Real Estate FAQ

Fred's Real Estate FAQ's

What are closing costs?

Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers, they are usually about 4-6% of the total sales price of a property. Some of the closing costs you might encounter are application fees, appraisal fee, county taxes, credit report, discount points, documentation fee, escrow fees, homeowners' association fees, loan fees, mortgage insurance, origination fees, tax registration and title insurance premium.

What is a point?

One point is equal to 1% of the new loan amount. Whenever government regulation, state usury laws and/or competitive practices prohibit the lender from charging a rate of interest that would make the real estate loan competitive with other fields of investments, the lender must seek some method of increasing the yield for the investors. By charging "points", the lender can bring the real estate loan up to those other investments.

What is earnest money?

When you make an offer, you will need to put up an earnest money deposit as a sign of good faith that you are seriously interested in buying a home. That deposit becomes a part of the purchase price and is held in a trust account until there is full acceptance of the offer. Typically, an earnest money is 3-5% of the offer amount.

What is title insurance?

Title insurance protects the named insured against loss because of defects, liens, encumbrances, adverse claims or other matters not shown or disclosed to the new owner that attach before date of policy. HA and VA loans provide purchasers the opportunity to buy homes with minimal cash investment and at lower interest rates. The result is a l rger market for sellers, who also benefit by receiving all cash for their equity.

Is VA or FHA financing unfair to sellers?

HA and VA loans provide purchasers the opportunity to buy homes with minimal cash investment and at lower interest rates. The result is a l rger market for sellers, who also benefit by receiving all cash for their equity.

How should I Choose a Realtor to work with?

Obviously the first answer would be to talk with as many people around you to see how happy they were with whichever Realtor they have worked with in the past. If you hear the same name several times that might be a good person to sit down and talk with. That personal recommendation is probably the highest form of confidence you could receive. It is important that you feel comfortable with this person. You will be spending lots of time together. Lots of time discussing some pretty personal feelings and facts. I don’t care how highly recommended this person came to you, if you don’t FEEL comfortable with him or her don’t do it. This is a highly personal process. You need to feel like you have a "relationship" that fosters confidence, comfort and even fun. Beyond the personal referral you can easily "interview" Realtors at open houses, over the phone or from some other form of personal contact. You may know a great deal about a particular Realtor from having heard about this person over some period of time. Give that person a call and just chat for awhile and see how it feels. Another idea, especially if you are new to an area is to call several local title or escrow companies and interview SEVERAL title officers to get their feel for who their favorite Realtors are. These are also real estate professionals who work with area Realtors all the time. They can have great insight into who they think is the most competent and works with the most integrity in the local real estate community.

Do all Realtors use the multiple listing system?

The multiple listing system is just a formalized agreement between cooperating real estate companies that agree to share with and work on each other’s listings. It is a service, which they usually own or operate and pay to participate in. No Realtor has to be a member but then they are limited to working on only the properties that they have listed in their company. Most multiple listing systems are computerized now and many are even available online to members. Buyers have complete access to these systems only through a participating sales person. Realtor.com on line has most multiple listing systems across the nation on their site. This site gives lots of information but not normally the actual address of the property described.

When is the best time to buy and sell a home?

Common perception is spring and summer. In reality it is not all that clear. Even though there is still a swell of activity during these months there are some advantages to other times of the year too. For some reason my very busiest and productive time of the year is fall. Common sense tells us that most buyers have stopped looking by that time. The fact is that just the opposite might be happening. Summer is a very busy time. In a university town MANY people are gone for long blocks of time in the summer. It almost seems that there is a groundswell of activity right after school has started. I know most families still believe that they would like to be in and settled by the time school starts but this doesn’t always fit everyone’s schedule or the time surprises that happen upon all of us. I talked to a man on a train once that gave me a different perspective on this summer move philosophy. He was in the army and was in charge or personnel relocation. This was a man that moved LOTS of families around all the time. They had learned through trial and error that families that moved during the school year nearly always had children that adjusted much faster to the move than those who moved during the school break. The reason was that instead of moving into a neighborhood during the summer vacation where they were always the "new kid on the block" they were thrust right into an already functioning social system where they were absorbed much more readily because they were forced into interaction immediately. This concept was a real eye opener to me. Here is another concept that flies in the face of many preconceived ideas That is isn’t it to my advantage to not have my home on the market during the winter holiday season? Perhaps that is actually the BEST time of year. The common practice is to not list your home for sale or to actually remove your home from the market during this season. Sometimes doing what everyone else is doing just doesn’t make sense. There are lots of families that come to town during this season precisely because the kids are out of school and they have time to look around for a move that is coming up early in the year. They get here and find the inventory quite narrow. Wouldn’t it be to your advantage to have one of the few homes on the market available when they visit? Also this same holiday season is a time when people often are at home more and spending time on the internet. Might it be to your advantage to have your home out there on the web through your Realtors numerous web sites?? You tell me!

