I’m looking to buy my first home; why do I need a Realtor®?

 Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 1

This is the first post of a series in an FAQ format that I hope will help would be buyers better understand the real estate process that they are about to go through. This is a follow-on series to the posts for real estate sellers.

FAQ – I’m looking to buy my first home; why do I need a Realtor®?

You may be a first-time home buyer or maybe you’ve bought homes before, but it’s been a while and things change; so this series of posts is designed to walk you through the process of buying a house. You can probably find all of the information that you think you need to look for a house on-line these days on sites like Realtor.com or Zillow; so, why do you need a Realtor®? I get that; and, you are correct that you can find lots of information about houses that are for sale at those kinds of sites and

hundreds of others that are out there. However, merely finding something that you think you might like is just the tip of the real estate buying process iceberg. I hope that this series of posts will help you understand better why you need to seek the counsel and advice of a professional in the field – a Realtor®.

First, let’s deal with the term Realtor®. How is that different from just a real estate agent or a broker? All three terms refer to someone who has taken a state approved 40-hour (in Michigan, it may be more in other states) real estate licensing course and passed the state test to receive a real estate license. A broker in Michigan has gone on to take an additional 40 hours of real estate education and passed a much more intensive test. Even getting to take that extra education and the test usually also requires that the broker candidate must have some defined amount of experience in the field of real estate as a licensed agent. Brokers are licensed to manage other real estate agents as well and may also own and operate a brokerage with multiple agents. State real estate laws dictate that all real estate agents, whether they are Realtors or not, must work under the management and control of a brokerage. Associate Brokers are agents who have passed the brokers licensing requirement, but who still choose to work under the management of a broker.

So, all three have passed the state test and have been issued real estate licenses; what makes a Realtor NAR Code of Ethics and Standards of Practice. They must also join their state’s Realtors Association. Why is that important? Well, that begs the question, “Is ethical behavior by the person that you are working with for your real estate transaction important to you?” The state Realtors Associations have processes that they follow to make sure that any unethical behavior by a Realtor is corrected and Realtors may be punished by fines for ethical lapses. Realtors all belong to some local real estate association, which requires that they be member of NAR and adhere to the NAR Code of Ethics.

more than just a real estate agent? A Realtor must join the National Association of Realtors (NAR) and must agree to abide by and be governed by the

The NAR Code of Ethics defines the duties and responsibilities that Realtors owe to their clients and to each other. Perhaps the most important concept embodied by the Code of Ethics is the Realtors’ fiduciary responsibility to the client. That means that the Realtor must put his/her clients’ interests above their own interests. Being a fiduciary for the client means that it is more important that the clients interests be protected than the Realtor worrying about his own interests, including his/her commission on the sale. It is that fiduciary responsibility that stock brokers have been fighting so hard against recently. Financial planners accepted some time ago that they owe their clients fiduciary responsibility and adopted practices to ensure that they do keep their clients’ interests first; but stock brokers are still looking out for number one, rather than their clients; so, they have successfully resisted accepting fiduciary responsibilities. Remember that when your broker calls you with that next “hot tip”. He is probably already counting the commission he will make on the sale, whether the stock is a star or a dog.   So the bottom line is that you should find a Realtor, not just a real estate agent, because that agent, like a stock broker, doesn’t owe you any fiduciary duty.

It’s the Realtor’s job to help you through the whole real estate buying process; a process which starts well before visiting any of the houses that you saw on-line. So, just like the advice that I gave to the sellers in that series of posts, I always advise that you find a GOOD Realtor. That doesn’t mean just going with the sister of your best friend who happens to be in real estate or the guy that your uncle

Bob says sold him his house 15 years ago (if they are even still in the business). It doesn’t mean calling the person on the last real estate sign that you happen to see or the one that has put their name on all of the shopping carts in your area. And you’d probably never see that guy that you see in the TV ads, just one of his Buyer Agent assistants.

A GOOD Realtor is going to take the time to get to know you and what your needs and desires are in a new home. He/she is going to guide you through the process of getting ready to go looking for homes, which usually starts with getting a mortgage pre-approval and sitting and having a detailed discussion about what you want and need in a new home. He or she will work with your mortgage person to understand what you can afford and what, if any, help you may need with your down payment or closing costs. That will help the Realtor guide you towards homes that you can really afford and negotiate terms that you can live with.

How do you find such a Realtor? Well, recommendations from past customers are a good starting point; so ask around your office, your church or your neighborhood for recommendations from people that you know will be honest with you. Get more than one recommendation and do a little Internet snooping of your own. Any GOOD Realtor will probably have their own Web site with testimonials from satisfied customers. You might also Google their name and see what other stuff about them shows up. Sometime complaints or bad reviews are only found on other web sites or on social media.

Once you have 2-3 Realtors in mind that you feel might be good fits for you, arrange for interviews with them all. You can tell a lot about a person and how they might work with, and for, you by talking with them about your needs. If you find yourself just listening to a bunch of bragging about how great they are and how fortunate you are going to be to have them work for you, find the nearest trash can and throw away their contact information. Sure, you want to work with someone who has had success in the past, but that should be secondary to the way that they approach working with you in the present.

The GOOD Realtor will ask a lot of questions and listen more than talking. At the end of the session they should be able to clearly tell you what they heard from you during the conversation and be able to define the perfect home that you are looking for and any constraints that you have. They should also be willing to openly and honestly tell you where you might be overreaching or setting yourself up for disappointment, especially as far as the price limit that you have is concerned. The bottom line at the end of the interview with the best Realtor for you is that both you and they feel comfortable with the process that you are about to embark upon.

We’ll move into the home buying process in the next post. 

What are some unique things that I may not have asked about as the Seller?

 Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 12

This is the twelfth post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ – What are some unique things that I may not have to asked about as the Seller?

There are an infinite number of variations that could occur to the process of selling your home. The 11-post sequence that was just finished took you through a fairly straightforward sale. That is not always the case. I have listed and expanded upon a number of variations below, in no particular order.

