Is your house FireSmart?

I get a daily news feed from Realty Times and there is always something interesting to read in those short articles. Recently I got an article about what the author with the intriguing headline – Why Some Homes Survive Wildfires - And Others Don't. 

The article written by Jim Adair for a Canadian audience was about so-called called FireSmart house design – the things that one can do to make one’s home more likely to survive a wildfire incident. To read Jim’s article on the  Realty Times web site click here - http://realtytimes.com/consumeradvice/homeownersadvice/item/1002636-20170530-why-some-homes-survive-wildfires-and-others-dont?

Admittedly, here in my little Village in Southeastern Michigan, we don’t get many wildfires; however, I have plenty of neighbors with “cabins up North”, whose get-away homes are nestled in the middle of woods that could be susceptible to an occasional wildfire. Certainly we have seen wildfires out west and down south over the past year. I also see from time to time local news stories of fires that start in one house and quickly spread to others nearby. The design principals that are discussed in the article would help prevent that, too.

The article referenced a booklet that was created to illustrate the design features that either help or hurt your house in the face or a wildfire. You can download that booklet for here -  https://www.firesmartcanada.ca/images/uploads/resources/FSCanada_HomeDevBooklet_5.5x8.5-V6-Mar20.pdf

Much of the advice in the article is what might be thought of as common sense; however, like other things in life we oft forget to apply common sense to our daily lives until someone points it out. Some of the advice is about home design features that can aid or thwart a fire trying to find a way to ignite the combustible materials in your home. Some of these pieces of advice are “Why didn’t I think of that” little gems and some are “I knew that, but I didn’t do it” items.

When the conflagration occurs, you don’t want to be standing there with a pathetic little garden house trying to save your house from a neighborhood fire when you could have done things to help it protect itself. In the case of a real wild fire, I don’t recommend the garden hose strategy anyway. So, whether your home is sitting in the middle of a forest or in the middle of an urban neighborhood, read the article and think about the things that you might be able to do with your home to make it FireSmart.

Real Estate Market Report for May 2017

The real estate market in Southeast Michigan remains very "tight", with record low inventory driving market prices up. The graphic below provides a quick summary:

Please click here for a full version of the May 2017 Southeast Michigan Monthly Housing Report:

In this very "tight", low-inventory market is is more important than ever to seek the good real estate advice of a Realtor. It is definitely a "seller's market"; but, that does not mean that sellers can be successful with outrageous prices or that buyers must engage in bidding wars on every house. Both buyers and sellers risk making serious mistakes without the guidance and help of a good Realtor.

Other topics that you may have Questions about.

Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 15

This is the fifteenth and final post of a series of posts for buyers (especially first-time buyers) 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 -  What are some other topics that you may have Questions about?

This post is mostly links to interesting articles and posts on other sites about the topics that weren’t covered in the first 14 posts. The real estate process is never the same twice and not all of these topics would come up in a typical purchase; but they do come up.

Where can I get help with my down payment? There is a State Government program available in Michigan (there are probably similar programs in other states) under MSHDA (Michigan State Housing and Development Authority). This response is from their site.

Is there any way to buy a house these days for zero down? - There are at least two programs available in Michigan in which you might qualify for a zero-down loan the USDA Rural Development Program and under your VA Benefits. There are special VA programs for disabled vets.

PMI – What is it and do I have to have it? From Bankrate.com Under FHA, VA and USDA this would be called MIP and here’s an article on MIP and how to cancel it. PMI (nee MIP) is a fact of life for most home buyers who cannot afford a 20% down payment. PMI is basically an insurance policy for the lender, in case you default early in the loan period. PMI adds no value for you, so the faster that you can get it off the loan the better.

Land Contracts – What are they – good article by Elizabeth Winetraub. Land contracts offer an alternative for buying an house when your credit score won’t justify a mortgage, even though you may have steady employment and can otherwise afford the monthly payments.

Rent-to-Own – What’s that all about – from the How stuff Works site. Rent to is another way to buy a house if you can’t afford a down payment right now. It isn’t real popular with sellers, but you may find some who just want to get out from under their monthly mortgage payments who will consider this approach.  

Tips for Unmarried Couples Buying a Home – it’s not the same and it’s not playing house. This is a somewhat touchy subject, as are all things that mix love and money. Make sure that you protect your interests if you try to buy a house with anyone that you are not married to at the time.

Housing for LGBT People: What You Need to Know About Property Ownership and Discrimination – While generally covered in existing anti-discrimination laws, there are grey areas in the laws that can lead to sticky situations.

Guide to Buying a Home of Your Own for People with Disabilities – Good advice on what to look for and what to avoid  in houses for those with disabilities.

Advice for Military Service Members about Home Buying from Veterans United – Good advice and tips on the programs for veterans who are trying to buy a house.

Fair Housing Act – The HUD site that explains what your rights are under the Fair Housing Act

Home Warranties - Do I need One? – From Angies’ List – are they worthwhile?