Is there really a good reason to pay a Realtor to sell my home rather than do it myself?

This is a great question and probably the Realtor’s reason for existence in the first place. The profession of real estate sales came about to serve a need. That need still exists today, probably more than ever. If it were really as simple as staking a sign in the yard and placing an ad in the paper why would you even need the services of a professional? Today's marketplace is one that screams at potential buyers for attention. That is where the sophisticated marketing techniques, selling expertise and solving problem skills come in. I figure that normally I spend about one third of my efforts on a property getting it sold and then fully the other two thirds of my time on a particular home on getting it closed. Walking through the myriad of changing rules, regulations and statutes that govern property transfers is nearly a full time educational obligation in the first place. There, too, exists the simple fact that when a seller is selling his home it is a little difficult for a buyer to completely trust him. That seller actually only has ONE property to sell. He has to put all of his eggs in one basket. It’s sell that home to that buyer or lose that buyer. A Realtor doesn’t really care which home you buy. Therefore there is normally no pressure to buy this home or that home. His inventory is the whole market place. Why would his motivation be to talk you into buying one particular home? That lack of pressure builds comfort and confidence. There are certainly more answers to this question but these are at least a few ideas to consider.

Do I have to give a deposit?

It is money given by the buyer to the seller with a signed contract to purchase or offer to purchase, as a show of good faith. It is also called earnest money. Some buyers choose to use a promissory note instead and then redeem the note when the offer is fully accepted. It is important that this earnest money or deposit be made into your Realtors trust account or directly into escrow rather than into the seller’s hands. One way or another it will be difficult for a seller to take your offer seriously without this show of "good faith".

What is escrow or escrow company?

Escrow is a third party, usually a title company that acts as the neutral party for the receipt of documents for the exchange of the deed by the sellers for the buyer’s money. The final exchange is completed when the third party determines that certain preset requirements have been satisfied.

What does it mean to be "pre-qualified" or "pre-approved" for a loan?

Contacting a lender prior to starting your home search does several things. First it establishes a relationship that will be invaluable to you in this process, it gives you a price range that you will likely qualify and if you do it right can even get you approved ahead of time for that loan. If you go through the trouble of doing a "pre-qualification" that is sitting down with the lender to go over numbers and get his "opinion" of your range that is a "pre-qualification". That is invaluable when your Realtor goes to present your offer on your dream home. It is evidence to the seller that you are a good risk. Going one step further and filling out the whole loan application and having the lender do a credit check on you brings you closer to that finally approved loan. That is called "pre-approval" Now all you really need is a house to put this loan on and review by the lenders loan committee and you are ready to go. To a seller, this is practically a "cash" buyer as far as loan risks go. See your lender early on. Your Realtor can likely recommend ones that are good to work with!

Is there an advantage to buying my home through a Realtor?
I know I don't normally pay them a fee but might I save money on the purchase of a home if the seller isn't paying a commission?

Working with a Realtor should not cost you anything on the purchase of a home. The fact that the seller is paying a commission does not make the property worth any more or any less money. In fact his motivation for selling on his own is that HE saves the money. Not a desire to pass that savings on to you. A professional Realtor can help protect you in many ways and will likely save you money in the long run. A good example is some clients that I am working with right now that found a for sale by owner when we were looking at homes a number of years ago. They thanked me for my help and happily went ahead on their own and have spent the last few years being very content there. Now, however, it is time to sell that home and they are being aware of some major mistakes that they made in that purchase that are costing them great amounts of money to get back out of that home. Had they continued with my services at the original time of purchase it is safe to say that the majority of those problems would have been addressed and solved at the time of purchase rather than having to be caught up with today. Right now I can easily see where not getting professional advice at the time of purchase cost these clients between $5,000 and $10,000 in costs being realized now at the time of their selling the property.

Is right now a good time to sell my home or to buy a home?