Question – The Buyers’ offer says that they will be using an FHA/VA/USDA RD mortgage; how does that impact me?

Conventional mortgages are the norm for homes above $400,000. In Michigan most buyers of properties that are listed for less than $375,000 will end up using an FHA-backed mortgage, but some may use their VA benefits and do a VA-backed mortgage. A few may take advantage of the USDA’s (Yes, it’s the same USDA that inspects meats) Rural Development (RD) loan program. Each area of the country can have different FHA loan limits, with California (of course) having the highest at $625,000. You can find the FHA loan limit for your area by Googling FHGA Loan limits for (your county and state goes here).

Each of these loan guarantee programs has its own set of rules and qualification requirements, but all three impose special requirements on the seller that are different from the requirements of a conventional loan. I will expand on them further in the series for Buyers. Here I will just look at the things that the Seller needs to be aware of that are different from a conventional mortgage.

The differences are mainly in the appraisal. All mortgage loans require an appraisal, so that the bank can assess the protection that the home provides as a protection against the risk involved in making the loan. You house is the asset that secures the loan and banks prefer to have assets backing the loan that can be sold readily and which carry sufficient value to make sure that they get their money back if it needs to be sold after a foreclosure. For FHA/VA/USDA mortgages the loan programs require the appraisers to also assess the health risk hazards that the property might have, such as electrical circuits that are not properly protected against shock, if they are in areas like the kitchen or baths and trip and fall hazards, such as stairs of more than three steps without handrails. They are also required to peek into the attic to see if there is visible evidence of mold in the attic space.

Because people know that the FHA/VA/USDA appraiser will be looking for those things the appraisals are often called an inspection; however, they are not really inspections like the buyers will have done by a qualified home inspector.  If the FHA/VA/USDA appraiser finds a health or hazard issue they will write it up and the Seller MUST have the issue remediated. There is a provision to have the work re-inspected by the appraiser before he/she will sign off on the appraisal and the mortgage can move forward. Many times the appraiser will charge for that return visit and the Seller may be asked to pay a nominal fee for that service. On most VA loans a termite inspection is also required. On a VA purchase loan, borrowers in all but nine states are not allowed to pay the pest inspection fee. Check with your mortgage company or ask your Realtor® about whether you have to pay for that inspection. Obviously, if they find termites, you’ll be on the hook to remediate that, too. 

For more on these different mortgage options just Google each one. The added requirements and risks involved in the FHA/VA/USDA mortgages have caused some Sellers to market their homes for sale with Conventional mortgages or cash only and that is their right; however, it will significantly reduce the buyer pool and most likely prolong the selling process.

Question – The Buyers have offered me a Land Contract. What is that all about?

Land contracts are sometimes called Seller Financing, because that’s really what it is. You, the Seller, are assuming the role of the mortgage company and financing the sale your own house to the Buyers. Usually a hefty down payment is required, which may be all that you need right away anyway; and the “loan” that you are making to the Buyer is financed at a rate that is a little above what they might get at a bank. Why do they do that? Usually because they have damaged their credit to the point where they can’t qualify for a mortgage. Maybe they had a short sale, a foreclosure or a bankruptcy in their immediate past. For whatever reason they are now asking you to take the chance on them and be the mortgage lender for this sale. The Land Contract is just that – a contract between you and them that defines their obligation to pay you back and your rights to repossess the property through foreclosure if they don’t pay you back. This was a quite popular option just after the Great Recession, but has settled back into a seldom used option for Buyers. See this NoLo web site for a good tutorial on Land Contracts.

Question – I have to move to my new job and leave my house empty before the closing is scheduled to happen. What should I know about that?

There are many reasons that a house may sit empty while wait for a sale or for closing. Perhaps it is the need to move to a new location for job reasons or perhaps the property is in an estate of someone who had passed away and is now sitting empty.  Whatever the reason, you as the Seller (maybe the executor of the estate) need to understand a few things that are different. One of the biggest is that the homeowners’ home insurance policy that covered you or them (the deceased) does not apply if the

property is left empty. If something like a break in or even a fire where to happen and cause damage, the property would not be covered under those old policies. There are special home insurance policies available to cover empty houses and you should have one of those. They are more expensive than regular homeowner’s policies; but, there is also more risk involved, especially for break-ins. At the height of the recent recession many homes were broken into by copper thieves who cut out all of the copper plumbing, and sometimes even the electrical wiring, to sell to scape metal dealers.

In the wintertime, any house that will sit empty should also be winterized. The house’s water will be shut off and the plumbing drained so that if the heating system fails for any reason the pipes won’t freeze. That service usually casts between $300-500 and is the Seller’s responsibility. If a Buyer makes an otherwise acceptable offer, a point of negotiation is determining who will pay to have the place de-winterized and re-winterized for the home inspection. It is reasonable to ask the Buyer to pay for re-winterizing it, but the Seller is usually responsible for making arrangement to have the place ready to inspect, which could also involve turning back on the utilities if they had been shut off (not a good idea, by the way). It’s not worth queering the deal over this small amount.

It is also the Sellers responsibility to keep the empty property maintained while it is for sale and while awaiting the closing. That can involve snow/ice removal in the winter and grass cutting in the warmer months.

Question - We couldn’t reach a final agreement on a contingency or the deal fell through and now the Buyer wants his Earnest Money Deposit (EMD) back. Do I have to give that back?

In most circumstances the answer is “Yes”, you do have to return the EMD. That money was likely being held in a special escrow account at the Buyers agent’s office. The Buyer agent will present a form to be signed that specifies the disposition and distribution of the EMD funds. Remember all of those contingencies that we discussed in an earlier post; well you probably just hit one that could not be resolved to the Buyers’ satisfaction and the terms of that contingency undoubtedly specify the Buyers get the EMD money back.