Wells and Septics – I’ve never had that before, what should I know about them? – a good read on the topic from the Barrington Area Council of Governments

Where can I find a map of the lake that the home I’m considering buying is on? – In Michigan the DNR maintains these maps of inland lakes

A Real Estate Glossary – this is a Web site that seems to have a relatively complete glossary of real estate and mortgage terminology

Home Buying Articles and Advice – the same Web site as the for the glossary above has a good collection of articles on home buying to read

Home remodeling – How much is too much? – from Yahoo’s Finance section

Divorce and Real Estate – a link to DivorceNet.com – It is not easy or straightforward sometimes to get out from under the obligations that live on after a divorce. There is lots of good advice at this site.

Who owns the fence - an interesting article on the issue of shared fences

Mineral rights- what are they? How do I know if I own the mineral rights to my property?

Water Damage and Mold - a link to a great informational site dealing with those two issues.

What should I know about asbestos? Asbestos was used somewhere in some way in most homes built before the 1960’s. Most of the time is was used as an insulator, in the heating systems or is materials used as wall and attic insulation. It was also used to make floor tiles and siding for homes. Asbestos is a leading cause of cancer and you may end up running in to it in a home modernization project. Here is sa good site to do some research on before you try tackling asbestos -  https://www.mesotheliomalawyercenter.org/asbestos/home-repair-remodeling/

Thanks for taking the time to read through this series of posts. It is somewhat presumptuous of me to say that I’ve covered the real estate process from A to Z; so, if f you have questions that were not covered here, please email me and ask your questions. I’ll try to answer and you’ll be helping not only yourself, but others who probably are hitting the same things that you are.

We closed and I have the keys. Anything else that I should know?

Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 14

This is the fourteenth 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. There is a follow-on series to the posts for real estate sellers.

FAQ -  We closed and I have the keys. Anything else that I should know?

Congratulations! Enjoy your new home. The closer at the closing should have given you a packet with copies of all of the closing docs and mortgage papers in it. Make sure you find a safe place to sort those documents. You should receive a copy of the deed from the County in about a month. Put that with your closing packet.  

In Michigan the closer would have put the Homestead Exemption form on top of your packet, so that you can take that to the Township and claim your homestead exemption. That has the impact of lowering your taxes on the property about 30% lower than they would be without it, so get over to the Township and get that in ASAP.

For most closings you would now be pretty much home free. We’ll just look at a few things to be aware of and a danger or two.

If you were provided with a Home Warranty as part of the deal, it’s a good idea to call the company

and just make sure that they have your contact information correctly recorded in their database. Also put the warranty brochure or other paperwork that you received somewhere safe and somewhere that you can remember if you need to call in a problem. Remember that you must call the warranty company first if there is a problem. They will not reimburse you after you’ve called your own plumber in to fix something.

Make sure to contact the various utilities to check that they have done any final readings that were requested and transitioned the accounts into your name. If you are on city water and sewer you may have to wait until the next billing cycle before the bill can be pro-rated between you and the seller. Check with the city water department on how they will do that. If the bill comes to the house, contact the title company that represented the seller and get them a copy of the bill. They are responsible for paying the pro-rated portion that the seller owes. You may have to send it through your agent and the listing agent to get it to the right place.

You may wish to consider having the door locks re-keyed. Even if the seller gave you all of the keys that they had to the place there could be others out there in the hands of relatives or neighbors. It’s just good practice to change the locks when you change ownership.

What about if I find something unexpected wrong with the house now?

Well, at this point it’s your house. You had your chances at the inspections and final walk-through to uncover those things. It is possible that the old owner was unaware of the problem, so don’t

immediately assume that this was some defect that they hid from you. Hopefully it is covered under the home warranty. If not, it is your problem now as the new owners. If it is an issue concerning a cloud on the title (a long lost relative suddenly showing up and claiming a right to the property) call the title company. It is their responsibility to protect you against that type of claim.

It can get a little hairy if it involves an unrecorded lien (or tax) against the property. You can make the case that the title company should have found that lien and they will fight back that it was not recorded anywhere and their title commit clearly states that they are insuring you against recorded issues. If it turns out to be a tax issue the title company probably should have caught that and you should press your case with them.

It is possible that the old owners did hide some material facts from you; things like the fact that they finished the basement themselves without pulling permits (lots of homeowners do that) or that the deck that they built out back actually encroaches 5 feet into the rear neighbor’s yard. Those “facts” should have been disclosed on the Seller’s Disclosure, so maybe you think that was a fraudulent document; however, we have just stepped across the line from real estate into legal matters, so I will invite you to find a good lawyer to handle your questions on what to do about that.

I hope that you’ve enjoyed this series of FAQ posts about the real estate process from the buyer’s perspective. I have one more post for buyers to cover some topics that may not have fit into any of the other posts. Most of that post will be links to background reading that might help answer questions for first-time buyers or buyers moving into strange new situations, like moving from the city to the country. 

What if everything didn’t go well and I need to cancel the deal?

Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 13

This is the thirteenth 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. There is a follow-on series to the posts for real estate sellers.

FAQ -  What if everything didn’t go well and I need to cancel the deal?

