Tips & Tools : Home inspection

Property Auctions: Be Ready Before the Bidding Begins

RE.com Tips & Tools — Sun, 02 Aug 2009 15:30:00 GMT

EDITOR'S NOTE: With foreclosure properties still dominating the housing landscape in the U.S., we've asked our friends at RealtyTrac® to guest author some articles to shed light on the foreclosure crisis. RealtyTrac is the most trusted source of foreclosure information in the country. We hope that the information provided here and in other articles will be beneficial to understanding, avoiding and even leveraging (as an opportunistic buyer) home foreclosures.

By Rick Sharga, RealtyTrac Vice President of Marketing

Buying a property at a public foreclosure auction is not for the faint at heart. It usually requires patience, persistence and a fair amount of cash, since most state foreclosure laws stipulate that the winning bidder pay all or part of the winning bid on the spot.

But for those willing to do the work and able to front the cash, auction properties can yield bargains of 20-40 percent below the market value, and sometimes even more. Like any high-yielding investment, foreclosure auctions come with a certain amount of risk. Managing that risk successfully depends on first doing thorough research on the properties you plan to bid on—perhaps the single-most important step in a successful and profitable auction purchase.

“You’ve got to know the property inside and out and you’ve got to know that the party who is auctioning the property is, in fact, in the first lien position,” said T.J. Marrs, a real estate investment trainer and author based in Vancouver, Wash. Since many properties may have multiple liens (first and second mortgages or tax liens, for example), this is a critical piece of information to have before the auction begins. Marrs added that if the party auctioning the property is not in the first lien position, the winning bidder may have to pay off other outstanding loans against the property.

It helps that researching properties has become much easier with advances in information technology. In the past, home buyers and real estate investors sifted through piles of documents at the local courthouse to properly research properties. But thanks to online services like RealtyTrac, you can accomplish extensive property research from home or anywhere else you happen to be, as long as you have an Internet connection. That doesn’t mean you will feel comfortable interpreting all the data available from this research. First-time auction buyers or investors may be wise to rely on a local real estate agent or real estate attorney to ensure they’re making good decisions about which properties to bid on and how much to bid. Contact an Agent using RealtyTrac’s nationwide network of prescreened real estate professionals.

Whether working with a real estate professional or not, you can follow this property research checklist to make sure you’re fully prepared when you attend an auction.

Research state laws and observe a local auction
Each state governs how the foreclosure process – and specifically the auction procedure – works in that state. The process can vary widely from state to state, so aspiring buyers or investors should study the foreclosure process in their state. Important factors to consider are how quickly a property can go to auction after the owner defaults, how much cash is required at the auction and if the owner has any redemption period after the auction.

In some states a property can be sold at auction less than a month after the owner defaults, while in other states the foreclosure process can stretch out more than a year, not including any redemption period. The length of the foreclosure timeline certainly influences how quickly you need to research a property and secure the necessary cash to bid at the auction. If there’s a redemption period, the former owner can typically buy back the property by paying the full amount of the winning bid (plus any applicable fees and penalties) during the redemption period. If you’re the winning bidder, you should wait until the end of the redemption period before sinking any additional capital into a property purchased at the auction. RealtyTrac’s state foreclosure summaries provide specifics about how the foreclosure process works in each state.

First-time auction buyers should attend a local foreclosure auction to observe how state foreclosure laws play out in the real world. RealtyTrac provides a daily updated list of properties nationwide that are scheduled for public foreclosure auction. Auctions are often postponed or canceled, so it’s a good idea to call the trustee or attorney listed on the day of the auction to confirm.

Secure financing
Before bidding at an auction, you’ll need to evaluate the cash you have available to spend on an auction purchase. In addition to considering liquid assets such as bank accounts, stocks and bonds, you can apply for a home equity loan to cash out the equity in your home or other real estate assets. Once you calculate the cash you have available, you can determine how much of that cash you feel comfortable using to purchase an auction property. Of that amount, you will need to set aside some for estimated repairs and some to pay off outstanding liens that survive the auction purchase (although if you purchase the auction property below market value, you may be able to take out a home equity loan on the newly purchased property to fund repairs.) The remainder of the cash can be used for bidding at the auction.

Some states require as little as 5 percent of the purchase price in cash at the auction. Others require the entire purchase price in cash. Either way, you will need to present the necessary cash at the time and place of the auction, usually in the form of a cashier’s check. That means you should be ready to withdraw your cash quickly when an auction opportunity arises. If the winning bid is below the amount of the cashier’s check presented at the auction, the trustee at the auction should reimburse the winning bidder for the difference, although reimbursement may take several days or longer. Many bidders bring several cashier’s checks in incremental amounts so they avoid having to wait for a substantial reimbursement.

Analyze market value
Once you’re comfortable with how the foreclosure process works in your state and your spending limit, you can dive in and start pursuing specific auction properties. For any property scheduled for auction, the first step is to compare the property’s estimated market value to the opening bid. The opening bid is the total amount owed to the foreclosing lender and is the minimum amount the property will sell for at auction. This amount is included on the public auction notice and on each auction property listed on RealtyTrac. In addition, RealtyTrac arms subscribers with each property’s estimated market value and a list of up to 15 recent comparable sales. If the opening bid is higher than the estimated market value, that particular property does not present a bargain-buying opportunity. But because of the hot real estate market in most areas, the opening bid is usually far below the estimated market value, making for the possibility of a profitable purchase. A quick market value analysis is just the beginning, however. You need to dig deeper to find a property’s true investment potential.

Check lien & loan history
Before bidding a dime at the auction, it’s important that you carefully research a property’s title for any liens and loans that won’t be cleared out by the auction sale. All liens and loans affecting a property’s title are available at the local recorder’s office or online through RealtyTrac. Unlike typical real estate purchases, auction sales don’t always transfer ownership of the property with a clear title; therefore, it’s possible for a buyer to purchase a property at an auction and still have to fork over additional funds to clear out other outstanding debts secured by the property. You might be willing to do this, but you need to know about any outstanding debts before the auction so you can set your maximum bid appropriately.