One situation that can lead to you getting to keep some or all of the EMD is if the Buyer, having removed all other contingencies just gets “Buyers’ remorse” and backs out of the deal. I have had that happen once in my career. I represented the Buyer in that case and he lost over $4,000 by backing out at the last minute with no valid reason that met the terms and conditions of the Purchase Agreement contract. Did he have a reason? Sure, but that reason wasn’t covered in the terms of the contract. In most cases the listing real estate company may split the forfeited EMD with the Seller. The forfeiture of the EMD is view as compensation to the Seller for having removed his property from the market for some period of time.

Question – What happens if I refuse to fix something that is found during the home inspection and refuse to offer any monetary concession for it? 

Let’s assume that you aren’t balking over some minor thing that cost less than $1,000. Just do those or offer the Buyer a concession at closing. For bigger issue, like, maybe, the Buyer asking for a new roof or some other repair that is going to cost thousands; you may wish to get a few quotes for the work and average them, so that you can offer the Buyer a compromise where you pay for a part of the work and the Buyer pays for a part (usually 50-50). Just flat out refusing to negotiate with the Buyer on the needed repair is likely to be a deal breaker and result in the deal being cancelled.

In addition to the deal falling apart, you would now know about an issue with the property that you may not have known about before and you may have to disclose it on your Seller’s Disclosure Statement. If the home inspection revealed extensive mold in the attic, you can’t just go “Nah, nah, nah, I don’t hear you” and not disclose that known fault. There are very specific questions on that disclosure form that address those things and you would now be committing fraud if you didn’t disclose it. The best course of action is to try to negotiate some split with the Buyers; but you really have to go ahead and do the mold remediation anyway. 

The demand for a new roof is a bit more subjective. The reason that Buyers ask for that is usually because their home inspector told them that a new roof will be needed soon. You might get a roofing company or two to look at your roof and let you know if they think it needs to be replaced immediately or can last a few more years. The same applies for Buyer demands for replacement of the mechanicals (heater and hot water tank). Yours may be old, but they may not necessarily need to be replaced, if you have maintained them well. Show the Buyer the recommendations of the companies that you contacted and negotiate.

Question - The Buyer is not putting any money down on the sale, should I be concerned?

Not necessarily. There are still a few mortgages available to Buyers, under the VA and USDA programs that have zero down payments. They will still have some Earnest Money in the deal, but that is often very low, too. The programs themselves are very valid and do work. What is hard to properly evaluate is the Buyers themselves. You may want to look a little closer at the Buyers qualifications for those programs, to make sure that he/she isn’t going to get a few weeks into the deal and get turned down by the VA or the USDA. VA buyers should already have their VA qualification documents, before they make a VA-backed offer. Your agent and their agent should have a good conversation about what steps they’ve already taken to meet the requirements.

Question – My property taxes are due before closing, should I go ahead and pay them or wait?

This is a 6 of one, half a dozen of the other question. The end result will be the same in terms of what you get out of it. The title company will pay any taxes that are due out of the proceeds and they will refund any taxes that you have paid for which you deserve a refund. If there is any penalty that would result from you not paying it now, it doesn’t make sense not to pay it. If there is no penalty, then it may not make sense to you to take money out of the bank only to put it right back in within a few weeks. It’s up to you. Listen to the advice of the title company on this one.

Question – I’ve got some furniture and other items that I don’t really want to move. How can I sell those items to the Buyers?

You can certainly put a price on them and see if the Buyers are interested in having them. Many times your taste and the taste of the Buyers may be completely different, so don’t be offended if they don’t want your stuff. Call Salvation Army or Goodwill. They’d probably love to come pick up your stuff. Any deal that you make with the Buyers for furniture or other personal property items (lawn mowers or patio furniture) is between you and them and you should negotiate how they will pay for the items that you are leaving for them. That is all outside the real estate deal and outside of the closing.

Question – What if I decide not to sell and want to rent it out instead?

That’s certainly up to you. You should probably have your Realtor do a market analysis of the rental market in the area, so that you can determine a fair rental rate to ask for the place. You may also wantHere’s an interesting bog post by one such company - Propertyware. Accumulating rental properties is a great way to build wealth, but only if you know what you are doing.

to look into companies that can manage the rental property for you and take care of upkeep on the property. Some companies also do the vetting of potential renters for you, saving you the headache of trying to analyze their credit report and do background checks.  If this is one of many rental properties that you own, you might look into a property management firm (if you don’t already have one) or property management software that help you with the financials,

Question – What are the tax consequences of selling my house?

First, I’m not a tax expert, so I’ll refer you to your tax person. For most Sellers, this sale is probably not that of the last home that they will own; so, they will go on to buy something else. Depending upon whether they are moving up the property ladder or downsizing the tax consequences will be different.  The gain from selling your home is treated like a capital gain for tax purposes and there are all sorts of rules about that which only a tax expert understands. Here is a good article by lawyer Stephen Fishman on the NoLo site about avoiding capital gains taxes on the sale of your home.

Question – Am I still on the hook for defects that the buyer may find in the property after the sale has closed?

You may be. It depends upon whether you knew about the issue and failed to disclose it to the Buyer on the Sellers’ Disclosure form. You don’t get a free pass by saying, “Oops, my bad. I forgot about that.” The Buyers lawyer will have a field day with that excuse. It is also very likely that the Buyers’ lawyer will interview friends and neighbors to determine how aware you were of the issue and how long you knew about it before the sale. Situations like this lead to charges of fraud and cold result in both civil and criminal lawsuits and charges. If you know that there is an issue the rule of thumb is disclose, disclose, disclose. That is not to say that there may be issues in the property that you honestly were unaware of when you filled out the Sellers’ Disclosure. That happens a lot with mold issue. Very few homeowners go up into their attic spaces looking for mold, but the inspector will and may find some spots of mold. It is possible that the Buyers didn’t have a very good inspector and they don’t discover the mold problem until later. In that case you would seem to have a reasonable defense against charges of fraud. Consult your attorney!

Question – My home was foreclosed upon a few months ago and we are in the “redemption period”. How does that impact the closing?

For one, the company that now owns the house due to foreclosure undoubtedly had to agree to the sale at the sale price. The closing may be interrupted while someone takes a check to the foreclosure company for the amount that they agreed to take for the house (i.e. the redemption price) and picks up a receipt and release of the property. Once those documents are brought back to the closing the closing can proceed. Sometimes this process can be done via Faxes or Emails and wire transfers.

