Monthly Archives: August 2015

8 Real Estate Terms to Know Before You Buy

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home buyingFor most buyers, buying a home—a house, condo or townhouse—is the biggest purchase of their lives. That’s why it’s so important to “know your stuff” BEFORE you jump into the purchase. A little bit of knowledge, and choosing a good real estate agent, can be the key to finding the right property and saving thousands of dollars in the process.

Buyer’s Agent

A buyer’s agent is working for you, the buyer, during your home search and home-buying process. However, you as a buyer don’t pay them for their work; their commission comes from the seller. In most home purchases, the seller also has a real estate agent representing their interests called the seller’s agent.

The seller’s agent is paid by the sellers when they put their home on the market. Their home—whether it’s a condo, townhouse or house—becomes a real estate listing. Once you’ve narrowed down your criteria on your must have list for your ideal home, you’ll start to receive listings from your agent. Each listing includes important information such as estimated square footage, address, number of bedrooms, lot size, etc. If you receive a listing and find you are interested in the property, contact your real estate agent to set up a home tour or showing.

Condition Report

In 1992, Wisconsin became one of the first states requiring sellers to fill out a document disclosing defects that could affect the value or structure of a property. The Condition Report needs to be part of all transactions involving 1-4 properties and has more than 20 categories of disclosures, including important items such as unsafe well water, roof defects and problems within the electrical system. If the property does not have a defect in that category, and has never suffered damage as a result, the seller can indicate that the property is clear in that area.

So what do sellers have to include in the report? Everything—and what was done to fix it. If a problem occurred on the property, even for an insignificant length of time, it needs to be included in the report. Include the issue, what was done to fix the problem, and that it never happened again. For instance, if the basement flooded with a foot of water for a just a few hours 10 years ago, the flooding needs to disclosed. Also write down that the problem was caused by a faulty sump pump that was replaced that same day.

The report cannot be completed by a seller’s real estate agent. Truly, the Condition Report is not protecting the real estate agent, it’s protecting the sellers. That’s why sellers need to fill this important document out—and fill it out completely with full disclosure. A completed Condition Report is more than just a piece of paper. It’s a shield for sellers now—and after the sale is complete.

Earnest Money

Earnest money is a deposit included with your offer that shows you’re serious—earnest—about purchasing a property. The amount of earnest money is applied to the purchase price at sale. For example, if you include an earnest money amount of $5,000 in your offer of $115,000, you will pay $110,000 at closing. Earnest money is the edge that sets your offer apart, and shows your offer is genuine and committed. Including earnest money up front shows the seller you are making a down payment not only on a property, but also in the future.

To determine the amount of earnest money you should include, ask your real estate agent for their recommendation. The amount of earnest money varies nationally, and even among communities and counties in Wisconsin. If the purchase falls through due to contingencies included in your offer, such as an issue found in the home inspection report, the buyer should receive the earnest money in full. If the buyer defaults on the sale, an agreement can be made to compensate the buyer while still giving the buyer a partial refund.

Home Inspection

A home inspection is typically requested by a potential buyer, though a pre-listing home inspection also makes sense for anyone thinking of putting their home on the market. During a home inspection, a hired home inspector examines the interior and exterior of a house and compiles a report detailing issues that the potential buyer may need to remedy. For example, the home inspector may spot a roof that needs replacement, a gas leak from a furnace, electrical issues, plumbing problems or any other issues that may come up after the home sale. A good inspection is invaluable for buyers for several sound business reasons:

  • Some of the most expensive repairs can be hidden, such as structural and electrical issues. Buying a home is a sound investment, and should remain as such. You don’t want to sick more money into the property than you have, or than it’s worth.
  • A home inspector can tell you if work done by the previous owner—even if you can’t tell the work was even done—was done correctly, or can recommend professionals that can inspect the structure or foundation.
  • If the home inspector finds any issues, you can go back to the owners and ask for funds to fix the house, or ask them to fix the damage. If your offer is contingent on the home inspection, you can also back out of the sale.
  • Home inspectors can give you a list of future repairs that need to be made and a timeline. If the house needs a new roof, for example, he can give you his opinion on the damage and when it needs to be repaired or replaced.

For buyers, the most important item that any home inspector can give you is peace of mind and an education about your future investment. To find a good home inspector, talk to your agent. They can recommend a home inspector with the experience and knowledge that you need to make an informed decision about your home—and the amount of work and money needed to make it the perfect home, both aesthetically and structurally, inside and out.

Foreclosure

Foreclosure is a legal process used by a lender when a previous owner stops making payments on their property. In today’s market, the term “foreclosure” can also be used to describe properties that are owned by the bank—though technically, these properties are “bank-owned.”

The process of buying a bank-owned property can be lengthy, with some buyers enduring more than a year of paperwork before they can buy a foreclosed property. However, because lenders are eager to sell these properties, bank-owned properties promise the biggest bang for your buck, as properties are often sold for an incredible value. It is important to note when buying a bank-owned property, however, that all properties are sold “as is.” “As is” means that the lender that owns the property will not pay for any repairs that may be needed. In addition, if a bank-owned property has sat vacant for a lengthy period of time there may be unforeseen problems after you take ownership of the property. One buyer I knew even encountered a flood in her basement. The bank had turned off the water to the property but had not drained the pipes properly, leading to a swimming pool in her finished basement. Foreclosed properties are great values, but be prepared for the possibility of a long buying process and unforeseen repairs.