To determine which liens and loans will be cleared out by an auction sale, you should look at the priority of the liens and loans taken out by the current owner. Priority is typically determined by the date when the lien or loan was recorded. The first recorded takes highest priority and the most recently recorded takes the lowest priority. The defaulted loan that triggered the auction sale typically clears out any “junior liens” that have a lower priority. There are a few exceptions such as property tax liens, which take priority over all other liens and are not cleared out by an auction sale. Any “senior liens” that have a higher priority than the defaulted loan will usually continue to encumber the property after the auction.

Property title research is probably the most complex and technical part of the auction-buying process, and it’s impossible to overemphasize its importance to a profitable auction purchase. First-time auction bidders should seriously consider enlisting the help of a local real estate agent, attorney or Title Company for this part of the research.

Estimate needed repairs
Estimated repairs should be factored into any property purchase, but there’s an added twist with auction properties: in most states, auction bidders don’t have any opportunity to view the inside of the property before they bid, let alone hire a professional inspector inspect the property. You may be able to approach the current occupants and ask permission to view the inside, but that permission is not guaranteed.

While this makes it difficult to pinpoint exact repair costs, you can obtain a ballpark estimate just by viewing the property from the outside. You will be able to infer a lot about the property’s overall condition by observing the condition outside. Serious buyers will park their cars and walk by the property and around the neighborhood, also looking for neighbors as potential sources of information. You can also check natural hazard reports to see if the house is located in a zone that makes it more prone to flood, fire or earthquake damage. Still, the exact cost of repairs is unknown, and you should leave some extra margin for profit in your maximum bid in case repair costs escalate above your estimate.

Calculate your maximum bid
The maximum bid is simply the amount a buyer is willing or able to pay at a public auction. It’s important that you set a maximum bid before the auction to make sure you don’t get caught up in the emotion of a bidding war and end up overbidding. Marrs, the real estate investment trainer and author, recommends setting a maximum bid of 60-70 percent of the property’s market value as a general rule of thumb. This amount may vary based on the local real estate market conditions. From this baseline bid amount, you should subtract estimated repair costs and any outstanding liens and loans that aren’t cleared out by the foreclosure sale.

At the auction, stick to your maximum bid and don’t be influenced by other bidders. Sometimes the foreclosing lender or junior lien holders will bid at the auction to make sure all of their debts and costs are covered by the winning bid. This can sometimes inflate the winning bid close to market value, eliminating any chance at a great bargain. Of course, the bidding will go up incrementally, so you shouldn’t immediately jump to your maximum bid. Continue to go up incrementally until you reach your maximum bid or are declared the winning bidder.

You should consider foreclosure auctions, whether you’re looking for a great bargain on a home for yourself or entering the real estate investment arena. Auctions aren’t for all buyers, but with the proper resources and the right research they can be a prime opportunity to purchase property below market value.

Top 8 Mistakes Real Estate Investors Make

RE.com Tips & Tools — Fri, 03 Aug 2007 19:58:00 GMT

Avoid these common mistakes to improve your prospects as a real estate investor.

Investing in real estate isn’t a guarantee to riches. Too many real estate investors make mistakes that end up costing money. Avoid these common pitfalls in order to improve your chances for success.

Mistake # 1 – Not having a plan. A successful real estate investor needs a plan. It’s not enough to just buy a house and expect to sell it at a profit. Instead, before purchasing any house, a real estate investor should have a well-thought out plan of how the investment will work. That means working out your plan of attack before you buy any properties.

Mistake #2 – “Get rich quick” approach. Real estate investing is not for those hoping to make money overnight. On the contrary, successful real estate investing takes a lot of hard work. It also requires much time. Approaching real estate investing as a way to get rich quick is a sure way to not make money. Instead, know that it generally requires you to invest substantial time and money before you start seeing a profit.

Mistake #3 – Quitting your day job. Being a real estate investor requires a lot of hours, but it does not guarantee a steady income. And, it takes money to make money in this game. Investors just starting out often need regular income, especially since there are no guarantees you’ll turn a profit.

Mistake #4 – Lack of cash. Real estate investors often underestimate the monthly expenses that come along with investing. You’ll need to pay for home buying costs like inspections, appraisals, attorney fees, loan closing costs as well as mortgage payments, repairs, maintenance, and more. All told, you need to have plenty of cash on hand.

Mistake #5 – Foregoing a home inspection. Just because you don’t plan to live in the homes or properties you buy does not mean you should skip an inspection. An inspector can tip you off if the property is a money pit. You don’t want to pour so much money into it that you can’t make a profit.

Mistake #6 – Underestimating renovating costs. You’ve got to know how much you’ll have to put into an investment property. Have an idea of how much any improvements will cost – and then double that. Renovating projects are notorious for taking more money and time than originally planned. Also remember that if your renovations take longer than you anticipated, it means that you’ll have to pay mortgage payments and maintenance costs longer as well.

Mistake #7 – Holding on to the property for too long. The longer you keep the property, the more costs you incur. Usually, you’ll make the most when you buy and sell in a short time. Don’t lose your potential profits through the monthly mortgage payment.

Mistake #8 – Going it alone. Trying to go it all alone is another mistake common to real estate investors. You are not an island in this business. Instead, for the most opportunity for success, it’s a good idea to develop close relationships with professionals involved in the real estate process. For example, have a good working relationship with at least one real estate agent, appraiser, home inspector, closing attorney, contractor, etc. That way you have help on hand if you need it.

Why Home Inspections Are Important

RE.com Tips & Tools — Fri, 03 Aug 2007 17:36:00 GMT

Get a home inspection when buying a home to avoid buying a lemon.