Every so often a deal will go south. That is usually due to things like the buyer not being able to get the mortgage that he/she thought that they were pre-approved to get or perhaps because there was a defect found in the home inspection that the parties could not agree upon a resolution for or that the buyer just couldn’t live with (the presence of asbestos, radon or mold often cause this problem).

In cases where there is no way to move forward with the deal you will need to document the end of the deal. There is a document that we use locally called a Mutual Release of Purchase Agreement and there are probably variations of that document in every state. The Mutual Release basically states that the obligations contained in the Purchase Agreement are declared to be null and void and it specifies how the dispersal of the Buyer’s Earnest Money Deposit (EMD) is to be handled – usually just given back to the Buyer.

Occasionally there might be a disagreement between the Seller and the Buyer that cannot be amiably

resolved. The Seller may balk at signing off on the Mutual Release of Purchase Agreement or perhaps the Buyer wished to move ahead but the Seller no longer wishes to sell the house to the Buyer. There are usually provisions in the Purchase Agreement to deal with impasses like these and it usually involves either arbitration or perhaps even the need to take the dispute to court.

If the failure of the Buyer to perform on the contract is due to his inability to get a mortgage or is the direct result of his dissatisfaction with the inspection results or the results of the title search, the Buyer is on pretty firm legal grounds to declare the contract to be void and get the Earnest Money Deposit back in total. If there are issues resulting from the inspection that the seller refuses to fix, it is usual that he may also declare the contract to be void. 

It is a somewhat gray area if the Buyer does one of the stupid things that I warned against in an earlier post and his approval for the mortgage is impacted. A seller could make the case that the Buyer had met the requirement for financing that is in the PA and might balk at letting the Buyer out of the contract AND giving him his EMD back. I have also seen one case of Buyer’s remorse right before closing that resulted in the contract being voided and the Seller keeping the EMD deposit. The Buyer was out several thousand dollars in that case.

   

If the Seller just gets seller’s remorse and decides not to sell, there is little that the Buyer can do except take the Seller to court and ask the court to force the Seller to honor the contract. A reasonable amount of court cases have been tried and have resulted in the precedent that the courts are reluctant to force an owner to sell. Of course, the Buyer would get their EMD back, but they would still be out several hundred dollars to the mortgage company for the sunk-money expenses of the loan application and the appraisal, as well as the home inspection. There is little recourse for the Buyer to recoup those expenses, other than an attempt through the small claims court. The Buyer should consult his attorney for guidance on that.

As the Buyer, at this point you will need to start over with a new search for another property. You will be a wiser Buyer this time.

I got through the inspection and appraisal OK; what do I do now?

 Understanding the Real Estate Process from A – Z – A Buyer’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 buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ  –  I got through the inspection and appraisal OK; what do I do now?

Probably more important than what you can be doing while awaiting the closing date is what you SHOULD NOT BE DOING, which is making big credit purchases, like new furniture or a new car or any other big hits to your credit cards and your credit worthiness. A big part of what the mortgage

company underwriter looks at when evaluating your credit worthiness is your debt to income ratio. Your income is unlikely to change dramatically in the few weeks until closing, but your debt could, if you go out and start buying new furniture for your new home on credit.

I’m sure that your mortgage person already told you that, but it is worth reinforcing. I had a young man as a client who made an accepted offer on what was to be his first home. After getting through the inspection process (and having the homeowner make some repairs) and the appraisal, he felt so good about moving into his first house that he decided that his older car wouldn’t look right in his new driveway, so he bought a new car to go with his new house. That purchase showed up nm his credit report, which the underwriter checked before giving the “clear to close”, and he no longer qualified for the mortgage, due to his increased debt. The deal fell apart. He was devastated and the seller was very angry, as you can imagine.

So, the message is to cool your jets on all of your plans for the new house. Don’t run out and start buying things for it, not even the paint that you are planning to use to change the colors inside. Don’t do anything that changes your debit to income ratio. The mortgage company underwriter will pull your credit report one last time just before issuing the “clear to close” on the mortgage and you will be required to sign an affidavit at closing that states that everything that you put on the mortgage application is substantially the same as when you filled it out.

I actually had a client once who got laid off from his job the week of the closing on his new-build house. He had not yet sold his current house that I had listed at the time. He wanted to go through with the closing, but I informed him of the affidavit and the consequences of lying about his employment situation and he pulled out of the deal, even though he lost a substantial amount of money from the down payment that he had already made. He would have had to commit fraud, has he lied and signed that affidavit.  He was off work for 6 months and ended up glad that he did not try to go through with that deal.

There are many things that you will need to be dong while you await the closing date. One thing that your mortgage company will insist upon is lining up insurance for the place. The mortgage company usually requires that you provide proof of a pre-paid, one-year homeowners insurance policy on the place. You should also reach out to the utility companies and set up accounts for your gas, power and water/sewer (if you aren’t on a well and septic). If you are an existing customer of those same companies you won’t have to establish a complete new account; however, first-time home buyers will have to set up accounts. When you get to the closing date you will want to inform the utilities that you are “transitioning in” to the property. The Seller should have also informed them that he is transitioning out and should have ask for final readings, so that his final bill can be calculated. 

