurance on time. If you default on your property tax, for example, your municipality can put a lien on the house, which would make it difficult to sell. Or if your house burns down and you've negected to pay the insurance, the lender would be left with no collateral.

How you benefit

Escrow can benefit borrowers by helping them spread insurance and tax expenses evenly over 12 payments. For example, assume your yearly property taxes or two payments of $1,000 each, and your insurance is $400 annually. If you pay these directly, it would mean three large payments a year; your escrow costs, however, would be a manageable $200 a month.

Escrow payments

Your escrow account will have a built-in cushion--if you miss a payment, the lender must still be able to pay your account on time. However, federal law prohibits lenders requiring more than two months. And because your tax and insurance cost will change slightly from year to year, the lender will review and adjust your escrow payments annually.

When escrow may be waived

In most states, the money you place in escrow accounts earn no interest for you. For that reason, many borrowers prefer to pay their taxes and insurance directly. Lenders may agree to this if your down payment is more than 20 percent, although some may raise your interest rate slightly to compensate. Once you agree to putting funds into an escrow account, however, it is difficult to cancel it, so make sure you fully understand the arrangment before your mortgage closes. 

 

 

 

                                                                               

How to Spot a Shabby Remodel

On a ten-minute btour, it's easy to be blinded by new cabinets, floors and appliances. Real-estate pros offer tips on spotting shoddy work.

The Victorian looked fabulous.

The owner has poured thousands of dollars into refinishing the hardwood floors, replastering the walls and updating the kitchen.

What she hasn't done was fix the homes' foundation, floor joists or beams.

"As I entered the dining room, a hutch that was 20 feet away from shaking," said inspector Rick Jarrett of First Home Inspections of Belmont Ohio. Once he peered into the nearly inaccessible crawl space, Jarrett spotted the problem. "There was no understructure. It was all rotted from decay or termite damage."

Jarrett's inspection saved his client, a potential buyer, from having to spend tens of thousands of dollars excavating the foundation and reparing the damage.

If you're looking for a house, you've probadly seen your share of ill-conceived rehabs: additions that stick out like sore thumbs, for example, or once trendy material that quickly became outdated.

Harder to spot are the remodels that look great on the surface, but ignore or deliberately try to hide serious flaws. An imcompetent, clueless or greedy remodeler can leave you with a house that's not only expensive to fix, but potentially dangerous for you and your family.

You'll encounter lots more shabby remodeling if:

"Flippers" have decended on your market. Investors who buy homes in hopes of reselling them quickly may cut corners on rehabs to boost their potential profits.

Expert construction help is costly. The more expensive it is to hire skilled tradespeople, the more tempted homeowners may be to try to do it themselves--even if they have no idea what they're doing.

Building code or licensing enforcement is lax. Substandard construction and imcompetent contractors can flourish in areas where no one is checking up on remodelers.

An experienced home inspector can help you avoid trouble. But at $300 and up, inspections can get expensive. Here's what to look for so you can avoid the biggest money pits and winnow down your candidates before you hire an inspector.  

Fundamentally unsound

Unless you have x-ray vision, you can't peer inside the walls, floors and ceilings to see if a home is fundamentally sound. You can look, howevr, at the homes surface for some real clues about what's going on underneath. Such as:

* Big cracks in the walls ceilings, floors or fondation. Any foundation crack should be cause for concern. Wide cracks elsewhere, or cracks radiating from the corners or windows and doors, may also be a sign of trouble. They can indicate foundation problems, or ongoing movement that could be expensive to fix. If everything looks good, Jarrett said, check the closets. Remodelers may check everything else-- but forget about what's hidden there.

* Sloping, bouncy or "spongy" floors. All homes settle over time. so a slight slope (or even a rather noticeable one on a very old home) shouldn't panic you. But sloping that's accompanied by significant, recent wall and ceiling cracking should be a concern. If the new ceramic tiles in the bathroom are already cracking, for example, you have good evidence of serious trouble. So, too, is any floor that feels less than solid under your feet.

* Doors and windows that don't open freely. This could be due to settling, foundation problems or poor construction. In any case, it may indicate costly repairs are needed.

Wide open spaces. Remodelers often like to combine smaller rooms into larger spaces, but doing so can undermine the stability of an entire house if the remodeler unwittingly removes a structural or load-bearing wall. Sagging rooflines, ceilings or beams should be big red flags. Any time an older house has been updated this way, however, investigate futher. At the very least, ask for copies of the permits and for the name and license number of the contractor who did the work. If the work is unpermitted or the contractor unlicensed, consider steering clear.

* Shocking developments. Home inspector Jim Gibbs check out alot of homes for real-estate investors in the Dallas-Ft. Worth area, and he has seen plenty of truly shocking remodels.

"The biggest problem I see is in the electrical," Gibbs said. The remodelers are "not doing anything near code."

Some of the most common problems:

     * Failing to update wiring when adding rooms or circuits

     * Making dangerous connections

     * Failing to add enough circuits to cope with today's households

It's not uncommon for kitchen remodelers to spend a fortune on, say, countertops and appliances while skimping on the electrical, Gibbs said. Instead of having five, six or more circuits to run all the microwaves and refrigerated wine cabinets, they have one or two.

You can see if there is a problem by simpling turning on a bunch of appliances at once and seeing what blows. Or you can take a look at the electrical panel. "If they've had a major remodel and you look at the circuit breaker panel and it dosen't look new, you need to be suspicious," said Gibbs whose Gibbs Residentail Inspections is based in Plano, Texas.