After much searching, you finally find your dream home. It’s perfect…or is it? What if problems lurking beneath the surface transform your dream home into a nightmare? A home inspection tips you off to any potential problems with the house, enabling you to either make a more educated offer or avoid the purchase of a money pit.

What exactly does a home inspection involve?
With a home inspection, a certified home inspector evaluates the home. He (or she) meticulously walks through the house, checking out its physical condition, structure, the construction, and mechanical systems. He or she looks to identify any problems with the home. With a home inspection, you also find out the age and condition of your things like your home’s heating system, central air conditioning system, plumbing, and electrical system, as well as structural components. You don’t want to sweat out the first heat wave because you bought a house with a broken down air conditioning system. A home inspection can let you know if any of those systems are on their last legs.

Do I really need to pay for a home inspection?
Home inspections are not cheap. A typical inspection (depending on your geographic area) can cost upwards of a few hundred dollars. Money can be tight when purchasing a home and you may ask why you should spend even more on an inspection when you have already fallen in love with the home? There is nothing that can end a love affair quite like finding out that you bought a lemon. And that’s where the home inspection helps. The inspector has no emotional attachment to the house, so he has no problem pointing out its faults. Home inspectors are paid to be objective. In addition, home inspectors are trained to understand home construction, maintenance, and safety.

But, what about your real estate agent? Surely you can save money by letting your agent point out potential problems. Well, real estate agents are trained to help you buy a home, but they are not experts in the structure and systems of a home. Your agent may be able to suggest cosmetic fixes, but no agent would want to be liable for evaluating the state of a home’s plumbing or the lifespan of the roof.

When should you order a home inspection?
Once you have a signed purchase agreement or purchase contract on a house, you should line up an inspection. But before you sign a purchase offer be sure that it contains an inspection contingency. This will allow you flexibility to renegotiate the terms of the deal if the inspection turns up a lot of problems. Such contingencies generally state the inspection must take place within a certain time frame. Make sure you are aware of these time limits when setting up your home inspection.

On the day of inspection, the inspector spends a few hours carefully going through the house and then, usually within no more than 72 hours, provides you with an inspection report. Based on this report, you can request that the seller make all or some of the repairs; renegotiate the sales price based on the cost of repairs; or, if there are major problems with the property, you may be able to void the contract (depending on the terms of your contingency).

Buying a Historic Home

RE.com Tips & Tools — Tue, 19 Jun 2007 20:11:00 GMT

Historic homes are a labor of love. Discover what it takes to buy, register and maintain one.

The landscape of America is dotted with historic residences. But for every Monticello, Wrigley Mansion and Hearst Castle there are hundreds of lesser-known buildings that are significant to their local history, many of which are still being used as private homes today.

Take 508 South Broadway in Leavenworth, Kansas, for example. Built in 1868 by cattleman and local mayor, Jeptha Ryan, the house was the site of legendarily extravagant soirees attended by the city’s well-heeled movers and shakers. Among its owners, have been several of the city’s wealthiest and most powerful families, including Omar Abernathy, heir to the Abernathy Furniture Co.

The home’s current residents can enjoy living in a home that boasts antique mahogany paneling and carving inside and a Spanish-villa-inspired exterior. They can also take pride in the fact that their home has been recognized by the Kansas State Historical Society as being of local historic merit.

But while’s it’s a fun idea to own and inhabit a piece of American history, historic residences like the Abernathy home present a unique set of benefits and challenges. If you’re considering buying a historic home, you should:

1. Thoroughly research the home. You can find historic homes in most states through the National Registry of Historic Places. Each state’s historical preservation office can provide you with useful information on the history of individual properties, as well as the pertinent rules and regulations governing ownership, renovation and tax incentives.

2. Determine its historical designation. Getting a home officially sanctioned as historic can be a difficult process. A property must first meet specific criteria and be approved by the state preservation office. The definition of ‘historic’ even varies from state to state: a 100-year-old house in a ‘young’ state like Nevada may qualify, whereas a 150-year-old house in Massachusetts (a significantly ‘older’ state) may not.

A property that qualifies may be eligible for financial incentives and/or tax breaks. Incentives vary by state, but most involve some sort of income tax credit on funds put towards historic home rehabilitation. Check with your state historical preservation office and the National Park Service’s Federal Historic Preservation Tax Incentive Program for more information.

3. Make a conditional offer. It’s wise to make your initial offer contingent on two things: That you can secure adequate financing and that the house passes a thorough inspection. Many old houses contain structural defects invisible to the untrained eye, which, once discovered, can drastically reduce their purchase price.

4. Order a home inspection. This is arguably the most important step in buying a historic home as these homes may require extensive repairs and improvements to bring them up to modern-day building codes. This is especially true if they haven’t been used as day-to-day residences for many years. Likely trouble spots include sub-standard wiring, asbestos insulation, toxic lead-based paint, leaky or decaying roofs, damp basements, the presence of bugs and other pests and general neglect. Archaic heating, plumbing or electrical systems are important to note, too. Make sure that modern systems can be installed without damaging the home.

5. Finalize your offer. Consult with the seller about any concerns your inspection may have turned up and adjust your offer accordingly. If the seller agrees to make any repairs or improvements, make certain that these are included in the purchase agreement, along with a stipulation that any renovations be done in a manner that won’t hurt the home’s historical designation. Also, be sure to list in the agreement any items from the home (antique chandeliers, brass doorknobs, etc.) that you want included in the deal.

6. Renovate with care. If you’re planning to renovate a historic home, it’s a good idea to hire a contractor who specializes in rehabilitating historic properties. Ask for references and check them thoroughly. Remember, there may be restrictions on what you can and can’t do to a historic home. If the home is located in a designated historical district, you may be barred from replacing doors and windows, and some districts even place restrictions on what color you can paint the house.