Your mortgage rep should have already gone over the various things that you will be paying for in the closing costs. Remember that, in Michigan at least, you will be picking up the property taxes from the closing date forward. In most of Michigan, property taxes are paid in advance, so the Seller will be reimbursed for any un-used portion of his last property tax bill and that will be shifted to you. You will also be paying for a title insurance policy that protects your mortgage company, in case of a ownership dispute later. The Seller actually pays for the title policy that protects you. The mortgage company will also establish an escrow account to collect for the next tax bills and you will have to pay into that to bring it up to date. Of course there are various mortgage company fees and costs that

will show up on your Purchasers Closing Statement (what used to be called the HUD Statement).

By law you should receive that Closing Statement three days ahead of the closing date.  Look it over carefully and make sure that you understand what all of the fees and charges are that you have to pay for and have your mortgage person explain them to you, if necessary. You will receive the other closing documents at that time too, so look them over for any errors, like having your name wrong or having the wrong property listed (it happens).

Sometime within the last 24-48 hours before the closing, you will have the opportunity to do a “final walk-through” of the property. This is to give you a last opportunity to make sure that the property is substantially the same as it was when you made the offer. Sellers have been known to make honest (or otherwise) mistakes and remove things from the house that were supposed to stay – most often things like light fixtures or window treatments. If you see that something has been removed or if you notice damage that you can’t live with, you have the right to require the Seller to replace the items or make the repairs or you can still walk away from the deal. Most Seller will not let the deal fall apart because of some issues like those and most of these things can be resolved. If there is a large change in the sale price, due to a seller concession for something the closing may be delayed while new paperwork is prepared and the three-day review clock is reset.

If the PA specifies some amount of post-closing occupancy for the Seller you won’t be getting the keys at closing, so you’ll have to wait some more. You’ll probably do another walk-through the day before the occupancy ends or the day that the keys are turned over, so that you can assess any damage that the Seller (now a renter in the home) might have caused. You should have had some provision in the PA for a post-closing occupancy damage deposit, from which you’ll need to negotiate with the Seller to cover those damages. This can be a sticky situation, so don’t get to nit-picky about really minor stuff.

So, the bottom line is not to do anything stupid financially that would jeopardize the deal and to do the things necessary to be ready to move in after closing.

The appraisal came in too low. What do I do?

 Understanding the Real Estate Process from A – Z – A Buyer’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 buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ  –  The appraisal came in too low. What do I do?

Once again, don’t panic. There are several reasons that the appraisal may have come back lower than

the selling price. One is obvious – the place is overpriced and the value is just not there to support the sale price.  A second is that the appraiser might not have done a good job of assessing the house’s value. He or she may not be familiar with the area and have picked the wrong “comps” to compare the house to (which happens sometimes when out of area appraisers are assigned the appraisal). In general, experienced and competent appraisers will be able to do a good job of rendering an opinion of value, even if they are a bit out of their normal territory.

So, what do you do now? Your mortgage company is not going to write a mortgage on the place if it is significantly below the value of the price that you have agreed to pay. The ball is back in your court. You can throw the ball over to the Seller by letting him know that the appraisal came in low and asking him to reduce his price to match the appraised value; or, you can decide to make up the difference yourself, if you are confident that the values are rising and will eventually reach or surpass the sale price; or, you can try to reach some compromise with the Seller. Quite often the last choice is the one that works.

If the seller refuses to budge off the price that he agreed to you really only have two choices – kick in the extra money on the deal above what the mortgage company will finance in order to reach the sale price; or, walk away from the deal. Many times Buyers are reluctant to take that final option to walk away because they have real money already sunk in the deal, as well as emotional momentum to go ahead with it. The Buyer at this point has probably spent close to (or more than) $1,000 on the home inspection and the mortgage costs (the appraisal fee and any other application fees). That is sunk money that they will not get back. If they walk away at this point they will get their Earnest Money Deposit back.

Many times the Buyers are pretty well tapped out at this point, because of the expenses that they have already incurred and the closing costs that are yet to come. That may force them to seek some additional financial help, maybe from mom and dad, or to work with their mortgage person to try a different mortgage approach – perhaps with a different mortgage product that will free up some cash to be used to pay down the appraisal difference. 

Most of the time the Sellers are willing to work with the Buyers to adjust the price. Perhaps they priced too high to test the market and realize that the appraisal price is actually a good number for their home. It may take them a little while, because they have to give up on the euphoria of having gotten such a good price for their house. They will come to realize that they appraisal price probably does represent the “market value” and that the Buyer that they have in hand is better than going back on the market to try to find someone else who might be willing and able to pay above  the market price.

The best course of action is to listen to the advice of your Realtor® and let them do their negotiating

job on your behalf. Both of the Realtors involved have probably been through this before and know how to navigate these tricky waters. Either, or both, of the Realtors may advise trying to get a second appraisal is they agree that the appraiser did a lousy job.  There will probably be some negotiation about who pays for that second appraisal and your will need the agreement of the mortgage company underwriter to accept the results.