There are doubtless many other scenarios that could generate questions from the Seller. I hope the few that made up this series of posts helped the reader understand better the process involved in selling a house and the Sellers roles in that process. Next, I will post a similar series looking at the process from the buyer’s perspective. 

We closed and I have post-closing occupancy for a week, what’s my role now?

 Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 11

This is the eleventh post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ – We closed and I have post-closing occupancy for a week, what’s my role now?

Well, one role is that you are now a renter in what used to be your home. Remember the advice that you received while you were waiting for closing and don’t do anything stupid now, like stripping stuff out of the house. You’ll just end up in a lawsuit if you do. You need to take care of the place and not cause any damage that the Buyer will have to charge you for.

Hopefully you have made your moving company arrangement well before now, but you still might have quite a bit of packing to do. You also probably still need to get rid of a bunch of stuff that you don’t want to move. Get that stuff out for trash day. The trash guys won’t like it but they will usually take most stuff. In some areas, if you are going to put something really big out for trash, like that sofa that nobody wanted, you should call the local governmental entity that controls the trash pickup contract and let them know. They may have you call the trash guys directly. 

I will assume that you talked with the new owners at closing and discussed anything that they might wish you to leave, like cans of the latest paint colors in the house or maybe even some spare lawn or patio furniture that you really don’t want to take. Don’t just leave junk behind and expect that new owners to deal with it.

You may have run by the Township Office to turn in your PRE rescission form; but, if you haven’t done that yet, get that done this week, too. You should arrange to get a final meter reading on electrical and gas and let the utilities know that you are “transitioning out” on the last day that you will be occupying the place. Get your mail forwarding set up, too. If you have cable service, you’ll need to call them and have them come out and pick up their equipment (or dish). The new owners will have to arrange that service when they move in. Let your insurance agent know that you have sold and are now renting and see if you need renter’s insurance for the time that you will remain in the house. The new owners’ policy will cover the house itself; but, it does not cover your contents in the house, should it burn down during the time that you are renting.

You should have received instructions on where to go to turn in the keys, when your occupancy is up.

There will be a form for you to fill out that acknowledges the date and time of the key turn-in. It will also have a place for you to state what you believe the condition to be at that time. There may have been a provision in the contract for a damage deposit and the return of that deposit will be based upon the agreement between you and the new owner on whether or not there was damage that was not there at closing. There may have also been a clause to allow the new owner to do a walk-through the night before you move out. The best policy is total honesty on this. If you caused damage while living there or while moving out, offer to pay to have the damage repaired. It’s far cheaper to do that than to face a law suit over the issue.

Remember that you should leave the place broom clean and not with litter or your trash everywhere. Go back to the Golden Rule and think about how you would like the place to be for you, if you were just moving in and do the right thing. If you have not yet purchased your next home, you may benefit from reading my next series of posts for Buyers. Don’t be put off by the fact that I’ve aimed those posts at first-time buyers. Most people don’t buy houses every few months; so, things change and it can feel like the first time, no matter how many houses you’ve bought in the past. 

Closing is next week, what should I expect?

 Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 10

This is the tenth post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ – Closing is next week, what should I expect?

First of all, congratulations for making it to the point where the closing is finally scheduled. You should expect that you’ll be given the closing documents to review and a copy of the Sellers’ Disclosure Statement (aka the HUD) at least three days ahead of the closing date. You should examine those documents carefully for any mistakes. The most common mistake is the misspelling of someone’s name on the documents; however, I’ve also seen documents prepared with the wrong property address or wrong legal description on them.

How can mistakes like that happen? Well, the people who work in the title companies are human and do make errors and their error rate is exacerbated by the fact that there are usually too few of them for

the end of month crunch as everyone tries to close on the last day of the month. There are good financial reasons for trying to close on that last day of the month. Ask your mortgage person about that. Another contributing factor is the slow pace that most mortgage companies work at, which means that the underwriters don’t get their part done until a few days before the closing deadline, so they often get their paperwork to the title company late. Add to all of that any last minute changes that the Buyers and Sellers may agree to and you have the makings of a chaotic and error prone document preparation process; so check the closing docs and the Sellers’ Disclosure Statement thoroughly. If the errors are egregious, especially in the Closing Statements, they will have to be redone and the three –day clock reset, so closing may be delayed.

You should also expect that the Buyers will want to do a final walk-through of the property to make sure that it is in substantially the same condition as when the offer was accepted. That’s a nice way of saying that you didn’t do anything stupid and strip out stuff that was supposed to stay with the house or cause any damage to the house, if you’ve already moved out. If you have arranged for some post-closing occupancy they may delay this walk-through or do another one when you vacate the premises. The final walk-through is sometimes done the morning of closing while the Buyers are on

their way to the closing office. The Buyers’ agent may offer to pick up the real estate sign and take the lock box off the door at that time.

The actual day of closing you should remember to bring your drivers’ licenses to the closing, so that your identities can be verified. If possession is to be turned over at closing, you should bring all of the keys and garage door openers that you have to turn over to the new owner. If you are going to stay in possession for some amount of time after closing you won’t have to turn over any keys or openers at closing.

The closing process itself is a marathon signature signing exercise. The good news for you is that the Sellers have fewer documents to sign than the Buyers. A closer from the title company, perhaps two closers if the closing is “split” between the Sellers title company and the Buyers title company, will walk you through the documents, explaining each as they go and showing you were to sign. Since you were given the documents at least three days ahead of the closing, it is assumed that you read through them already. It’s OK to ask questions about the documents if you have questions, but it is not time to read the documents for the first time at the closing table.