7. Consider resale value. While well-maintained historic homes, or those with famous former owners, may command premium resale prices, some historic homes can be difficult to sell. The pool of potential buyers willing to accept the quirks, and possible added expense, of owning a historic home can be significantly lower. It’s important to keep this in mind and to carefully consider what you’re getting into before you buy.

New Homes Come With All Kinds of Surprises

RE.com Tips & Tools — Wed, 09 May 2007 20:28:00 GMT

After move-in day, homeowners fondly recall both unexpected joys and headaches.

Experienced home buyers know every home, be it new or existing, comes with its own surprises. Smart buyers find out as much as they can about a home beforehand through pre-purchase home inspections and pre-closing walk-throughs, but there are usually unexpected discoveries after move-in day.

Homeownership brings rewards and pleasures
Many new home surprises are welcome, joyful and worthy of celebration. Leafless backyard trees that went unnoticed in the wintertime may bear delicious fruit come spring. Dormant plants may bloom with beautiful flowers, adding a surprising burst of color to the yard. An entire home or a favorite room may be blessed with an abundance of morning sunshine or a cooling afternoon breeze. Furnishings of various sizes, shapes and styles may turn out to suit a new home better than had been expected. Unfamiliar appliances may sport special features that save time and take the pressure off monthly utility bills. First-time home buyers may be especially pleased to discover the joys of privacy and sense of personal space that comes with owning a home.

Yet other surprises may prove less felicitous. Seemingly ample closets may fill up all too quickly, and furnishings may turn out to be too large, too small or just not right for new rooms. Newfangled appliances may be equipped with maddeningly complicated bells and whistles. Thirsty landscaping can result in high water bills, and an older electrical panel may not generate enough juice to power modern devices. Older homes may be especially drafty or cold in the wintertime or overly hot in the summer months.

Another unpleasant surprise that awaits many new homeowners is a dirty house since not all sellers honor the traditional courtesy of a clean sweep through the home before they leave for the last time. Dirty carpets, drapes, closets, cupboards and cabinets are common finds, especially if a house has been occupied by the same family for many years. If ever there was a good time to call in a professional home-cleaning service, the day before moving into a new home may indeed be it.

Quirky neighbors become memories of a lifetime
Some of the most memorable new-home surprises tend to involve unusually friendly, unfriendly or peculiar neighbors. Many homeowners tell of being surprised by new neighbors bearing homemade meals or fruit baskets, offers of baby-sitting services or coveted telephone numbers of reliable contractors and servicemen. But others woefully recall encounters with illegal squatters in a supposedly vacant next-door residence or confrontations with neighbors who’ve become obsessed over backyard fences or the exact location of lot lines.

The bottom line is that a new home always contains surprises. Whether they are cause for celebration or concern, the surprises encountered upon moving into a new home are just the beginning of the joys and headaches of homeownership.

The Steps to Closing on Your Home

RE.com Tips & Tools — Thu, 15 Feb 2007 20:13:00 GMT

What you need to know about closing on a home

At closing, you take possession -- and responsibility -- of your new home. However, there are many steps along the way. Here’s what to expect:

Purchase Offer

After you’ve looked around and found a house or condo you like, it’s time to make an offer. The question is: how much? Many buyers make one that’s 8 to 10 percent below the asking price. This gives you some room to negotiate with the seller. However, this a general strategy and might not work in high-demand locations. In a seller’s market, you might have to offer closer to the asking price. Just remember not to offer more than you can afford to pay.

Good Faith Deposit

This demonstrates the buyer is making a serious offer to the seller. The amount varies but can be several thousand dollars. Either the real estate agent or the seller’s lawyer holds the deposit in trust until the deal closes. Then the money is credited toward your down payment and your share of the closing costs. Depending on the terms of your contract, you may lose your deposit and be sued for damages if you decide not to close on a deal once your offer has been accepted. Your deposit will be returned if the seller does not accept your offer.

The Contract

If the seller accepts the offer, a contract is drawn up. It is a legal and binding obligation, on the part of the buyer, to purchase the property if the contingencies are met. It outlines transaction details, such as the sale price, the closing date, the possession date, a description of the property and any applicable contingencies.

Contingencies

Certain requirements are specified in a contract that need to be met before the deal can be closed. They usually include buyer’s securing of financing and an acceptable home inspection. Generally, financing contingencies run for 30 days. An inspection contingency usually covers 10 to 14 days from the acceptance of the contract. But in a seller’s market, buyers might be asked to fulfill their contingency requirements more quickly.

Home Inspection

This is for the buyer’s protection. Most people don’t know all the structural problems to look for when inspecting property. A professional can conduct a complete examination of a house or condo to assess its condition. The buyer should make it a contingency in the contract that if the home fails inspection, the offer can be withdrawn.

Settlement Statement or HUD-1

Also called a “closing statement,” this is a document that the Department of Housing and Urban Development (HUD) requires to account for all financial aspects surrounding the sale and purchase of a home. It provides an enumerated list of the funds that were paid at closing. Items on the statement include real estate commissions and initial escrow amounts (money or securities deposited with a neutral third party -- the escrow agent -- to be delivered upon fulfillment of certain conditions). The Real Estate Settlement Procedures Act requires that a copy of the settlement sheet be distributed to both parties at least one day prior to settlement. To ready your finances and lessen the chances of any surprises at closing, ask your lender if they can get you a copy of your complete HUD-1 at least 48 hours in advance.

Closing Documentation

There’s more paperwork to be done before you’re finished. This includes a title search to make sure the title is clear, title insurance to protect the buyer and the lender from an oversight regarding a claim on some aspect of the property and an application for homeowner’s insurance. You must have insurance to get a mortgage.

