by Joni McCreith, The McCreith Team, Bella Casa Real Estate
Are you a potential homebuyer? Check out these 8 important tips to help you navigate the waters of home-ownership.
1. To Buy, or not to buy? It’s a question well-worth asking, and unfortunately no simple answer can be given. Are you better off renting or purchasing a home? Or, how does the idea of Rodrock Custom Built Homes sound? There are so many ways to approach the home buying/renting process, you just need to find what suits you best.
Most financial planners would agree that a home is a worthy investment. However, there are situations where it may be better to rent than to purchase. Costs involved are, many times, more than the average buyer anticipates. For example, typically a mortgage is loaded at the front (the initial months and years) with pre-paid interest (which means that very little of your mortgage payment is actually going to pay off your home). Some loans have prepayment penalties for paying them off (upon the sale of the home) prior to the terms agreed upon. Furthermore, there are closing costs involved in buying and selling a home. Many financial advisors would recommend that if you won’t be living in a home for at least two years, you are better off renting.
On the other hand, in a rising market (like the one Yamhill County experienced in 2004-2006), staying out of the market for two years can mean an inability to afford as much house, or even isolate a buyer from the market entirely. If you have concerns about whether purchasing a home is right for you financially, you would be wise to seek advice from a competent financial planner.
2. Why hire a Realtor®?
Buying a home without a Realtor® can be like attempting to defend yourself in court without an attorney. It costs a buyer nothing to be represented by a Realtor® when purchasing a home (the Realtor’s commission is an expense to the Seller). There is no reason for a buyer to make one of the largest investments of his or her life without the assistance of the Realtor® of his or her choice representing their best interests. When choosing a realtor, you want someone who understands what you’re actually looking for. Donnelly + Co. are realtors who pride themselves on providing a simple and effective service, finding properties for you with integrity, allowing you to create your forever home.
A Realtor® will have knowledge of new listings before they show up on public search sites, giving you the opportunity to have the first look at any that fit your needs. Additionally, your Realtor® can point you in the right direction for useful information such as schools, local business, necessary permits, and more. You want to get one that is in the relevant area, so for example, if you are living in Texas then you should check out someone like this real estate attorney DFW. Once you have found the home you are looking for, your Realtor® will handle the negotiations diplomatically on your behalf. Your Realtor® is an advocate for you, but as a third party, which tends to keep emotions (i.e. hurt feelings, offences taken, etc.) out of the negotiations. Keep in mind, the listing agent is representing the seller, and a qualified buyer’s agent can make sure you are not taken advantage of.
Additionally, your Realtor® is required to take a certain amount of continuing education courses regularly in order to ensure that he or she is current in every aspect of the real estate industry. Real Estate, when viewed from the outside by the public, can appear to be a rather simple task, but ultimately proves to require great skill and proficiency.
3. Not All Mortgage Brokers are Created Equal.
There is some debate about whether the final cost with one broker is very close to the final cost with another, only charged or itemized differently. However, cost is not the only, nor is it necessarily the foremost reason to choose a mortgage broker. The number one reason a buyer should choose to go with a particular mortgage broker is because he or she has a proven track record of getting the job done on time. Many real estate transactions fail to close on time because a lender hasn’t done their job properly or efficiently. Normally this does not result in any real financial disadvantage, but the emotional toll on both buyer and seller is almost worse. Like a domino effect, multiple transactions ride on timely closings, and one late closing can set the whole of them toppling over. Frustrations arise and tempers flare because buyer and seller alike have taken time off of work, scheduled movers (with non refundable deposits), and made arrangements around a scheduled closing date, all which is interdependent on the lender(s) staying on top of document processing.
4. Be Prepared: Get Pre-Qualified!
Obtaining a pre-qualification letter from your mortgage broker of choice is relatively simple. It takes only a few minutes to answer the questions necessary for your mortgage broker to provide you with a pre-qualification letter. This is important for a number of reasons.
It will save you from the heartache and disappointment which inevitably comes from setting your heart on homes that are more expensive than you can afford. Conversely, you may find that you are able to purchase a larger home than you anticipated, if through this appointment you find that you qualify for more than anticipated.
In some circumstances where multiple offers are submitted on a single home, a pre-qualification letter can be a determining factor in whether one offer is accepted over another.
It will save you time; it makes sense to be prepared.
5. What is Earnest Money?
When making an offer to purchase property, the seller will require earnest money from the buyer. Just as it sounds, this money is to prove that the offer is a legitimate or “earnest” offer. Typically, earnest money is between 1% and 1½% of the sales price. The money is placed in escrow, the neutral third party. From that point on, nothing can be done to the money without written agreement of both seller and buyer. In a typical transaction that proceeds to closing, the earnest money becomes part of the cash a buyer puts toward the purchase (the down payment). It is not in addition to the purchase price.