At some point, you will reach a sale price that reflects the market value and one that the mortgage company can support. If that is still below what you and the Seller can agree upon, it is time for some soul searching. In a market like the one that we are in right now, with low inventory and high prices, it may well be that you will have to accept starting over on your search and perhaps resetting your priorities and criteria. The only alternative is to find a way to finance the added cost above the

appraisal value, if this is truly the house of your dreams.

Life is full of compromises and this is a big one. You risk being “house poor” for some time or having to kick in the money that you had held back for updates or repairs, in order to move ahead. Just be darn sure that this is a place that you will want to stay in for at least 7-10 years, because it will take you that long to recoup the extra cost in appreciation. If you are young and working in an industry in which promotions may mean moves, this is probably not a wise course for you. If you are in a stable position where advancement won’t require moving, then you will probably be OK over time. 

We have an accepted offer that everybody has signed. What comes next?

 Understanding the Real Estate Process from A – Z – A Buyer’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 buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ – OK, we have an accepted offer that everybody has signed. What comes next?

Congratulations! Now your work begins. First make sure that you have thoroughly read through the contract and made a list of the various deadlines that are specified in it. There are usually two or three that have to happen within the first 7-10 days – The home inspection, applying for the mortgage and determining whether flood insurance is required are typical tasks that must be completed in that time frame.  

One of the most important and critical things that you need to do is to hire a good home inspector and

get that inspection done. Your Realtor® may be able to give you a list of 4-5 home inspectors that he/she may have worked with in the past. IF not, just Google home inspectors for your area. Look for an inspector who belongs to one of the national associations of home inspectors. While that’s not a guarantee that he/she is a really good home inspector, it does means that they have been qualified to some extent for their home inspection knowledge and skills.

Find out what dates and times the home inspector has available and coordinate that with your schedule. Once you have settled upon a date and time, have your Realtor make the home inspection appointment. T Your Realtor is expected to be there too, so it has to fit into their schedule, too. While it is not required that you be there during the home inspection it is strongly advised that you are. You will find out a tremendous amount about the place that you ae about to start living in, such as how to change the furnace filter, where the water shut off is, how old the major mechanicals are – furnace and water heater – and perhaps how soon it appears that they will need to be replaced. You will also be told about and shown (where it’s safe for you to see it) any defects or issues that the home inspector finds that will need to be repaired. You aren’t expected to go up on the roof or up in the attic space with the inspector, but you could if you are able.

A good home inspector will be taking pictures as he/she goes to help document what they have found. If they find health hazards, like gas leaks, they may also tag those things (usually with red tags) in the areas of the defect, to help identify for the home owner where a repair needs to be made. Some home inspectors will cycle the major appliances to make sure that they all work, but some don’t do that. Ask before you hire the inspector if he will do that. Testing the appliances, even if the Sellers’ Disclosure says that they work, will reveals those burners on the stove that no longer work or the washing machine that leaks every time that it is used. That can prevent the surprise of having to make a major appliance investment right after moving in.

FAQ Supplemental – My home inspection report has lots of things that the inspector found that need attention. How do I handle that?

First off, don’t panic! All homes (even new builds) will have some things that need to be repaired or replaced and some things that the inspector may indicate will need attention soon. Go through the report thoroughly and make a list of the big things (major things) that are called out in the report. Decide which of those big things you can’t live with and need to have repaired or replaced before you would move in. Talk to your Realtor about conveying your concerns and demands to the Seller in the form of a letter or email that is labeled Unsatisfactory results from Home Inspection. You may ask the

Seller to repair or replace those items or to give you a Sellers’ Concession of some amount to cover you doing the repairs after closing. If it is a big job, like a new carpeting or a new roof; you may suggest that you get three estimates for the job and use the middle estimate to set the concession price.

If you make demands that the seller must have the repair work done prior to closing, be sure to include in your demands that the seller produce paid receipts at closing for all work and that all work be performed by qualified and licensed (if required) professionals and that any needed permits be pulled and the work inspected by the local building authority.  Remember this is your request, based upon your inspector’s opinion and the Seller may disagree, so this is a negotiated settlement of those issues. If you can’t agree with the Seller on a resolution to the issues, you may have to walk away from this deal.

What else will be happening?

The mortgage application process may involve supplying more documentation that you have previously given your mortgage person. The underwriter will want to see a couple of years’ worth of income tax returns and probably some documentation from your employer. You may have to fill out a detailed financial statement of your income and expenses, if you hadn’t already done that. Bank statements and statements from any other place where you have money will also be required. This can be an especially difficult thing for self-employed people who may not have good records of where their money came from and went over the last couple of years.  You have just moved from the mortgage reps view of “you look like a good person and seem to be OK financially” to the underwriters need to see and understand every little detail of your financial life. Don’t get offended by the requests that you get, just supply the requested documents.