Closing Costs

Closing costs vary. Your lender will give you a good faith estimate on these costs, but understand that some costs, particularly pre-paid interest, can change before the actual closing date. Some closing costs include:

A lender’s inspection fee
The cost of title insurance
A loan origination fee
An appraisal fee
The cost of a credit report
A mortgage broker fee.

Final Arrangements

You need arrangements to activate utility services, and you must you’re your first mortgage payment before the deal is closed and you take possession of the home.

Settlement

Settlement describes the payment of the balance of the purchase price the buyer owes on the property, and the transfer of the title. It takes place on the possession date specified in the agreement.

Is the House Worth the Price?

RE.com Tips & Tools — Thu, 15 Feb 2007 16:16:00 GMT

You're about to put in an offer on a home you love. Here's how to determine if it's worth the money.

Before you plunk down your hard-earned cash for what seems to be the perfect home, step back and take time to consider the following:

A Comparative Market Analysis

Ask your REALTOR^® to provide you with a Comparative Market Analysis (CMA). A CMA compares similar homes in the same neighborhood that have sold in the past six months to a year or are still on the market. The house you want should compare favorably in price, with the price properties sold for being more indicative of real estate value than the listing price. The more similar the features (square footage, number of rooms, number of bathrooms, age, lot size, etc.) and the more recent the data, the more accurately the CMA reflects the current market.

It’s also useful to look at how quickly homes are selling in the neighborhood. If similar houses are selling rapidly (within a month or so) at close to their listing price, it’s a sign the home you are interested in is probably priced fairly and will be more likely to appreciate in value over time than a home that has sat on the market for a year or more.

Location, Location, Location

It’s an old real estate saying that the three most important factors to consider when buying a home are all location. It’s certainly true when determining price. The least fancy home in a good neighborhood is worth more, in the long run, than the fanciest house in a bad neighborhood.

To evaluate the house you want, research the local housing market. Browse the Internet, local newspaper ads and real estate publications. Visit nearby open houses, talk to the neighbors and keep your eyes open. The best neighborhoods have:

Good schools
Proximity to public transportation
Convenient amenities like grocery stores, parks, a post office and a doctor’s office
No environmental hazards -- clean air, water and soil, and minimal noise pollution (visit at night and listen for traffic, trains, planes, barking dogs and loud neighbors)
Low crime

Also, find out how much it will cost to live there. The house itself may be a great value, but the cost of taxes, water, electricity, natural gas, oil, television and telephone could be inordinately high.

The Condition of the Home

Look past cosmetic repairs such as a fresh coat of paint and new carpeting. These could disguise defects such as peeling walls or cracked flooring. And try to ignore decor. Those beautiful paintings, vases overflowing with flowers and freshly baked cookies won’t be there when you move in. Focus instead on basics that add value:

A solid structure -- well-constructed walls, floors, ceilings, doors and windows
A roof and basement that don’t leak
Heating, electrical, plumbing and other systems that work
Kitchens, bathrooms and bedrooms with the space and amenities to meet your needs
No signs of termites or other vermin
No signs of mold, rot or water damage

Your Current and Future Needs

Ask yourself how many bedrooms and bathrooms you need for the next few years. And whether you need, and are willing to pay for, space for a home office, a garage, air conditioning, a swimming pool, etc. It’s not worth paying for amenities you may want but don’t really need.

A well-designed, renovated kitchen or basement, or extra rooms are usually worth paying more for. But only pay more for extras such as fancy tiles if you want them to improve the quality of your life. Unique extras that may have cost the owners $20,000 are unlikely to add $20,000 in value to the home when you decide to sell.

A Home Inspection and Appraisal

It’s always wise to make your offer conditional upon a home inspection. A reputable home inspection company will provide you with a report that identifies existing and potential problem areas, suggestions on how to solve these problems and a cost estimate for any work you’ll eventually require.

It’s also a good idea to have the home’s market value professionally appraised. Your lender may require a home appraisal in any case before providing you with financing. Home inspections and appraisals usually each cost around $200 to $500.

Get a LendingTree Guide to Mortgages when you request a mortgage loan through LendingTree.

Find a pre-screened REALTOR^® in your area.

Step 9: Home Inspection and Appraisal

RE.com Tips & Tools — Wed, 17 Jan 2007 19:47:00 GMT

Before you finalize the sale of a home, you should hire a third party to do an inspection of the property.

Inspections are meant to uncover any problems with the home that could affect its livability, safety or value. It’s usually a good idea to make your offer to purchase contingent on the home passing inspection, so you aren’t left with thousands of dollars in repair and maintenance work before moving in. And depending on the type of financing you choose for buying the home, it may have to undergo several inspections. Your real estate agent can recommend a reliable and affordable home inspector to conduct a whole-house inspection.

Inspections don’t cover cosmetic problems and, so you should take care of that in your own basic inspection. During this time, you should be sure that the sellers have left what they have agreed to in the contract and have moved everything else from the house. Also be sure there isn’t any damage to the home from their move. You may also choose to bring along a copy of your offer to be sure that all of the contingency items you requested have been completed.

You will likely have to have an appraisal to secure a mortgage. An appraisal is a written estimate of a property’s market value, and most lenders require this, to ensure that the home isn’t worth less than the loan amount. Should this be the case, your lender will likely reduce your loan amount, meaning that you will need a larger down payment, or you will need to negotiate a lower price with the seller.

Selling a home with hazards

RE.com Tips & Tools — Tue, 16 Jan 2007 20:41:00 GMT

You want to sell your home but know it has environmental or health hazards. Here's how to close the deal.

Whether or not you’re better off removing your home’s potential hazards before putting it up for sale will depend on a number of different factors. But the following steps can help ensure your deal goes smoothly:

Hire a real estate lawyer

A real estate lawyer can tell you the exact information you are legally required to disclose to potential buyers. This varies from state to state, but usually includes whether a home is prone to natural hazards such as flooding, fire and/or earthquakes or has structural defects. If your home was built before 1978 (the year lead-based paint was outlawed for U.S. residents), you have to acknowledge the possible presence of this paint and allow potential buyers 10 days to conduct an inspection or risk-assessment, along with giving them the pamphlet Protect Your Family From Lead in Your Home. Some states also require homeowners to disclose the presence of toxic mold.