Mortgage lender

A mortgage lender is the entity that is borrowing you money to purchase a property. One of the most common home buyer mistakes is looking for a home without knowing how much you can afford. Don’t assume that you are going to be approved for a certain amount without talking to a mortgage lender. There are many factors that mortgage lenders use to determine the amount you are approved for, and a simple online calculator is not going to be 100% accurate. Don’t be afraid to “shop around” and find out what mortgage lender offers the best rate. Make sure that you are asking about more than just the mortgage rate, however, as some lenders add additional fees that can offset the low rate.

Before your first visit to the mortgage lender, be prepared. Ask your mortgage lender what documents to bring to your meeting so you can expedite your approval process. Depending on your lender, you need to bring documents such as your W-2, past tax returns, profit and loss forms if you own a business, documents that pertain to your debts, etc. Based on their research from the documentation you provide, the mortgage lender can either decline to give you a loan or approve you for a loan in the amount they specify. If you are approved, your mortgage lender will give you a pre-approval letter. How do you find a mortgage lender? Ask your realtor for information about local mortgage lenders.

Offer

Once you’ve decided you are serious about a property, it’s time to submit an offer (otherwise known as a purchase agreement). An offer contains a price and any contingencies, or conditions, of the sale. For example, a common contingency is a financing contingency which means your loan must go through for the sale to be final. Another common contingency is an inspection contingency where the house must pass a home inspection or both parties come to an agreement on how to handle an issue that arises during the home inspection. There are other contingencies that can be included in your offer; discuss your options with your real estate agent.

An offer is not a binding agreement until both parties have agreed upon the price and contingencies included in the purchase agreement. So how do you decide on the price to include in your offer? Use comparable sales as a compass. The best way to determine a fair price for the property is to compare the home to all area homes for sale, or that have sold, with comparable lot sizes and square footage. A real estate agent can assist with the process, and use their experience to hit upon a fair sales price. Just remember to compare apples to apples, and oranges to oranges. For some properties, especially in rural areas, this can be challenging because of the low inventory of homes for sale in the area; ask your agent to help you navigate through the offer process fairly and affordably.

Short Sale

Short sales are properties that are often owner-occupied. A short sale occurs when an owner owes more for the property than the value of the property. For example, an owner owes $150,000 for a property that is appraised at $120,000. During a short sale, the lender—the institution who is owed the $150,000—agrees to sell the property for (let’s say) $120,000, less than the amount of the loan.

During a short sale, the owner and the lender have to approve the offer made by a buyer. This can mean a lengthy buying process, but, as with foreclosures, the value per square foot can be higher than a traditional sale.

Have any questions? Ask us on our Facebook page or send us an email. We’re experienced real estate agents with a passion for assisting buyers through the home-buying process. We’ll help you navigate through the real estate terms so your home purchase is a knowledgeable and satisfying buying experience.

What can I do if my house won’t sell?

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sold homeIt’s hard in a seller’s market to see your property sit on the market, but the fact is that it does happen. Selling your home is not a hard science; so many factors play a part in whether a house sits on the market for 30 days or 300 days: price, location, condition, home inspection issues, real estate market. While not all of those factors are under your control—you can’t control the real estate market—there are steps you can take to improve the saleability of your home:

  1. Clean, clean, clean. A deep clean is essential to a home sale. Take the white glove approach to tile grout, flooring (especially carpeting), bathrooms and sinks. Don’t leave out pest traps in visible areas; you don’t want buyers to be disgusted and not continue their home tour. If you can’t take on the task of a deep cleaning, ask your realtor for a recommendation for a cleaning company that can. It’s worth the investment.
  2. Consider minor home improvements. Don’t feel like you have to break the bank, but remain focused. Bathrooms and kitchens are the two main areas to invest your funds, such as in new updated counter tops and refaced cabinets. Ask your realtor for recommendations; they know the area and what prospective buyers expect in your locale. Remember, don’t break the bank making the improvements; you don’t want to invest money that you won’t get back.
  3. Improve your curb appeal. A well kept home on the outside is important; it gives prospective buyers the reassurance that you are keeping the outside and inside in good condition. Clean up any trash in the yard, and keep the walks clean. You want your house to look well-maintained and inviting. This is your chance to make a favorable first impression; good curb appeal starts that impression at the door, with the hope that it continues inside.
  4. Get rid of the red flags. When selling your home, first impressions do matter. Replacing a broken window or repairing water-damaged drywall can be the difference between a quick sale and a dragged out process. A pre-listing home inspection can locate potential red flags before your home hits the market—and before a buyers’ home inspector finds them as well. Buyers are scared away by homes they consider money pits, even if the repairs are minimal.
  5. Reevaluate the price. This is the option no one wants to hear, but a high price tag is one of the hugest obstacles to a quick sale. Read our recent blog posts for tips on how to ensure your house is priced fairly; look at comparable sales in the area, and be realistic. A house priced too high is a house that is going to stay for sale for the long term.

If you’re worried about why your house won’t sell, talk to your realtor. Ask them for a recommendation on a realistic sales price and any improvements suitable for the area of your home. A good, experienced realtor knows what buyers expect in your area, and what they’ll pay. Be patient and be smart. Your home sale could be just a home tour away.