You may also need to at least check the FEMA Flood Plain maps to see if the property is in a designated flood plain. Go there and put in the address of the property. Why is that important? Well, it will tell you whether you need to get flood insurance or not. Your mortgage company will probably tell you that, too; but you should check, just to make sure. You will need to arrange home owners’ insurance anyway and give proof of insurance to your mortgage person. You homeowners’ policy will protect you against internally caused water damage, like your water heater leaking or a broken pipe, but it does not cover water coming inform outside, i.e. flooding. Your homeowners’ policy doesn’t cover you for things like sewer backups either, so hopefully your sewer connection has a check valve in line to prevent backups.

We’ll talk more about other things that can happen while you wait for closing and things you will need to do as you get closer to the closing date.

I saw a house that is For-Sale-By-Owner. Can my Realtor® help me with that?

Understanding the Real Estate Process from A – Z – A Buyer’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 buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ – I saw a house that is For-Sale-By-Owner (FSBO). Can my Realtor help me with that?

He/she sure can. In fact, it may be more important than ever to have your Realtor involved. Since the Seller has no Realtor representation, it is imperative that one of the two parties have someone involved who thoroughly understands the real estate process and make sure that things are done properly. That is not to say that the Seller doesn’t know what he’s doing. He may be quite knowledgeable and may have sold many houses in the past; however, the real estate process changes over time as new laws are enacted and new requirements must be met. Realtors are required to keep up with those changes, while someone who last sold a house 5-10 years ago might not be aware of the changes.  In addition, remember that the Realtor has assumed a fiduciary role with you in the sale and puts your best interest first. The seller may be a very honest person, but they are not putting your best interests first.

So, how can/will your Realtor help with a FSBO sale? For one he/she can do a little research on the place, so that you may be aware what the current owner paid for the place, what the taxes are and if there are any special assessments or association fees. He/she can also act as a go-between with the Seller to arrange the showing. Your Realtor will determine at that time if the Seller is willing to pay a commission on a sale or whether you might be on the hook for that, if you signed an Agency Agreement with the Realtor.

Your Realtor can also negotiate on your behalf with the Seller. Most Buyers are not comfortable

trying to negotiate directly with the Seller, especially if he has an attitude about the real restate process. The Realtor will also prepare the necessary real estate sale contract documents to make the offer official and will involve a title company when appropriate. For the most part, your Realtor may be able to make a FSBO sale look and feel to you much like a normal sale of an MLS-listed property; however, there may be much more going on in the background.

Follow-up FAQ – What are some things that I should be aware of or concerned about with a FSBO sale?

Much of the activity that goes on after an offer is accepted will be the same as the sale of an MLS-listed house and your Realtor can probably work with the Seller to smooth over any rough spots. Some of the differences may be found in the work that the Seller (or his missing agent) did (or didn’t do) on the front end. Since the Seller didn’t have a Realtor involved there was probably no preliminary title search work done, so there could be title surprises when the title work that is kicked off by the accepted offer is done.

The seller may also be unaware of any local governmental rules or regulation on sales and any requirements for city inspections and the issuance of a new certificate of occupancy for the new owner. The Seller also may not have bothered to do the Due Diligence work at the County/Township/City/ Village level to see if there are any outstanding assessments or liens against

the property. He/she may not have had the proper forms (or just decided not to do this requirement) to fill out to do the Sellers’ Disclosure and the Lead-based Paint Disclosure. Those are both required by Michigan real estate law and the sale cannot proceed without them. Any flyer that the Seller might have created must also be looked at with a grain of salt, since he might have been unaware of the real estate rules that govern what can and cannot be said about a property.

Perhaps the biggest concern is that the Seller may have overpriced the property. Without any advice from a Realtor, many FSBO sellers overprice their homes by as much and 10-15%, sometimes more. If they set their jaw at that price, negotiating a reasonable sale price may be impossible. Without professional help, many use the advice from friends and relatives or knowledge (real or imagined) of neighborhood sales, even if they’ve never been in the homes that have sold in their neighborhood. A Realtor would have been able to do a Comparative Market Analysis of their home and would have provided pricing advice for it relative to other sales. But, they didn’t use a Realtor.

Most times a FSBO Seller is just trying to save some money on the sale by not paying a commission to a listing agent; however, a few have had bad experiences in the past with a real estate agent and now don’t trust anyone in the real estate business and don’t want to follow the proper real estate procedures and laws.  Those latter Sellers can be difficult to deal with and can make the home buying experience very uncomfortable for the Buyer and his Realtor. A good Realtor will know how to handle that scenario.

Your Realtor will also take the time to go over the terms and conditions of the Purchase Agreement

(PA) with the Seller, since he has no one else to do that with him. Sellers with an attitude about the real estate industry may try to ignore, or get around, some of the provisions of the PA or the title policy requirements and closing processes. A good Realtor will make sure that everything that is required is done and that the T’s & C’s that are in the PA to protect your interests are not ignored by the FSBO Seller.

If the Seller has decided to use his own title company, your agent will act as the coordination point between them and your title company or work with that title company to make sure that your interests are taken into account. Your agent will also negotiate any issues or repair requests that come out of the home inspection, which can be another sore point for the FSBO seller. Your Realtor will try to keep everything on track and on schedule to meet the various deadlines that are in the PA and make sure that the closing takes place on the agreed upon date.