This is a question that will always have to be asked live to your professional Realtor of choice. His or her answer will depend upon a lot of variables that can easily change from day to day. The answer will be affected by whether or not this is a seller’s market or a buyer’s market or even a more balanced marketplace. Our economy has always been driven by supply and demand. If there are more homes than buyers, it is the buyer who is at the premium, thus a buyer’s market. If there are more buyer’s than there appear to be homes for sale it is a seller’s market. There are many factors that lead to this balance or imbalance. Some of those items might be national economy, more specifically the health of the local economy, seasons, school district issues, interest rates, national world unrest or even in the case just a short time ago the impending coming of the millennium and the fears associated with the potential impending chaos that might have happened. The factors that influence this market level activity are so complicated that there are whole professions that have sprung up around the issue. Even they don’t have nearly all the answers so don’t expect your Realtor to be a guru but they will be able to tell you what the local scene looks like to them.

How much home can I afford?

My opinion is that it is much easier to call a local lender and just do a pre-qualification even if it is just over the phone. They will ask you how much you earn, how much you owe and any credit history problems. I believe their answer will be pretty accurate. Another newly popular idea is to go to the web to any of numerous financial sites and do an analysis there yourself. This will probably take you longer and the would be more suspect than coming from a local lender but some buyers find this less intimidating and perhaps more fun.

If I am looking for a home isn't it to my advantage to work with several Realtors rather than just one?

Often buyers think it is logical to have a number of Realtors all out looking for homes for them. On the surface this makes senses. However, when you look at it closely it will likely not work well for you. Realtors put a lot of time into working with buyers. They don’t get paid by the hour, they get paid when they find a home and help you get into it. I, for one, will not work with a buyer unless they have pledged to stay with me in this search. Once they have done that I in turn will concentrate my efforts on searching for the home that best fits this clients needs. As a buyer representative I work with confidence for this person who has decided to call me their Realtor. Once other Realtors know that you are working with more than one you would be surprised how fast they fail to call you back to tell you about the best homes they have found. They save those for their most loyal clients. All these Realtors are working with the same data base. The same multiple listing system. Choose one and stick with that person. The results will pay you back.

What is it meant by the term closing?

This word is the cause of much confusion in the industry. Often the time when a buyer or seller goes to the escrow company to sign their final papers will be called closing. On the west coast the signing of papers and the transfer of title rarely occur on the same day. The day that the deed actually records which transfers actual ownership is the real "closing" and normally occurs a day or two after the papers have been signed.

What is contingency?

A provision in a contract that sets forth one or more conditions that must be met prior to closing. There are many contingencies some of which might be financing, inspections, attorney approval, toxic substances or very commonly another property which needs to sell before this one can.

Does it make more sense to sell first or buy first if I want to change residences?

This is the old what came first the chicken or the egg question! Truthfully there is no great answer. If you try to buy first without selling your home you have two risks to consider. One is the very real possibility of having two house payments. Not an enviable situation! The other more likely one is that since most of us do not have the financial reserves to buy a second home without selling the first one if you were to find that perfect home you probably would not be able to get it anyway. There is always the chance here that the seller would allow you to take his home off the market on a contingency but if the market is healthy he is unlikely to consider that option. So that leaves the idea of selling your home first and then buying that new home. Of course there is a risk here too. That is what if you get your home sold and then you cannot find or obtain the new home that you want. Now you are out of a home all together. What a couple of great choices!! The most reasonable solution that I have recommended to my clients year after year is to take some time to closely examine the market. Make sure that what you are looking for actually is likely to exist in the price range you want to be in. After being assured that the kind of home you want to move to exists it is time to get your home sold. All the time you are on the market you should be keeping tabs on all the inventory and constantly checking out new listings as they become available and compile an inventory of homes that you want to consider. Once you have an offer on your home you will be ready to go make your offer on that new home. The likelihood of a seller accepting your contingency of closing the sale on your home is much higher than the first contingency we discussed of it getting sold in the first place. One thing you have to keep in mind here is that this alternative MAY require you to move into a rental home as a temporary measure if that new home is not found in the time frame you have to close your old home. This is a far better alternative than owning two homes or making a forced decision that you will have to live with for years. Knowing that the very worst thing that could happen to you is that you have to make a double move should take some of the anxiety out of the situation. In actuality it is not really a double move as you probably never completely move into the temporary housing. It would really be more like camping out until you find the perfect home for you.

Is a deed of trust different from a deed?

A deed is an instrument used to transfer ownership from one owner to another. A trust deed is a document that gives the lender in a transaction the right to foreclose on the property if there is a default under the trust deed or note by the buyer.

I keep seeing the term PITI, what does that mean?

PITI is really just an acronym that is shorthand in the real estate lending industry. The letters stand for principal, interest, taxes and insurance. The four major components of your monthly payment.