If an offer is terminated, there are five ways the buyer’s earnest money is protected and returned to the buyer.
If the preliminary title report or CC&Rs (see The Buying Process for a timeline of when you will have the opportunity to review these) contain any information that is unacceptable to the buyer, such as easements or restrictions on the property, the buyer may terminate the transaction and his or her earnest money will be refunded.
If the seller’s disclosures contain anything unacceptable to the buyer, such as minimal yard flooding during wintertime, the buyer may terminate the transaction and his or her earnest money will be refunded.
During the inspection period, a buyer may terminate the transaction for any reason, or no reason, and his or her earnest money will be refunded. (These first three typically take place during the first two weeks of the transaction, called the Inspection or Due Diligence period.)
About two weeks prior closing, the lender will order an appraisal of the property. If the property does not appraise for the agreed upon price, the buyer is free to terminate the offer and his or her earnest money will be refunded. Of course, at this point buyer and seller could also return to the negotiations table and agree upon a price supported by the appraisal.
If the buyer’s financing (ability to qualify for the loan) fails due to no fault of the buyer, the transaction can be terminated and the earnest money returned to the buyer.
Keep in mind that there are also articles in place to protect the seller wherein the buyer can lose his or her earnest money. These situations can be tricky. This is another area where having a Realtor® represent your best interests is invaluable.
Oregon is a “seller-disclosed” state. This means that a seller is required by law to disclose all known flaws, past problems, potential problems, deed restrictions, etc, regarding the property for sale. The key here is known. If the seller doesn’t know about a problem, he or she can’t disclose it. Even if a person could prove beyond the shadow of a doubt (required in our jury system) that a seller knew something and didn’t disclose, the accusation would require mediation and/or arbitration (see question #8 for more info on mediation and arbitration) to decide who was right, who was wrong, and who is to pay. Disputes resolution can be an expensive and time consuming process. The best way for a buyer to avoid this is is to fully perform his or her due diligence, either prior to making an offer for purchase or during the inspection period.
When you are given the disclosures from the seller read them over very carefully. If there is anything there that concerns you, investigate it further until you are either satisfied with your findings or convinced that you should terminate based on your findings. If there are CC&Rs on the property they should also be reviewed carefully. And the same applies for the preliminary title report. Anything on any of those documents that raises concerns should be thoroughly investigated to the your complete satisfaction. This is one thing your Realtor®, by law, cannot do for you. He or she can, however, help point you in the right direction to find out the information you do need to know.
7. Why $500 is always worth it: Home Inspections
The importance of a home inspection cannot be overstated. Even in new construction, it is wise to hire a professional home inspector. Homes experience wear and tear like any other material item, and even builders can make mistakes. The sole job of a home inspector is to identify those mistakes or the areas of an existing home needing repair. A home inspector looks under the house, in the attic, checks electrical outlets (when they are accessible), tests appliances, and performs a variety of other tests on a home’s functionality (many of which are not viewable simply by a walk-thru). A professional home inspector can address concerns from siding quality to the proportion of heating & air conditioning units compared to the size of the home.
Most real estate contracts provide for a 10-day inspection period (commencing upon mutual acceptance). This is protected time for a buyer to investigate the home he or she is about to purchase. A typical home inspection lasts 2 to 4 hours. It is custom that the seller leave the home so that the inspector, the buyer, and the buyer’s agent have the time and freedom to check and discuss any concerns about the home. These home inspection services really will help you sell your home effectively, so it is definitely worth considering.
8. What if something goes wrong?
Should something go wrong in a real estate transaction to such a degree that legal intervention is required, Oregon law provides for either mediation or arbitration. Mediation involves the two parties choosing representatives who will attempt to reach an agreement on how the dispute should be resolved. Mediation is not binding (which means it cannot be enforced). It is a sort of “gentleman’s agreement.” Arbitration, on the other hand, involves an arbitrator or “judge,” who listens to both sides a renders a verdict which is legally binding on both parties. This is typically more costly that mediation. Once a decision is reached by an arbitrator, there is no challenging the decision. It cannot be taken to a “higher court” or “court of appeals.” Disagreements concerning real estate transactions do not go to trial court in Oregon.
We trust that you will find the information provided here helpful as you consider purchasing a home. These are only a few of the many questions that a buyer may have, so if your questions weren’t answered here, please feel free to contact us any time.