In the end, you will still be able to buy that house from the FSBO Seller. The process may not be as pleasant or as well organized as might be with a listed and represented seller; however, your Realtor will try to make the process as painless as possible. Just be glad that at least one of you had a professional who knew what he/she was doing during the process. The real estate process is not rocket science; but, there are enough potential things that could go wrong along the way that having an experienced guide – your Realtor – makes all the difference in the world. 

The MLS listing mentions that the Seller is offering a Land Contract. What’s that?

 Understanding the Real Estate Process from A – Z – A Buyer’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 buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ – The MLS listing mentions that the Seller is offering a Land Contract. What’s that? I want to buy a house not land.

A Land Contract is just another way of selling the house. In that case, the Seller is offering to take on the role of the bank or mortgage company and finance the sale himself; thus, it is also known as Seller Financing.

If the Seller is offering a Land Contract the MLS information should also contain the terms under

which the Seller will accept a Land Contract. Those terms should include what the down payment amount has to be, the interest rate that the Seller will be charging and the term or length of the contract that he is offering. Land Contracts usually require a hefty down payment of at least 20%, sometimes more. Land Contracts are usually written for interest rates that are 1 or more points above the prevailing mortgage rates. It would not be unexpected to see Land Contract interest rates in the 5-7% range. The Seller is assuming the risk that you will default, so he is trying to mitigate that risk through the big down payment and the higher interest rate. Don’t be surprised if the Seller asks for as much financial information from you as a bank might. He is trying to assess the risk involved is selling to you on the Land Contract.

Land Contracts are most often written and balloon payment loans with a fairly short length, usually 3-5 years. That means that you will have to refinance and get a regular mortgage at the end of the Land Contract period. That is why people who are recovering from a foreclosure or bankruptcy use this method of buying, so that they can repair their credit enough to eventually get a mortgage. The payments during the Land Contract period are usually calculated using a 20- or 30-year amortization schedule, so the payments are about what they might be if you were able to get a mortgage at the interest rate offered.

There are some other things that you need to know about Land Contracts. One is that the actual deed

to the property does not pass to you until such time as the Land Contract is paid off. The deed is usually held in escrow by a title company until the Contract either is paid off or the Seller forecloses to take back the property.  The risk of foreclosure is still present in a Land Contract and the contract itself will have the terms defined under which the Seller may foreclose and regain possession of the property. That usually involves non-payment of the monthly “mortgage” payments to the Seller. The terms and conditions of the Land Contract also define the responsibilities of the Buyer to maintain insurance on the property and to pay the property taxes. There will be provisions in the contract for the Seller to foreclose if wither of those responsibilities is breached. There may be specific terms about how the Buyer is to prove to the Seller that those items are being kept up-to-date.

While the buyer is considered to be the new owner of the property, there will usually be some terms and conditions that may define restrictions on the Buyer as far as modifications to the property are concerned. These will usually not get so detailed and restrictive so as to prevent things like painting the interior or updating areas like the kitchen or baths; however, putting on major additions or tearing down existing improvement or outbuildings may be prohibited. Remember that the title has not yet passed from the Seller to Buyer and the Seller is using this property as the collateral for the loan; so, he has an interest in keeping the value of the property up.

Another thing to keep in mind is that all of the advice about doing a good home inspection still applies, as well as perhaps having a good appraisal done, too. If you write an offer to buy a property on a Land Contract, that does not mean that you ae just accepting it “as is”. The offer should contain off of the normal contingencies that a regular real estate sales contract off would have. That is where having a Realtor involved, even in a Land Contract sale is valuable. Your Realtor will use his standard Purchase Offer contract, which has all of the protections that you need already in it. If the home inspection reveals defects that you can’t live with, you should be able to negotiate with the Seller to have them repaired or the sale price modified to reflect what it will cost you later to get them repaired. You will also be protected for things like title defects, flood plain insurance requirements and other standard contingencies. Don’t think that, because this is a Land Contract sale, you don’t have a right to those protections. If the Seller won’t agree to use the standard real estate Purchase Agreement terms and conditions just walk away; he is an unreasonable Seller. There will be a separate Land Contract document later which you should review carefully and have an attorney look over for you. 

Land Contracts can be a win-win way for a Buyer who can’t qualify for a mortgage right now, but who has a steady income, to buy a property. It often provides those who when through a foreclosure

or bankruptcy a way to buy a new home. It is also a good way for self-employed people to buy, since they may not have (or may not wish to share) the kinds of financial records that the mortgage companies pike to see. Some Land Contracts are offered at rates that rival mortgage rates and buying using this financing method doesn’t have to be any different than buying with a mortgage.

I usually encourage the Buyers and Sellers to meet and get to know each other. That way both parties can assess what it might be like to do business with the other. If your first impression of the Seller is that he’s a hard-ass who would be a pain to deal with during the Land Contract period, I would ask you why you want to get involved with that type of Seller. You should also feel out the limits of what the Seller is willing to let you do to the property under the terms of the Land Contract. You seldom would ever get to meet anyone from your mortgage company with any real authority; however, in the case of a Land Contract, you are doing business directly with the Grand Poohbah, the guy with the authority to foreclose on you, if you mess up.