In Michigan we have a concept called Homesteading which allows owner-occupants to save on their primary residence by claiming a Principal Residence Exemption (PRE) on it. To understand what the PRE is I have taken a definition from the Michigan Government Web site –

Section 211.7cc and 211.7dd of the General Property Tax Act, Public Act 206 of 1893, as amended, addresses PRE claims (formerly known as the Homestead Exemption). A PRE exempts a principal residence from the tax levied by a local school district for school operating purposes up to 18 mills. To qualify for a PRE on a parcel of land, a person must be a Michigan resident who owns and occupies the property as a principal residence. The PRE is a separate program from the Homestead Property Tax Credit, which is filed annually with your Michigan Individual Income Tax Return.

To claim a PRE, the property owner must submit a Principal Residence Exemption (PRE) Affidavit, Form 2368, to the assessor for the city or township in which the property is located. The deadline for a property owner to file Form 2368 for taxes levied after December 31, 2011, has changed from May 1 to June 1, and a second deadline of November 1 was added. The exemption information is then posted to the local property tax roll. Normally, when you purchase a home, Form 2368 and other relevant principal residence exemption forms are provided by the closing agents. There are many variables in determining eligibility for the exemption. The Principal Residence Exemption (PRE) Guidelines book provides answers to a number of frequently asked questions.

Since you are selling and this will no longer be your principal residence you must file a rescission of the PRE that you had on the property, so the closer will give you a form to take to the local Township Treasurers office to remove your PRE. The new owners will be given a form to take in to that same office to claim a PRE for the property. You have 45 days to get that done or you will be fined and you cannot claim a PRE on another property (maybe the new home that you are buying) until you rescind the old PRE.

Once the flurry of paperwork signing is done there will be a period of time in which the title company

closers are off making copies for everyone and that is great time to have a conversation about the house with the new owners. They may have questions like, “what day is trash day?” or “where does the school bus stop?” If they didn’t do a septic test they may ask about where the septic tank is located. You can also pass on to them any names of neighbors or other information that you feel might help them get settled in.

Sometimes, even though all of the paperwork was signed, the deal isn’t done yet because the mortgage company may want to see the signed HUD before they will wire the funds into the Buyers’ title company. So the title company closer will fax or scan and email that document to the lender for review. No funds can be disbursed to anyone until such time and the Buyers title company can confirm that they have received the wire transfer at their bank. That can take minutes to hours. There is even a risk that the mortgage company or bank will close for business and not get the wire transfer done before that. In that case everyone may have to wait until the next business day to get paid and to take possession.

I have been in a worst-case scenario closing where the closing could not be completed because the funds could not be transferred before the banks close AND it was Friday afternoon; so the whole closing was delayed until Monday. In that case the Buyers stuff was in a moving van that was sitting outside the house awaiting the Buyers to return with the key to let the movers unpack. The Seller’s graciously allowed the Buyers to unpack their stuff into the garage for the weekend. The Seller’s even had to camp out over the weekend because their stuff was all packed on trailers that they were driving to their new home. What a mess. Make sure you plan the closing early enough in the day so that this does not happen to you.

Once the money is received by the Buyers title company they will disburse the checks that they have had with them all along. You’ll get your check (unless you arranged to have it wired into your bank account) and all of the other parties that get a check will get theirs. If you wanted your proceeds wired to your bank account you will have to supply the wiring information – your bank account number, the bank’s routing number and anything else that the title company need to do the wire transfer – at the closing table. The title companies do it that way to avoid fraud by scammers who might have emailed in a bogus set of wiring instructions.

If everything goes smoothly and you have your check in hand, congratulations; you sold your house. Any money that you might still have coming from insurance rebates or other things should be forwarded to your new location, so hopefully you have provided a forwarding address to anyone who might need it to send you those checks.  It’s time to move on with life. If you have post-closing occupancy there is one more post for you. If not, maybe you’ll become a Buyer now. If so, read my next series of posts for buyers.

What’s my role while we wait for the closing date?

 Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 9

This is the ninth post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ – What’s my role while we wait for the closing date?

Allowing the various inspectors in and the appraisers in are pretty normal roles. Getting out of the way and allowing them to do their jobs is a part of that role. Your Realtor may suggest that you be gone for the inspections, so that you don’t bug the inspector or offer extra, “helpful” information during the process.  The Sellers may also get involved in supplying the Homeowner Association Master Deed and By-laws for review by the Buyers.

As we discussed in the last post, there will be some contingencies in any offer. The Sellers’ role in those is mainly just to accommodate whatever needs to be done to meet those contingencies. In some cases, there will be requests that are made by the Buyers, based upon the home inspection or the FHA/VA appraisal visit. That could involve making or contracting for repairs to issues that the inspector or FHA/VA appraiser found that need resolution. Those items will need to be resolved and the appraiser will return to make sure that they were fixed.

For other items from the home inspection list, Sellers may offer some form of monetary settlement in the form of an additional Sellers’ Concession for the items that they just don’t feel that they can get done (or want to spend the time and effort to get done) in time to make it to closing. Sellers will be expected to supply paid receipts for any tradesmen that they hire to do the work, as well as permits and permitted work inspection results from the local building officials.

This is also the time to get rid of stuff that you don’t want to move. You may offer to sell some items to the Buyers, if they need the things that you don’t want anymore. First-time buyers and move-up buyers often don’t have all of the furniture that they need to furnish a home and often will by your excess stuff. Any sale of personal property items between you and the Buyer are outside of closing and must be handled between you and the Buyer. That usually involves getting a separate check from the Buyers at closing or before closing.   

You can also downsize by having a garage sale, giving stuff to relatives or calling the local Salvation Army or Good Will to come pick stuff up. Moving is the best time to simplify and downsize your life. Hopefully you already had some plans for where you were going to go when the place sold and how you were going to get there. Otherwise, get busy; you only have 30-45 days to get those arrangements made and implemented. Hiring a moving company to help can be very difficult at certain times of the year and you’ll be surprised how many of your friends and relatives suddenly have plans for whatever time it is that you need help moving.

You will want to contact the utility companies and tell them the date that you will be “transitioning out” of your house (the closing date or whenever you plan to leave after your post-closing occupancy). You should ask for final meter readings on that date, but DO NOT tell them to shut the utilities off on that date. It is extra work for the utility and a big hassle for the buyers if you have the utility companies shut off the gas or electric service. If the closing takes place in the dead of winter it can also cause extensive damage if the pipes freeze because you shut off the gas and electric services.