Even a new box isn't a guarantee, however, since popping in a new panel is relatively cheap. You might also want to stick your head up in the attic to try to gauage the age of the wiring you see. If you have any doubts, you'll probadly want a certified home inspector to give you a report.

Jarrett has seen do-it-yourself electrical jobs where the remodeler tapped into power directly from the street, running it into a garage or other room without benefit of fuses or circuits. Not only such a stunt potentially lethal to the do-it- yourselfer, but the unregulated power could easily result in shocks of fire.

"It's a wonder they're walking around, that they haven't been electrocuted," Jarrett marvels.

The big cover-up Most states require sellres to disclose serious defects in their homes, but some still try to cover up serious water, fire or other damage with a coat of paint. Jarrett's become so accostumed to this particular dodge that he get suspicious if he smells frsh coat of paint in an area that's vulnerable to water problems, such as a basement. (You should also be wary if you find an area painted that normally isn't, such as an unfinished attic.)

Water damage may take a little more detective work:

* Can you see water marks or efflorescence on the foundation? Efflorescence is a white chalky substances left behind by water on the outside of the concrete or brick.

* Does the ground slope toward the house? That can cause water to pool near the foundation or       under the house, leading to rot, mold or infestions.

* Does it smell or feel damp under the house? Any moisture can be a problem. The wetter or more persistent, the worse the potential damage.

* Is the roof in lousy shape? Curling, damaged or missing shingles or flashing are signs that the roof's leaking even if the interior damage has been repaired.

Always call in a pro

What if your prospective home passes all these test? You might be tempted to save money by forgoing a professional inspection, particularly in a white-hot market where other bidders are waivering this step.

Resist the impulse. There are still plenty of less obvious signs, visible only to professional eyes, that a home has trouble. Think of it as cheap insurance: A few hundred dollars spent now could save you a fortune later.

Time To Lock in Your Mortgage Rate

Home buyers may find big savings in locking in mortgage interest rates.

Since mortgage interest rates are on the rise, home buyers can save considerable cash by locking in a reasonable rate.

During the housing boom, interest rates were extremely low-generally between 5.5% and 6.5% - and very stable. So borrowers often didn't bother to ask lenders to lock in their rates regardless of market fluctuations. If one good interest rate deal disappeared, another one was generally right around the corner.

But today the mortgage market is very volatile, and rates are trending upwards. So losing out on a good deal may mean it's gone forever. If a buyer sees a bargain, say experts, they should pounce.

"If you hear of a rate that seems to be much better than the rest of the market, get it in writing and lock it in," said Steve Habetz, a veteran mortgage broker in Connecticut.

Mortgage giant Freddie Mac (FRE, Fortune 500) reported Thursday that the average rate for a 30-year fixed stood at 6.25%, up from less than 6% in May.

Rates on the rise

A panel of analysts surveyed by Bankrate.com - including Cameron Findlay, the chief economist for Lending Tree.com; Mark Larson, real estate analyst at Weiss Research; and Dan Dowling, president of United Mortgage Capital Corp. - expect rates to go up in the next six weeks.

With the threat of inflation growing and investors wary of buying mortgage secutities, other forecasters have predicted will hit at least 7% by the end of the year.

For every half point interest rate increase, the monthly payment on a typical mortgage of $200,000 jumps nearly $70. That adds up to more than $800 a year, and in the first 10 years of a 30-year mortgage alone.

Locking in a rate is easy, as long as you have a contract or at least a binder on a home. Just tell your mortgage broker and he or she will give you a commitment in writing. Locks are available for as long as 60 days, according to Habetz, at a very low cost.

Locking in for 60 days may cost only an eighth of a point extra, turning a 6.5%?loan into a 6.625% one. Paying that extra eighth of a percent makes sense if the locked rate is below market, or if you expect rates to rise.?

"More than 60 days and the lender is usually looking for cash up front," said Habetz.

Habetz has an offer from Wells Fargo (WFC, Fortune 500) several weeks ago that beat anything else available. It was for a 5-year adjustable rate mortgage with an introductory rate of 4.875% - at least a full percentage point lower than competing offers.

"It lasted only two or three days," he said, "and all we had time to do was to get the customers we were already working with into the loan."

Those customers probadly saved themselves $5,000 or so for every $100,000 they borrowed over the first five years. The amazing part of this story, to Habetz, was that not all his clients took advantage of the offer.

Some of my customers said, 'That's an attractive offer. If it's that good, it will probadly get better," he said.

Wrong. It only got worse, and those people locked themselves out of a great deal.

But locking in your rate isn't entirely risk-free. After all, rates might actually go down.

"When rates go down," said Habetz, "most lenders won't take (your rate) down with them unless rates drop substantially. Then they may give you the new rate plus an eighth of a point."?

Certainty in an uncertain market, but that scenario appears unlikely.

Concerns about inflation are helping to push rate higher."Inflation has gone from the back burner to the front," said Greg McBride, a senior financial analyst for Bankrate.com.

At the same time, nervous investors in mortgage backed securities, are demanding higher rates for buying these bonds in what they deem a very risky market. That translates into higher rates for borrowers.

So locking in a good deal now should mean a lower rate for most borrowers. And besides saving them money, a lock should take some of the uncertainty out of financing a home purchase, since buyers can determine exactly what their monthly home ownership expenses will be several weeks before closing.

There are times in your financial life when you should be aggressive and there are times when you should be conservative," said McBride. "When you're buying a house and looking at mortage rates, that's a time to be conservative."