by neil kearney | Nov 10, 2009 | For Buyers, General Real Estate Advice, Real Estate 101
In Part 1 of this article I outlined the initial steps a buyer needs to take in the home buying process. In this post I will explain what happens once a buyer finds “the” right home.
The Offer
After viewing a few homes or many homes, eventually you will narrow your choices down to one “best” house. It’s time to make an offer. Your Realtor’s expertise will now be most helpful. Together you will evaluate not only the other homes on the market (the relative value of the other choices), you will research the value of the home in question. A seller can ask anything they want from a home so it is important that your offer is based in reality, not a seller’s fantasy. After checking the comparable sales it is a good idea to evaluate the position of the seller. How much do they owe? How long has the house been on the market? Have they reduced the price? What other clues do we know about motivation? With all of this knowledge you can with your Realtor formulate an offer strategy.
Once the strategy is in place your Realtor will then prepare a written offer. In Colorado we use a standardized form approved by the real estate commission. Most of the contract is pre-written and we have just to fill in some blanks. Your Realtor will advise you on reasonable contingency dates, contingencies, inclusions, financing and any additional provisions that are unique to this particular property. Once the offer is written, the buyers sign and date the agreement. The offer is then delivered to the listing agent and/or the sellers for review.
Earnest Money
So you will not be placed in an uncomfortable position when you purchase a property, an understanding of the earnest money deposit is important. At the time a written offer is initiated, you will be required to include a personal check or cashiers check as a good faith deposit. The check is deposited into the listing broker’s escrow account upon contract acceptance and will remain in escrow until the time of closing. This amount is credited towards your closing costs and down payment at closing. If the offer is not accepted, the deposit is returned to you. The amount depends upon the sales price of the property. The amount is negotiable, but a good rule of thumb is 1% or more of the offer price. You can only loose your earnest money if you change your mind or if you do not perform to the dates or the provisions of the contract. Your deposit will be returned to you if your loan is disapproved or an inspection resolution cannot be reached. So long as these are done in a timely manner.
The Contract Gets Accepted – Now What?
After the buyer and seller reach agreement on the details of the contract and both have signed either the original offer or a subsequent counterproposal, the focus turns to fulfilling the various contingencies set forth in the contract. The major contingencies are loan approval, inspection and title documentation.
The first order of business is to alert your lender and provide to them a copy of the contract. At this point you will have the opportunity to lock-in an interest rate and firm-up the details of the loan program in which you will pursue. As the lender prepares your file for submission to their underwriters you will be asked to provide documentation of assets, income and anything else they feel that they will need. They will also be asking for money to pay for your credit report and appraisal.
Inspection
The inspection of your home is most important and setting up a general home inspection should be done as soon as possible after contract acceptance. During the typical 10 day inspection period a buyer has the right to inspect the house, check on crime reports, check with the city regarding future development and any other inspections that any particular house may need. After the inspections are complete the buyer has three options: terminate the contract, move forward with the house in as-is condition or provide the seller a list of unsatisfactory conditions. The most common is the later. Once a list is provided a negotiation ensues between seller and buyer to find an acceptable solution. If an agreement is not met the buyer has two options: to let the contract expire or to waive all inspection objections and move forward as-is. To learn more about the inspection process click here.
In Colorado the seller is required to provide to the buyer title insurance which insures clean and merchantable title. Basically, the house must be transferred without any title disputes. The title company will do a title search and disclose to the buyer any recorded documentation that will transfer with the house. Common examples of the exceptions to title insurance are homeowners association covenants, development documentation and utility easements.
Appraisal
Your lender will order an appraisal on the property. Having a third party asses the value, helps the mortgage company evaluate their risk in their investment. If the appraisal comes in less than the purchase price (this is happening quite a bit), the buyer has three options: re-negotiate with the seller, put additional money down to keep the loan-to-value ratios in line, or to terminate the contract.
Final Walk-Through
Just before closing it is a contractual right for the buyer to do a final walk-through. This is the time to check that all inspection items have been completed as well as check on the overall condition of the house. If something were to happen to the house between inspection and closing the seller is obligated to fix it.