Don’t take this wrong, but don’t do anything stupid while you are waiting for the closing date. Sellers have been known to strip things out of a house that the Buyers have every right to expect will be there when they take possession. Sellers who strip out window treatments that weren’t specifically excluded in the MLS listing or who take or switch out light fixtures may find themselves with irate Buyers who have every right to queer the deal and walk away if they discover the changes during the final walk-through. That is right in the contract; so don’t do anything stupid that could cost you the sale.

Make the new owners’ lives a bit easier by preparing a packet of information that you probably have

laying around about the systems and appliances in the house and a contact list for any local tradesmen or service companies that you have used in the past to maintain the house. The packet should also contain any transferable warranties for items in or on the house that the new owners may need to use some day. If you have an alarm system with a contract for alarm monitoring, you will want to include information about that, too. If the new owners don’t want to continue the monitoring contract, it is up to you to inform the alarm company and to comply with any terms that they may have for terminating the contract.

If you are to turn the keys over at closing you will need to have all of your stuff out and leave the place broom clean for them. You should bring all keys and all garage door openers to the closing. If you have left over trash it should be moved to the curb for the next trash pickup, unless your neighborhood or local government rules don’t allow that.  The best rule of thumb for what you need to do to have the place ready for the new owners is the golden rule and do for them what you would hope someone would do for you.

So, you have things to do while waiting for the closing date; but just like I advised at the front end of this process, patience and perseverance are still required. You will probably also be focused upon your own move to wherever you are going next, so you’ll be busy.

What are all of these contingencies?

Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 8

This is the eighth post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ – What are all of these special contingencies in the offer?

Special contingencies -  Most Purchase Agreements will already have a number of contingencies specified within their standard terms and conditions. Those might include a home inspection, a

successful mortgage application, an opportunity to see if flood insurance is required, a requirement that   proof of a marketable title be furnished, a final walk through before closing and even a target or required closing date. Those are things upon which the success of the sale is contingent; things that the buyers (and sellers) must agree upon as having been done and the results to be acceptable to the Buyer before the sale can be consummated. In addition to those, the PA may contain, either within itself or in Addendums to the PA, other special contingencies. Some common ones are:

·         

      Contingent upon sale or closing of the buyers’ home. In this case the buyers are saying that they still have to sell their house (it may not even be listed yet) or that they have sold it and this offer is contingent upon that sale taking place or on the existing sale closing. These contingencies usually have a time limit and may have a provision that allows the seller to continue to market the house and to accept other offers, subject to giving the current buyer the opportunity to remove the contingency and proceed to closing.  Listen closely to the advice of your Realtor on any contingent offer. Consider carefully any contingency that requires that you remove your home from the market for some extended period of time.

·         Well and Septic Inspections. These are usually added on Addendum and make the sale contingent upon the satisfactory results of those two inspections. Those inspections cost extra and many contingency clauses try to make the Sellers responsible for paying those costs. The septic inspection also requires that the lid to the septic tank be exposed, which usually means digging up the yard over that lid. Make sure that it is specified that the Buyer will return the yard to its pre-inspection state (or as close as possible to that state) so that you don’t end up with a big hole in the yard.

·         Pool inspection. If a house with a pool (of any type) is sold in the winter the pool is normally closed

and this contingency addendum allows the buyer to wait until warmer weather, when the pool can be opened to perform the inspection of it. This does not normally hold up the sale, but it may provide for some amount from the sale to be escrowed in case the pool and its equipment need repairs when inspected.

·         Radon testing. Radon is a naturally occurring radioactive gas that is quite common in this area of Michigan and is a major cause of lung cancer. A radon test takes a couple of days and involves putting a testing device in the basement of the home to measure for radon levels. Levels above 4 picocuries per liter require remediation. The good news is that radon remediation systems work and once the home has one it will be safe as long as that system is working.

·         Review of the Association Master Deed and By-Laws – If this is a condo listing (or in Michigan a Site-Condo listing) or a listing in a subdivision with a mandatory Home Owners Association (HOA), there will probably be a contingency that gives the buyer the opportunity to review the HOA Master Deed and/or By-Laws. Those provisions, which may be in a special Addendum or in the terms of the PA, usually have a time requirement that the documents be supplied by the seller within a few days of acceptance of the deal and that the buyer review them within a few days of receipt of them. The buyers usually have the option to opt out of the deal if they find the restriction in those document to be too onerous.

·         Review by the Buyers’ attorney – Even though almost all offers are written up on “standard”

Purchase Agreement forms; and those forms contain time proven and tested terms and conditions that have been legally reviewed, some buyers will still want their own attorney to look the contract over, especially any Addendums that contain contingencies. That is their right and is even spelled out in the standard wording of the contract. The Buyers’ Attorney is expected to comment only on the terms and conditions of the contract and not to get involved at all with the agreed upon sale price. Many attorneys feel like they have to earn their fee by finding something in the contract to object to on behalf of their client. They may mark out a term or condition of add something to the wording that is there. If they do that the whole deal may be held up while the revised contract is submitted for legal review by the real estate companies’ legal counsel.

·         An FHA or VA Addendum – Both of those Addendums, which are associated with mortgages of the same names contain terms and conditions that must be met in order for the property to qualify for a mortgage backed by those institutions. If the house fails to meet those terms and conditions the Buyer may back out of the deal.

·         Other specified contingencies. The PA may contain other addendums with terms and contingencies, so read everything carefully. Remember that the terms of most contingencies specify that the buyer must be happy with things once the contingency is met. Only the Contingent upon Sale or Closing usually specify that the Seller must be happy.

Contingencies all carry risks with them that the Buyer will not be happy with the results or outcome of the contingency. Since contingencies normally are handled after the offer is accepted and the house marked Pending in the MLS, that means that if the Buyers decide to exercise their option to walk away from the deal your house will have been off the market for some length of time.