Along with explaining your legal obligations, a lawyer can protect you by inserting clauses into a deal that specify the maximum you will be required to spend to treat or repair damage caused by such things as termites, foundation problems or other specific concerns. And it can be made to stipulate that you won’t have to repair, fix or reduce the purchase price if a buyer discovers the presence of lead-based paint.

Consult a real estate agent

A real estate agent can help you price your home realistically and give you advice on what they recommend you fix in order to get the best price. If the market is hot, you may not need to do anything about your home’s hazards other than disclose them. Potential buyers may be willing to undertake the necessary repairs themselves. Sometimes a home that’s listed at a lower price because it needs a little work will sell faster than a home that has been upgraded.

Consider having your home inspected before you list

Most home buyers are going to want to conduct a home inspection. By beating them to it, you can stave off their concerns with professional documentation that lays out your home’s exact problems. A home inspection will also indicate any problems that you may not be aware of and give you the chance to decide whether or not you want to fix them before you put your home on the market. Of course, there is the argument that if you decide not to have your home inspected you won’t have to disclose problems you don’t know about. The onus will then be on the buyer to find out about any potential hazards.

Fix what you can

If potential buyers inspect your home and discover hazards, there’s a good chance their offer is going to require you to get rid of them. In addition to the conditions you are required to disclose, buyers may also want to inspect for termites or other vermin, radon, hazardous insulation or other environmental, health or structural hazards. So it makes sense to do the following yourself, if possible, before you put your place on the market:

Make radon levels safe. Radon is a carcinogenic gas created by the natural breakdown of uranium in soil. The cost of a radon mitigation system will range from around $800 to $2,500, depending on how your house is constructed, how the radon is entering your home and your region.
Hire a professional exterminator. If your home has termites, carpenter ants or dry rot, it’s wise to have it professionally treated. These vermin eat away at your home’s wooden structures, steadily eroding its property value and making your place potentially unsafe.
Upgrade aluminum wiring. You should pay a professional electrician to upgrade any aluminum wiring in your home to copper as soon as possible -- especially any aluminum connections to electrical fixtures and switches. It breaks easily and is a fire hazard.
Get rid of toxic mold. Some species of mold that can grow in damp areas of your home can make you seriously ill. So be sure to eliminate any water leakage problems immediately. It’s important to get rid of toxic mold both to protect your home’s value and protect your health while you’re still in the house. Plus, if toxic mold makes purchasers sick after they’ve moved in, they might have grounds to sue you.

Contract on a home: your next steps

RE.com Tips & Tools — Fri, 12 Jan 2007 21:51:00 GMT

You've signed a contract to purchase a home. Now what? Here are the next steps you need to take.

You’ve been searching for the perfect house. At last you’ve found it, and you make an offer. The seller accepts it, and now you have a contract. What happens next?

1. Contact your lender
Once you sign a contract on a house, things can move rather quickly. If you have been pre-approved for a mortgage, you need to make sure all the necessary paperwork has been completed in order for you to obtain final approval. Contact your lender and provide whatever additional information is required.

2. Arrange a home inspection
It’s always wise to have a professional home inspector go through the home to see if there are any problems that need to be addressed. If you have stipulated in your contract that your offer is conditional upon inspection, then you will able to negotiate with the seller regarding any necessary repairs. The seller will then have to make appropriate arrangements to correct those issues.

3. Remember small details
There are numerous small details to take care of once you sign a contract on a home. You must change your address and change over your utility billing for the new home. You need to make moving arrangements. Don’t forget to contact your insurance company to set up homeowner’s insurance. Also, be sure that all of your funds are in order for closing.

4. Take a final walk-through
Prior to closing, make sure to take a final walk-through of the home. This is an important last step. It ensures that any repair issues that were included in your contract, and raised during the home inspection, are taken care of, and also that the house is ready for you to move in.

Remember, there’s always a flurry of activity once you have a contract on a home. Keep a list to help make sure that you have done all that you need to do. This should help your home-buying process go smoothly.

Home purchase offer: Breaking the contract

RE.com Tips & Tools — Fri, 12 Jan 2007 21:31:00 GMT

Whether you can back out of buying a home without it costing you a lot of money depends on your contract.

Buying a home is a big decision. And sometimes, after making a home purchase offer, you may decide you’ve made a mistake. Is it too late to back out once you’ve signed a contract? Not necessarily.

When you are allowed to back out

When you sign a purchase offer, you may stipulate certain conditions in the contract. If the seller agrees to these requirements, then you are allowed to back out of the deal if the conditions aren’t met. For example:

A home inspection. It’s always wise to stipulate that your offer is conditional upon a home inspection. If the inspector finds any problems that you did not anticipate or that you find unacceptable, and the homeowner refuses to correct these problems, this is an opportunity to back out of your decision to buy the home without penalty.
A home appraisal. You may also be able to back out of a home purchase offer without penalty if you’ve stipulated your offer is conditional upon an appraisal and the appraisal comes back with an estimated value that is lower than the selling price of the home. This can be important, particularly if it results in your lender refusing to grant you a sufficient mortgage to cover the cost of the property.

Backing out at a loss

You can also back out of your home purchase offer at any time prior to closing without a reason. If you do so, however, you will most likely to lose your “earnest” money (the percentage of the purchase price you paid up front). Backing out of a home purchase offer in this manner usually creates a stressful situation for both the buyer and the seller. It’s therefore something you should try to avoid. It’s always better to weigh your decision carefully in advance. At the same time, it’s important to know that you are able to back out if you feel you’ve made a mistake.