Closing
Once all of the contingencies have been met you are ready for closing. The closing day is set forth in the original offer but the closing time is usually worked out by the Realtors about two weeks in advance. The closing takes place at the title company and it usually takes a little more than an hour. A day or so before closing the title company will provide to the buyer a settlement statement that will show exactly how much the buyer will need to bring to closing in the form of good funds. Good funds can be a cashiers check or a bank to bank wire. At the closing the title officer will guide the parties through the various documents which need to be signed. After all of the signing is complete and all of the money is accounted for the place is yours! It’s time to move in.
by neil kearney | Nov 10, 2009 | For Buyers, General Real Estate Advice, Real Estate 101
Moving in to a new home is one of the more exciting things we can do. The process seems simple enough – choose a house, write a big check and then move right in. Of course there is more to it. In fact, after selling homes since 1992, I know that no two transactions are the same. Knowing what to expect and doing it in the right order goes a long way towards archiving your goal. The following is my home buying 101.
Have a Firm Financial Foundation:
The foundation of a successful home purchase begins long before the home search. It begins with having a sound financial footprint. In today’s credit environment, a buyer needs both good credit and a sizable down payment. At least a few months before the contemplated purchase you should check your credit and make sure that there are not any surprises lurking. The days of 100% loans are gone, so you will need at a minimum 3.5% (FHA loans) plus closing costs ready to put down. If you are getting a conventional loan or buying investment property you will need a much larger down payment.
Find a Good Realtor
The internet gives you all of the information you could ever ask for at the click of a button. But when it comes right down to it, you need the assistance of a professional who has been through the process time and time again. Most people end up working with a Realtor, so why not engage one early on in the process? Realtor’s have tools that will save you time and put you on the right track sooner. I can set up an automatic email search and a password protected website that work together to give you all of the details about all of the houses you may be interested in. A good Realtor will help you navigate the process, get you the information you need and allow you to concentrate on your family and your job. Make sure you have found a Realtor who is more interested in helping you find a great house for the long haul rather than a quick sale for them. It takes patience and persistence to make sure you get the job done right.
Get Pre-Approved
The next step in the process, before you even view a home is to find a good lender and get pre-approved. Your Realtor should be able to recommend a few local lenders who have proven themselves to be responsive and know how to get the job done. Using a local lender is important, not only are they accountable but they are there to solve problems at the closing table if anything comes up at the last minute. Your earnest money is at stake! If your lender is delayed at the last minute or their money doesn’t make it to the closing table on time and the seller chooses not to give you an extension, you lose your earnest money. You cannot go back to your lender and recover those lost funds. Choosing a lender is more than finding the lowest interest rate, it is finding an advisor who will help you make a sound financial decision given your unique circumstances. The credit rules change often and it is important to use an experienced lender to help you get the job done in a timely manner.
Viewing Homes
The next step in the process is setting your criteria and starting to view homes. At any one time there are hundreds if not thousands of homes available in any given area. Believe me, you don’t have the time or the patience to see them all. The broadest categories in which to sort homes are: location, price and size. Your Realtor can narrow your search by using literally dozens of features but in the beginning it is best to keep it as broad as possible. A good practice is to look at a good cross-section of homes and then communicate your likes and dislikes with your Realtor. They will then be able to suggest other homes to see. When viewing homes it is easy to get overwhelmed by information overload. If you look at ten houses on a Saturday by the last few it is hard to remember if it was the second one or the fifth one that had the good view. I like to keep it to six or fewer. Take notes, ask questions and communicate your likes and dislikes.
Click here to view Part 2 which will take you from offer through closing. To get started call Neil Kearney at 303-818-4055
by neil kearney | Sep 22, 2009 | For Sellers, General Real Estate Advice, Real Estate 101
If you are involved in a real estate transaction in the rural or mountain areas of Boulder County, the 
property most likely has a septic system and is not served by a municipal sewer system. When working well, these personal waste systems are mostly out of sight and out of mind. As toilets flush and sinks drain, the waste goes to a tank which holds the solids. The liquids move through the system and are released underground through a leach field. When working correctly there is no smell, no visible liquid and the solids are held in a concrete tank which has some natural bacteria which break down what is held. Every couple of years the tank needs to be pumped out. It is really a good system which in many cases lasts decades and decades without any large expenses.
The downside of this system is what happens when the system does not work correctly. A septic system that is not in good repair is at risk of releasing untreated matter into the environment including the water supply. Much of our mountain building took place between 1960 and 1980. This means that the septic systems for much of housing stock west of town has septic systems that are quickly becoming old. Boulder County decided that it needed some regulation that ensured that wastewater was being handled correctly. Last September their Septic Smart regulation went into effect.