Lest the Sellers think that the deck is stacked against them with all of these possible contingencies, or that they are being forced down their throat, it is important to note that these contingencies have all been developed over time to protect the consumer (the Buyer); however the Seller always has the right to refuse to accept any contingency. The Sellers have no reason to fear them, if they have been honest with their agent and listed any and all know issues that the house may have. In some cases, these contingencies may cover things that the Sellers have been willing to live with that new owners would find onerous or unacceptable.

Sellers should go over each contingency with their Realtor® to make sure exactly what the contingency is about, what burden it puts on them (i.e. who pays for any of the required services to accomplish the contingency) and what the consequences of the contingency not being successfully met may be. Almost every contingency provides an “out” for Buyers, a way for then to declare that the contract is null and void. Sellers should insist that all contingencies be accomplished and the results accepted as quickly as possible. You don’t want to hold your home off the market for 20-30 days waiting for the results of a contingency. 

My Realtor® called and we have an offer. What happens now?

 Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 7

This is the seventh post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ – My Realtor® called and we have an offer. What happens now?

Great! Offers were what you set out to get. Your Realtor will want to “present the offer” to you,

which is to say to sit with your and go over the details of the offer and discuss with your how to react to it. Sometimes the buyers’ agent may insist on presenting the offer to you, so that he can elaborate on the buyers’ capability to get to the closing table. You can decide if you want that agent to actually present it to you or insist that he/she let your agent handle that.

This post and the next two will deal with how to react to an offer.

Low-ball offers – There will always be people out there posing as buyers who are really out to see if they can steal your house for some ridiculously low offer price. Many of these people spend all of their time lobbing low-ball offers in on almost any house that they see. I don’t know why any Realtor would continually waste their time with those people, but some do. Don’t get offended. Listen to your Realtor’s advice on how to handle the situation. He/she will have already talked to the buyer’s agent

and will probably have some idea whether this is an offer even worth making a counter-offer upon. In cases of it being a fishing trip by a serial low-baller, I usually advise that the seller just reject the offer. One good way to get across the sellers’ displeasure with the offer is to use a Sharpie or magic marker and have them print the word REJECTED across the front page of the offer and sign right below that. I then scan and email that back to the buyer’s agent.

Reasonable offers – Notice that I did not say that it is an acceptable offer, just one that is at least reasonable to entertain. Most offers will start lower than the asking price and lower than the buyers are actually willing to pay. You can’t fault them for trying to get a better deal, you would probably do the same thing. If you have listened to your Realtor and they have listened to theirs the offer probably will be close enough to consider and to make some form of counteroffer. It is important, however, to look at the whole offer and not just the price. Most offers these days may have terms and conditions specified in the Purchase Agreement (PA) that, when taken into consideration (even on a full price offer), may make the offer unattractive for the sellers. Many buyers (and their agents) got used to some practices during the Great Recession that no longer seem reasonable, but which are still in common use today.

Here are a few things to look for in the offer, other than price:

·        

•       Low Earnest Money Deposits (EMD) were one thing that has been slow to correct to the current market. The days of putting only $500 down in EMD are gone and sellers should demand more. The traditional EMD before the Great Recession was 3% of the offer price and that is still a good guideline today. Buyers who cannot afford to put more than $500-1,000 down in Earnest Money may be an indication of a lower probability of getting to the closing table.
• ·         Sellers’ Concessions – It is quite common in this area for buyers to ask the seller for help with their closing costs by asking for a Seller’s Concession at closing. This means that the seller is giving back a portion of the sale price for use by the buyer to cover things like points, mortgage fees, taxes, insurance and other costs that would be due from the buyer at closing. Most mortgage companies will restrict how much those concessions can total, but it is not uncommon locally that they might range from 3-6% of the sale price. That money comes right out of the seller’ proceeds from the sale and will impact the sellers’ net from the sale. Since the cost of the sale is already about 7-8% of the proceeds, adding a Sellers’ Concession of 3% means that you are discounting the price of the house by about 11%. That is 11% that does not go into your pocket.
• ·         Possession – Most buyers want to take possession of the house as soon as they can get it, so the offer may specify “At Closing” for possession. Most sellers would like a few days after the closing to get their stuff out of the house, so they may ask for a few days to weeks of
  