The next steps after a home offer

RE.com Tips & Tools — Fri, 12 Jan 2007 21:24:00 GMT

So you’ve found the perfect home and made an offer. Now what? Here are the important next steps.

So far, so good: You were pre-approved for a mortgage, hired a helpful real estate agent, found a beautiful home and submitted your offer. What comes next? Making an offer is exciting, but it’s only the beginning of the home-buying process. Here are eight important steps that can guide you through to closing:

1. Wait for the response. After your agent submits your offer, the seller has three options: he can accept it, reject it outright, or respond with a counteroffer. If the seller rejects your offer without coming back with one of his own, it may be because your price was too low. It could also be that your offer included certain conditions that were unacceptable to him. Or perhaps he received multiple offers, and one of them was a higher bid. Often, however, sellers will send back a counteroffer, usually asking for a higher price. Or sometimes they’ll request a more favorable closing date or a change in one of your conditions. You must then consider whether or not to accept their counteroffer or make a counteroffer of your own.

2. Hire a settlement agent. Once you and the seller have agreed on an offer, you need to begin the paperwork. A settlement agent (also called a closing agent) can help you through this part. The agent, often a lawyer, can take care of the title search, obtain a property survey, ensure that any prepaid taxes and utility charges are divided fairly and handle any other legal requirements of the sale. If you are selling your current home as well as buying a new one, the settlement agent can also work with your lender to make sure you meet all your mortgage obligations and that all the funds are properly disbursed.

3. Get a home inspection. It’s always a good idea to make your home offer conditional upon a home inspection, if the seller will accept it. A professional inspector can identify trouble spots such as a cracked foundation or a rotting roof. A specialized inspection can also be conducted to detect the presence of termites. You can then request that either such problems be fixed or the price be reduced to compensate.

4. Arrange home insurance. Your mortgage lender will require that you take out a home-insurance policy to protect your home and the lender’s investment. Find out if any special coverage must be included (flood insurance, for example) and shop around for the best deal.

5. Start packing. Even though your moving day may be months away, start boxing up seldom-used items now -- packing takes a lot longer than you may think. If you’re planning to use professional movers, call around and get quotes from two or three companies. The pros can also provide you with boxes and tips for efficient packing.

6. Redirect your mail. In all the chaos of moving, it’s easy to forget basic things such as asking the post office to redirect your mail, or changing your newspaper and magazine subscriptions. Remember to notify your utilities, financial institutions and anyone else who needs to know your new address.

7. Prepare your kids. If you have young children, help them prepare for the move by talking about the changes they’ll experience. Reassure them that they will make new friends and that their current friends can still visit (if that’s realistic). While you’re at it, contact their new school as soon as possible to inquire about registration.

8. Close the deal. Before closing day, be sure to get a copy of the final settlement statement (also called a HUD-1) from your settlement or escrow agent. It will list all of the final closing costs for you to review and give you a chance to make sure there aren’t any discrepancies. Then, all that’s left at closing will be to sign those final documents, pay the outstanding balance and you will get the keys to your new home.

Buying your first home

RE.com Tips & Tools — Fri, 12 Jan 2007 20:37:00 GMT

Understanding all that is involved can help you through the purchase of your first home.

Buying a first home can feel intimidating. However, by understanding the process, you can have a great experience buying your first home.

1. Begin the loan process.
One of the first steps in buying a home is finding out how much you can afford. Lenders call this prequalification, because they determine roughly for how much of a mortgage you qualify. To get prequalified, you contact a lender and provide basic financial information, such as your credit history, income, assets, etc. The lender then determines roughly how much of a loan you are qualified for. You can also get prequalified through LendingTree. Prequalification is not binding, however. The next step is to get preapproved, which occurs when the lender verifies your financial information. By getting prequalified and preapproved, you are in a better position to shop for your first home.

2. Find a REALTOR®.
Once the mortgage process is started, you are now ready to contact a REALTOR®. They can help you to find the right community and the home that best meets your needs. To find the best REALTOR® to help you buy your first home, get recommendations from people you know, or you can Find a REALTOR® through LendingTree®.

3. Find your home.
Now that you have a REALTOR®, the next step is to start your property search. Allow plenty of time to look at as many homes as you can so you can find the perfect first home. When you find the house you would like to buy, the next step is to make an offer. Your REALTOR® assists with the paperwork and helps you make an offer that the seller may accept.

4. Get a home inspection.
Once the owner accepts your offer, you now have a contract on your first home. But the process isn’t over yet. You must arrange a home inspection to make sure there are no problems with the house. The inspector will provide you with a list of potential problems that you can ask the seller to fix. You and the seller then negotiate on what needs to be fixed before closing on your first home.

5. Moving arrangements.
The next step is to make moving arrangements. Whether you are moving yourself or hiring a moving company, you should set this up in advance. If you plan to move yourself, get boxes and rent a moving truck to transport your possessions to your first home. If you plan to hire movers, call them well in advance so that they can be scheduled for the day that you need them to move into your first home.

6. Arrange homeowner’s insurance.
You need to have homeowner’s insurance on your first home. Start by calling your insurance agent. Your agent will ask you questions regarding your home, such as the address, square footage, type of roof, number of bathrooms, etc. The agent gives you a quote and then coordinates with your lender. At closing, you pay the premium as part of your closing costs.

7. Packing.
Now it is time to start packing! A great way to get started is to go one room at a time. Start with a room that is used the least in your current residence and start packing there. This is also a great opportunity to get rid of anything that you no longer want. You don’t want to move anything that you do not need, so if there is something that needs to be thrown away or donated, now is the time to do that.

8. Address change and utilities.
You will want your mail to arrive at your first home, so don’t forget to change your address with the post office. This can now be conveniently done online. Also, it is necessary to have the water, electricity, gas, cable, etc. turned on in time for your move-in day.