The Septic Smart program requires that each septic system be inspected by a qualified inspector at the time of sale. If the system does not pass inspection a plan for repair or replacement must be negotiated between the buyer and seller and the repairs made within one year. According to the website, here is how the regulations work for buyers:
For Buyers of a Home
- If the permit record for the property shows “NOT APPROVED” in the “Date of Final Approval” field, this means the final permit has not been approved. Potential buyers should ask the homeowner about plans for repairing the OWS. If the buyer is expected to repair the OWS, it will need to be completed within one year of closing. The buyer should ask the seller for recent bids and a definitive “cost of repair.” The buyer may need to acquire the repair permit from Boulder County Public Health, or have the seller provide it.
- Check the onsite wastewater system (OWS) permit record on the house. Make sure that the number of bedrooms listed on the permit equals the number of bedrooms listed on the MLS. (Check permit)
- If the property shows a date in the “Date of Final Approval”, field this means the OWS permit has been approved. Potential buyers should ask for the maintenance history, recent property transfer inspection report, and certificate of operation (valid for four years).
Septic Smart Buyer Brochure
The responsibility of the actual inspection and application with the County falls upon the seller of a property. Here is a guide for the sellers from the Septic Smart website:
For Sellers of a Home
- Check the onsite wastewater system (OWS) permit record of the house for sale. (check permit) Make sure that the number of bedrooms listed on the permit is not less than what exist in the home at the time of sale.
- If the permit record for the property shows “NOT APPROVED” in the “Date of Final Approval” field, this means the final permit has not been approved. Homeowners must apply for a repair permit to verify or repair the unapproved system (permit process).
- If the Date of Final Approval listed on the permit is more than ten years ago, the system requires a Property Transfer inspection. (View Inspector listings). If the Date of Final Approval on the New or Major Repair permit is within the last ten years, the system is exempted from the inspection process. Certain other situations are also exempted.
- In preparation for the inspection, the homeowner must:
- Expose the septic tank lids
- Mark the boundaries of the leach field
- Present OWS maintenance records
- Be present for the inspection
Sellers Septic Smart Brochure
by neil kearney | Sep 14, 2009 | For Buyers, For Sellers, Real Estate 101 |
As I drive around in my market I tend to see homemade signs posted at major intersections with houses advertised as “Rent to Own”. In this 
post I’d like to layout a typical rent to own deal as well as show how the unscrupulous can take advantage of an unsuspecting buyer.
First terminology; rent to own is the same as a lease purchase. It is a combination of a lease and an option to buy a house for a certain price. This type of deal attracts people who are not quite ready to buy but are willing to bet that they will be able to purchase in a relatively short period of time. Most of the time the attracted buyers are either just getting started or are starting over after a bankruptcy or other credit issue.
Here are the main features of the deal:
- Buyer and Seller agree to an option price and the time for which the option is good (usually 3 years or less but is negotiable).
- Buyer pays an non-refundable option fee upfront to Seller (usually 1% – 5% of purchase price) . If they exercise the option the option fee goes toward the purchase price of the house.
- Buyer agrees to pay monthly rent to the Seller. Usually, the buyer pays a premium on the market rate rent and that premium also pays down the option price of the house.
Advantages for Seller:
- Expands the pool of possible buyers to their house. This is especially helpful in a slow market.
- Option money is upfront and payable to the Seller.
- They can usually collect above market rate rent.
Advantages for the Buyer:
- They are able to lock in a sales price on a house.
- They are able to pay down equity each month they pay rent.
- They are given time to accumulate a down payment, sell a house or repair credit.
Buyer Beware:
There are situations where the Seller is just looking for a victim. There have been many instances where sellers are just looking for the upfront money and premium rent and then find a technicality to evict the buyer/renter before the option can be exercised.
Seller Beware:
The deal can get sour quickly if the buyer cannot perform. The good news is that the Seller ends up with some money but they also have to ask the Buyer to move out and deny the pleas for an extension. The other variable is the condition of the house. If the Buyer can’t make the deal work they won’t necessarily keep the house in great condition. Something to think about.
by neil kearney | Apr 15, 2009 | For Buyers, Real Estate 101
Boulder County is located in a zone of high potential for elevated radon levels in the air. In real estate transactions radon almost is always an issue. It is almost always tested for and when the reading comes in at a level above 4.0 pCi/L (picocuries per liter) then the Buyer and Seller negotiate what will be done and who will pay. But first some background that can be found EPA’s Radon Website
What is Radon?
Radon is a gaseous radioactive element having the symbol Rn, the atomic number 86, an atomic weight of 222, a melting point of -71ºC, a boiling point of -62ºC, and (depending on the source, there are between 20 and 25 isotopes of radon – 20 cited in the chemical summary, 25 listed in the table of isotopes); it is an extremely toxic, colorless gas; it can be condensed to a transparent liquid and to an opaque, glowing solid; it is derived from the radioactive decay of radium and is used in cancer treatment, as a tracer in leak detection, and in radiography. (From the word radium, the substance from which it is derived.) Sources: Condensed Chemical Dictionary, and Handbook of Chemistry and Physics, 69th ed., CRC Press, Boca Raton, FL, 1988.