  possession after closing. This is an item that must be negotiated. Sellers must remember that they will become renters in the houses that they used to own as soon as closing is over. Sellers should pay attention to the daily rental rate specified in the PA. The norm in this area is to specify that the daily rental rate will be 1/30 of the buyers’ new mortgage amount, to include principal, interest, insurance and taxes. The seller should ask what that daily rate will be. The mortgage company for the buyer can supply that rate. Sellers may also see a damage deposit requirement in the amount that is retained out of the proceeds to cover post-closing occupancy. That damage deposit is just like the deposit that a renter makes on the front end of a lease and could be used by the new owners to cover any damage that is done to the place during the rental period after closing. Make sure you understand how that process will work and how any decision on damages will be negotiated. The process for turning over the keys at the end of the post-closing occupancy period should also be clearly stated.
• ·         What goes with the house – Most often the seller will offer certain appliances and other things with the house. Those are usually listed in the MLS, as well as any exclusions - items that the Seller is specifically stating that they will be taking out of the house (which could include items like special drapes or light fixtures). Sellers need to make sure that the Buyers clearly understand any items that are specifically excluded and the best way is to make sure that those items are listed in the Purchase Agreement paperwork. Sometimes buyers will see other things in the house that they want thrown in on the deal, so they will list them in the PA. Often that will be the washer and dryer, which the seller might not have offered to leave.  Maybe it is the play structure out in the yard, which the seller may or may not have wanted to take anyway. It could be special or custom window treatments that go beyond the expected curtains. Whatever it is, the seller should carefully read and consider a response to anything that the buyers have added to the PA that they wish to be left in the house. This is another negotiated thing and is separate from any furniture or lawn equipment or other items that the seller may wish to offer to sell to the buyers.
• ·         Prorating prepaid items – Most Purchase Agreements will specify how things like pre-paid taxes or association fees will be pro-rated at closing. The basic idea is that the Sellers will be given back money (be the Buyers) to cover the period that they pre-paid for services, but which they will not be able to use. In this area of Michigan, we pre-pay our property taxes, so those would be prorated. Association fees and other fees that may be assessed or paid on a quarterly or an annual basis will also be pro-rated.
• ·         The type of Title Insurance required – All purchases, at least in Michigan, will require that two title Insurance policies be issued, one to insure the Buyer against future claims against the title and one that insures the mortgage company against those same claims. In Michigan it is customary that the Seller pays for the Buyers’ title Insurance policy and that the Buyer pays for the policy that insures the mortgage company. Many Buyers’ agents will insist that the Buyers ask for an “Eagle brand” or extended coverage policy, which costs a bit more than a standard title insurance policy. It is a small incremental amount to pay and covers a multitude of sins that the Seller may have committed over time, such as making home improvements without pulling permits or the presence of unrecorded easements on the property. It’s not worth arguing over and does give the Buyers peace of mind, so I recommend going along with that request.
•       The closing date. This is usually a "target" date 30-45 days from the acceptance of the offer, but it, like everything else in the offer is negotiable. The Seller doesn't have to accept an offered closing date that is too close in or too far out; however, some attempt should be made to understand the needs of the Buyers that are driving that date. In general, it will take 30-45 days for the mortgage company to to be ready to close, so that is a somewhat standard timeline. This is a demand that the Seller should try to be flexible on because it might be a show-stopper for the Buyers, if their needs cannot be met. The Sellers should have done their move planning ahead, so that they can adjust and react to the requested closing date. The day you accept an offer is not the day that you should start thinking about where you will go and how you will get there.
• ·         The “strength” of the offer. Your Realtor may indicate to you that one offer is stronger than another. What that means is that he/she has looked at factors like the buyers down payment, the
  
  mortgage type that they are going to use and the type of pre-approval that they submitted with the offer.  A buyer who is putting 20% down, is pre-approved (not just pre-qualified) for a Conventional mortgage is a stronger buyer than one who submits the same offer price, but who is only putting 3% down on and FHA mortgage and who so far has just been pre-qualified (maybe a credit check run, but no underwriting approval, yet). Ask you Realtor who has the “strongest offer”, because that is the one most likely to actually get to the closing table.

Additional or special contingencies will be covered in the next post in this series and a post on the processes available to actually respond to an offer will follow. Your main role as the Seller at this point is to thoroughly read and understand what is in the offer. Your Realtor will go over it with you, but it is you who will be signing it and it is a binding contract, so know what you are signing up for. We’ll continue to look at the offer and how to react to it in the next two posts.

FAQ - My house is listed but we’re getting no visits; what's wrong?

Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 6

This is the sixth post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ - My house is listed but we’re getting no visits; what's wrong? Should I consider firing my agent?

My initial response is that you should not panic; but, rather, listen to your agent, not fire them. Of course, that assumes that you followed my advice in the first post and got a GOOD Realtor® as your listing agent. If, instead, you got an agent who went along with whatever price you threw out to list the place, just to get the listing; maybe it’s time to have a heart-to-heart and this time listen to the

advice that the Realtor has been trying to give you about the market value of your house. If it was the Realtor that advised that you set the price that high, maybe it’s time to assert yourself a bit and insist that he/she get the price more in line with the market, so that you can attract some visitors. There are some Realtors who think so much of themselves that they think they can justify above market pricing, just based upon the strength of their name in the market. In those cases, your Realtor may need to listen to you. The single biggest issue that causers low or no showings is price. Listen to your Realtor.

Houses that are obviously overpriced just scare away would-be buyers because they don’t want to try to deal with an unrealistic owner/seller. It’s also time to stop bullying your agent about everything, including the price. You may be a very intelligent and successful person in whatever field it is that you work; however, unless you are also an active and practicing Realtor, you are not the expert in this situation. Let the expert give you advice and lead you in this transaction. Listen to your Realtor.

You might also pause and ask yourself if you are trying to micro-manage the process. Your Realtor will welcome your support for their marketing plan and would welcome your ideas so long as they don’t feel that you are looking over their shoulders and breathing down their necks all the time. Even if you are the Director of Marketing at some successful company, you are out of your element in the real estate world and have to trust the knowledge and experience that your GOOD Realtor brings to this process. Go ahead and make your suggestions, but remember to listen to your Realtor. Real Estate is a unique “product” to market and many of the marketing things that work for other products just don’t work well for real estate. Listen to your Realtor.

If you haven’t already had an open house, talk to your Realtor about doing one of those soon. If your Realtor presented a Marketing Plan before you chose him/her, ask what they have been able to accomplish from that plan so far and what they still have in the queue. It’s OK to try to be a helpful partner with your Realtor in the marketing of the property, but remember who is the pro here and listen to your Realtor.

Look back over the advice that the realtor gave you about things that needed to be done to help with

the marketing of the house, especially those things that might have been aimed at the exterior of the house. Curb appeal, or lack of it, can have a big impact on whether people who do drive-byes first actually ever visit the property. Go back and do the things that the Realtor suggested to clean up the lard and landscaping or to repair or paint things that can be seen from the curb. Listen to your Realtor.

Don’t wait too long. The Golden Time for listing is usually within the first 4-6 weeks. That’s when the visit traffic should be the highest and when quick offers usually happen. If you’ve gone 2-3 weeks with no showings, act now, before your listing goes “stale” on the market. Get with your Realtor and come up with a plan of action to make the changes that will be necessary to get traffic flowing through the house. Be bold, not wimpy. If you are overpriced by $20,000 or more, taking a thousand off at a time, in hopes that this will get things moving, is what we in real estate call “death by a thousand cuts”. It is better to bite the bullet and do a $10,000 reduction right away than to try to dribble the price down a thousand at a time to where the market will react positively. Listen to your Realtor.

Did I mention that it is important that you listen to your Realtor?