9. Walk-through.
Prior to possessing your first home, you have a walk-through. This is a chance for you to make sure that everything from the inspection was fixed. It is also a chance to see that your first home is in move-in condition.

10. Closing and move.
The final step in the process of buying your first home is closing and then actually moving in. At closing, you sign the papers from the lender and any others that the state requires that make the home yours. You will also have to pay closing costs. Once the paperwork is done and your check is signed, you can move your possessions in to your first home. After weeks of preparation, the house is now yours.

Fees and costs of a home sale

RE.com Tips & Tools — Fri, 12 Jan 2007 20:34:00 GMT

Expect to pay for commissions, inspections, insurance, taxes and other items.

Many home buyers and sellers are mystified by the long list of expenses associated with buying or selling a home. Items like title insurance, recording fees and doc stamps may be especially unfamiliar to first-time buyers.

The types and amount of fees vary from one locale to the next. Who pays is determined largely through negotiation between the seller and buyer.

Here, then, is a list of the typical fees and expenses:

Home inspection: A home inspector examines the visibly accessible areas of the property and prepares a report about the physical condition of the home.

Pest-control inspection: A pest-control operator examines the property and prepares a report about the presence or absence of termites or other wood-destroying pests and any damage to the home caused by such pests.

Other inspections: Additional inspections may be obtained to determine whether the home is structurally sound or contains any environmental hazards (e.g., asbestos, lead-based paint, radon or certain types of molds), among other issues.

Homeowner’s insurance: Homeowner’s insurance protects the property owner from certain losses in the event of fire, theft or other specified casualties. Insurance is typically required to obtain a mortgage since the property is the lender’s security against the loan.

Specialty insurance: Some homeowners elect to purchase additional insurance to protect against such risks as flooding, earthquake damage or other hazards that aren’t covered by homeowner’s insurance.

Homeowner association fees: A home that’s located within a planned-unit development (PUD), condominium complex or other area governed by a homeowner association may be subject to dues and assessments for the upkeep and repair of common areas such as parking structures, landscaping, parks, private roads, recreational facilities and the like.

Closing agent fee: The closing agent makes sure all the documents and monies related to the home sale are properly organized, processed, notarized, handled, accounted for and disbursed. The closing agent may be a real estate attorney, title company or escrow company.

Title report: A title report is a history of the current and prior ownership of the property and any liens, encumbrances, encroachments or easements. Title reports are prepared from public and title company records.

Title insurance: Title insurance protects the lender and property owner from claims against the ownership of the property that were not disclosed in the title report. Title policies may contain endorsements to address specific risks.

Survey: A surveyor identifies the physical boundaries and characteristics of the property, including the location of any structures, wells, fences, utility easements and other items.

Recording fee: A recorder’s office is a governmental authority that creates, maintains, updates and makes available official public records of property ownership.

Property tax: Many government authorities collect annual taxes and assessments against real property. These taxes may be a set amount per parcel or based on a percentage of the value of property. Government agencies may also collect fees for trash collection, road maintenance or other services.

Transfer tax: Some government authorities levy a tax when a property changes ownership. The amount typically is based on the value of the property. This tax may be called "doc stamps," a reference to postage-like stamps affixed to a deed to prove payment of the tax.

Real estate brokerage commission: This commission is paid to the real estate brokers who arranged the sale of the home. It is usually a percentage of the sales price negotiated between the seller and listing broker.

Sizing Up an Offer to Purchase Your Home

RE.com Tips & Tools — Thu, 11 Jan 2007 21:56:00 GMT

Sure you want to get a good price for your home, but there are other factors to consider when evaluating offers.

Sometimes when you’re selling your home, you’re better off accepting a lower bid with fewer conditions than a higher offer with a lot of strings attached. Ask your agent for advice when deciding which offer to accept, and keep in mind the following:

Price

Know what you can expect for your home based on its location. If the listing price is accurate, purchase offers should be very close. Free market evaluations are available through recognized agents.

A pre-approved buyer

A top-dollar offer is worthless if the buyer hasn’t got the financing on closing day. Ask your agent to stipulate that all offers specify the buyer is pre-approved for a mortgage.

Closing date

Whether it’s coordinating with a job transfer or the end of the school year, you want a closing date that meets your needs. Otherwise, you may have to spend money on an apartment or hotel while waiting to move into your new home.

Bonus payments

The seller usually covers legal and closing costs. However, if a potential buyer offers a lower price that includes such fees, then that offer may be worth considering. Other costs that might be negotiable are the broker’s commissions, the price of a home inspection, the title search and taxes.

Extra costs

Watch out for any clauses that ask you to pay for something out of the ordinary, such as the cost of the buyer getting a mortgage or a house appraisal.

A conditional offer

A purchase offer that is contingent on the sale of the potential buyer’s current home is risky -- if the buyer fails to sell the home, usually within a fixed period of time, your deal could fall through and you would have to put your home back on the market.

The deposit

The deposit that accompanies serious offers is called a “binder” or “earnest money.” It is held in trust by your lawyer or the buyer’s real estate agent until the closing date. Although the amount ranges from 1 to 10 percent of the selling price, a higher percentage indicates a stronger commitment on the part of the buyer.

A home inspection

The potential buyer usually pays for a home inspection. He or she wants to know that such things as the plumbing, heating and electrical systems are in working order. Homes that sell "as is" usually go for a lower price than homes that have been inspected. If an offer requires you to pay for additional specialized home inspections and the cost of repairs, however, be wary. Extensive inspections and repairs can be expensive.

Included in the deal

Most buyers expect their offer to include everything permanently installed or attached to your property, such as a built-in bar or dishwasher and most lighting fixtures. But you may be able to negotiate a higher price if you also include portable appliances, such as a refrigerator or washer/dryer set, window coverings, chandeliers or even furniture in the deal.