No immediate symptoms. Based on an updated Assessment of Risk for Radon in Homes, radon in indoor air is estimated to cause about 21,000 lung cancer deaths each year in the United States. Smokers are at higher risk of developing Radon-induced lung cancer. Lung cancer is the only health effect which has been definitively linked with radon exposure. Lung cancer would usually occur years (5-25) after exposure. There is no evidence that other respiratory diseases, such as asthma, are caused by radon exposure and there is no evidence that children are at any greater risk of radon induced lung cancer than adults.
Based on a national residential radon survey completed in 1991, the average indoor radon level is about 1.3 picocuries per liter (pCi/L) in the United States. The average outdoor level is about 0.4 pCi/L.
So, you can see why it comes up often in a real estate transaction. Of course some people are more worried than others and this becomes part of the art of negotiation. During the inspection period (which is usually between 10 days and 2 weeks long) a buyer has the option to have a radon test performed usually by a general home inspector. The cost is somewhere around $100 for the test and it takes 48 hours to perform. If the results of the test come in above 4.0 pCi/L then it is very common for the Buyer to ask for the Seller to mitigate so that the radon level inside the habitable part of the home (not crawlspaces etc.) is below 4.0 pCi/L. The cost for mitigation can vary but in our area the typical cost is between $800 and $900.
What is done to mitigate the radon level in a home?
Most often a 4″ PVC pipe is inserted into a drilled hole in the basement slab. This pipe is routed to the outside of the home and above the roof line. Somewhere along the pipe a fan is installed that will run continuously and will suck the sub-slab air to the outside creating a vacuum. The diverted air stream does not allow radon to seep up through the concrete into the house.
Radon is a fixable problem and it is a good idea to have the test done. I tell my clients that even if they are not concerned about the risk, most likely the people who buy the house from them will be.
by neil kearney | Apr 2, 2009 | Boulder County Housing Trends, For Buyers, Real Estate 101
Interest rates are near historical lows and in many cases buyers are locking in rates that start with a 4. This is unheard of and represents one of the great buying opportunities in modern times. I just received a quote today for a 30 year conventional loan (below $417,000) with no discount points for 4.875%. This rate assumes at least a 10% down payment and a FICO score of at least 740. 
I remember my first sale back in 1992, the interest rate was 8% and everyone at that time was saying that it was a pretty good rate, not the best, but reasonable. During the last decade we have become spoiled. Rates have been mostly in the 6 – 7% range with a few quick dips into the 5’s.
Now I hear people wondering if they should wait for rates to drop further, maybe to 4%. Hello, how much further do you want them to go? I guess it is human nature to get greedy when you start taking something for granted. But I say wake up and lock-in right now! 4.875% could turn into 6% in a flash and then where would you be? I have always been pretty conservative with my planning and when I am ready to purchase or refinance I plan using today’s rates and lock-in today’s rates. Call me crazy but I don’t think you should gamble on something that can change your payment every month by a significant amount. Here is a continuum of principle and interest payments at different interest rates. This assumes a $400,000 loan.
- 4.875% = $2,116.83
- 5% = $2,147.29 ($1 a day savings)
- 5.25% = $2,208.81 ($1,103 saved a year)
- 5.5% = $2,271.16 ($1,851.96 saved per year)
- 5.75% = $2,334.29 ($2,609.52 saved per year, a nice vacation?)
- 6% = $2,398.20 ($3,376.44 saved per year, that is $16,882 over 5 years and $101,293 over 30 years.
The point is, that interest rates are fantastic! If you are happy with your house, you should look into refinancing. If you might consider a move during the next few years, think about it now. That new house will never be more affordable. Good decisions now will pay off for years to come.
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After viewing a few homes or many homes, eventually you will narrow your choices down to one “best” house. It’s time to make an offer. Your Realtor’s expertise will now be most helpful. Together you will evaluate not only the other homes on the market (the relative value of the other choices), you will research the value of the home in question. A seller can ask anything they want from a home so it is important that your offer is based in reality, not a seller’s fantasy. After checking the comparable sales it is a good idea to evaluate the position of the seller. How much do they owe? How long has the house been on the market? Have they reduced the price? What other clues do we know about motivation? With all of this knowledge you can with your Realtor formulate an offer strategy.
Closing