So, if you like a property that offers a Land Contract and that is the only way that you can afford to buy it; go for it. But go for it with your eyes open. You will need that hefty down payment and it will cost you more than with a regular mortgage; however, the Seller may be more willing than a banks to take a chance that you have your life straightened out now and can make the payments. Set your goal to get your financial house in order during the period of the Land Contract and be ready to get a mortgage when the balloon payment at the end comes due. Good luck!

The Seller made a counter offer to our offer, what happens now?

Understanding the Real Estate Process from A – Z – A Buyer’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 buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ – The Seller made a counter offer to our offer, what happens now? (Alternate FAQ – The Seller responded to our offer with a Sellers’ Response to Offer. What’s that all about?)

There are multiple things that the seller can do with an offer in hand. One obvious one is to just reject the offer, which could happen if the Buyer went in with a low-ball offer that offended the Seller. In that case you’re done. You will need to start all over and write a new offer, if you haven’t offended the Seller so much that he doesn’t want to deal with you at all any more.

Assuming that you didn’t offend the Seller with a low-ball offer there are a couple of ways that he

can respond to your offer. The most common way is for the Seller to make a counter-offer. In that case the seller will usually cross out the things in your offer that he doesn’t agree with (usually starting with the offer price) and write in what he desired instead and initial those changes. The changes may include changes to any or the terms and conditions of your offer, such as the possession that you ask for or the proposed closing date or your request for Sellers’ Concessions. Many times some of those terms or conditions may be as important to the Seller as the offer price.

So, maybe your offer was for 90% of the asking price, with a Sellers’ Concession for another 3%, and you wanted possession at closing. Maybe you specified a closing date that is 60 days out from the acceptance date and maybe you only put a small amount in as EMD and you are indicating that you will be financing 97% of the sale amount.

That’s a fairly weak offer to begin with, made worse by some of your demands. It would not be unusual for a Seller to come back and ask for an increase in your offer price and in the EMD. He might also either reject or modify downward what he is willing to contribute to your closing cost in the Sellers’ Concession. He may demand a closer-in closing date that is only 30-45 days from the acceptance date. He may also ask for a few days of post-closing possession. Those would all be reasonable requests by the Sellers.

By making a counteroffer the Seller has entered into negotiations with you and would not be able to accept other offers that he might receive, unless he retracts his counter-offer. The Sellers’ counter-offer makes your original offer dead. What has happened is that, instead of there being an offer from you to buy the sellers’ property for a specific set of terms and conditions that you had specified, there is now the Sellers’ offer to you to sell the property to you for a specific set of terms and conditions that he has specified. This new offer needs to be resolved one way or another before either you or the seller can move on. Just like in your original offer, there will be a deadline specified for a response after which the counter-offer become null and void.  Both the Buyers and Sellers should be aware of

those deadlines and both should demand that there be such deadlines so as not to create an “open ended” offer.

An alternative to a counter-offer that is used locally is called a “Sellers’ Response to Offer”. This is usually a document that has a letter-like structure, which is some form states the following:

“The Seller does not accept your offer of (date goes here) for the property at (address goes here); however, should you make the following changes to your offer and re-submit it the Seller would be predisposed to consider it more favorably. The Seller will continue to market the property and look at any and all offers.” Then the Seller would include a list of the terms and conditions that need to be changed.

Notice that the language in this response does not bind the Seller or Buyer into any negotiation process. The Seller has clearly stated that he is rejecting the original offer and offering suggestions for changes that are more acceptable to him. Even then, he is not saying that he will accept a new offer with those terms and conditions, just that the new offer would be more favorably considered. The Seller is free to receive, consider and even accept any new offers that he might get. I have had sales happen where the original Buyer made all of the suggested changes that the Seller wanted and still didn’t get the deal, because an even better offer came in while he was off making the changes.

Quite often what happens, after the initial offer is presented, is that a round or two of verbal negotiations may take place, either over the phone or via emails or test messages. Hopefully the agents involved are actually exchanging texts or emails, so that there is some audit trail of sorts of the back and forth involved. When all of the issues have been resolved the deal still needs to be put in writing and all parties sign off on it. One reason for using verbal negotiations is that the documents involved can get quite messy with all of the changes that might be made during the negotiations; plus, if the documents are faxed back and forth, they will become unreadable after about 3-4 exchanges of faxes. Scanning and emailing the documents works a little better for that.

It is difficult in the heat of negotiations, but necessary, to try to put yourself in the other party’s shoes

and see things from their perspective. Everyone involved in the deal really wants it to succeed, but each party is protecting their own interests and may not grasp or appreciate your point of view or your interests.   Eventually, if you keep the deal alive long enough you will usually arrive at a win-win point where everybody is happy; or at least to a point where everyone is equally unhappy but willing to proceed.

Congratulations you have a deal!