Today, I had someone call and want to make an offer on one of our listings. Exactly what we’re in business for! Here’s a non-exhaustive* list of what you’ll need to give me in order to get the process going:
1. How will you take title? In other words, I need your legal name.
2. What’s your mailing address, email, phone number, and fax number? This is primarily so that the title company can send you their title commitment and all the restrictions, easements, etc. that affect the property.
3. How much is the offer and how are you going to pay for it?
This is where people who have not been working with a buyer representative sometimes are surprised and can get a little offended. What you need to keep in mind is that, from the Seller’s point of view, he/she wants to know, “Can this buyer perform?” So …
If the intent is to buy with cash, you’ll need to give me either a copy of a recent bank statement that shows that you have an account balance that is equal to your offer price or you can ask your bank to provide a letter stating the same information. Most banks are more than willing to write a letter for you.
If the intent is to finance the transaction, you’ll need to contact your bank, mortgage company, or credit union, make application, have them run a credit check, and, if you meet the lender’s criteria, they will send me a “pre-qualification letter” that I can submit with the offer. Basically, what a pre-qualification letter says is that the lender is agreeing that they will lend you the money IF you substantiate all that you have told them about your finances (and continue in the same condition through closing – e.g., don’t go out and buy a car or furniture without making sure it won’t affect your ability to purchase the property) and IF the property conforms to their standards.
4. You’ll need to be ready to issue a check for the earnest money and option fee (if applicable – see below). Earnest money typically is $500, $1000, $1500 and up … depending upon the purchase price. It’s what shows that you are an “earnest” buyer. Generally speaking, it will NOT be refunded if the deal falls through unless there are title issues. The only exception to that is if you “opt out” during the option period (again – see below) of if your financing falls through during the financing period. The Financing period is the time period within which you must supply the lender with all of your financial information and get the final “OK” from the Lender.
5. Do you want to do inspections? If so, you’ll need to purchase the right to do so. Typically the right to do so costs $10 p/day and usually lasts from 7-14 days. This 7-14 day time period is what is generally referred to as the option period. It’s called the option period because, if you find something surprising during that time, you can “opt” out and all you lose is your option money. If there are no surprises and you want to move forward, the option fee typically is applied to the purchase price. Another alternative (if there are surprises found during inspections) is to go back to the Seller and ask for concessions or repairs.
Keep in mind that there are different kinds of inspections: A general home inspection, a well inspection, a septic inspection, etc. Also, if you are buying a raw piece of land, an inspection period usually does not apply. And … if you are asking for a REALLY great deal or buying AS IS, you may gain leverage in your negotiations by not asking for an option period. For example, my husband and I have gotten some REALLY REALLY good deals because we offered cash with no option period, and close in 2 weeks. You just have to weigh what you are trying to accomplish.
6. Are there any other conditions that apply? (e.g., Sale of current home, owner financing, etc.)
7. Last but not least, when do you want the closing to be? For a property that is financed, you are looking at between 4-6 weeks. It will vary depending upon the lender’s backlog. For an all cash deal, it just depends upon whether a survey is needed or if there are inspections. Typically, 2-4 weeks.
The best part of my job is drawing up contracts. It means we are doing are job … helping people buy and sell property.
There are a lot of things that can go wrong during the “closing process.” My job is to walk you through the entire process, anticipate the problems that can occur and then resolve them.
So … Are you ready to put an offer in? Call me and we’ll get the ball rolling.
*Obviously, I am just covering contract basics here. There are a lot of other legal issues covered in the standard TAR contract. If you want more information, just ask me and we can go over it in more detail.Click Here to Respond with Your Moos and Views
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April 3rd, 2013 categories: Real Estate Stats & IssuesClick Here to Respond with Your Moos and Views
March 23rd, 2013 categories: Real Estate Stats & Issues
With all the talk of Cyprus collapsing, here is a good primer on what is happening in the economies of the European nations and why.Click Here to Respond with Your Moos and Views
If you’re self-employed or own a small business, getting a mortgage will become a whole lot harder soon.
March 15th, 2013 categories: Real Estate Stats & Issues
Check out this interesting article:Click Here to Respond with Your Moos and Views
October 18th, 2012 categories: Real Estate Stats & Issues
Here are some issues that will disqualify standard financing:
- Electrical – Electrical service will need to be upgraded/fixed if wiring is exposed, outdated (below 100 amp service) or a fire hazard (cloth wiring).
- Plumbing – Leaks, corrosion, outdated or inadequate plumbing systems.
- HVAC – Must be able to heat and cool the house to certain temperature standards.
- Lead paint and Asbestos- these materials must be disposed of properly and brought current.
- Exterior issues- Roofs, windows, and siding must be in working condition and leak free. Peeling paint must be scraped and repainted.
- Well and septic- Must be in working condition and conforming with safety standards.
- Foundation- Slabs can not be cracked and un-level. Pier & Beam must support the structure and be level.
- Unfinished areas- Missing railings, unfinished entries, exposed wiring, unfinished floors , missing insulation, drywall, etc. will not meet lending requirements.
Here’s an excerpt of an article entitled “Mortgage Money’s Cheap if You Can Get It,” from Inman News which gives data on who is qualifying for new mortgages:
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Ellie Mae Inc., which provides mortgage origination software to lenders, reports that the average FICO score for mortgages approved in August was 750, with borrowers making down payments averaging 21 percent and having front-end debt-to-income ratios of 23 percent.
The average FICO scores for purchase mortgages eligible for purchase and guaranteed by Fannie Mae and Freddie Mac was 763, while FICO scores on FHA-backed purchase loans averaged 700.
FICO scores range from 300 to 850 and, as syndicated columnist Ken Harney noted in the Washington Post, 78.5 percent of all consumers have scores between 300 and 749. That means only about one in five consumers have FICO scores equal to the average score of borrowers closing on Fannie and Freddie loans in August.
Fannie Mae Chief Economist Doug Duncan told Harney that underwriting could loosen up as banks begin to shed fees they’ve tacked on to mortgage quotes to address risk in the aftermath of the housing bust. Duncan expects lenders’ fears about buyback demands from Fannie and Freddie and regulatory requirements stemming from the Dodd-Frank financial reform bill may also dissipate.
“In the meantime, don’t look for any dramatic relaxations,” Harney concludes. “To get a mortgage, you’ll generally need high scores, big down payments — except for FHA, which accepts 3.5 percent down — plenty of time and reams of documentation.”
July 10th, 2012 categories: Real Estate Stats & Issues
Many people are asking questions about how Obamacare is going to impact real estate sales. The National Association of Realtors has issued the following information on that subject in a Q&A format:
Health Insurance Reform: Frequently Asked Questions (FAQs)
Q-1: Is there a 3.8% real estate “sales tax” or a transfer tax created in health care bill?
A: No. There is neither a real estate “sales tax” nor a real estate transfer tax under any federal law. The Internet has generated several viral items describing such a tax. Those Internet postings are totally false. The 2010 health care legislation did create a new 3.8% tax, but it applies only to a limited group of taxpayers.
Q-2: So who will be subject to the new tax? When is it effective?
A: The new 3.8% tax will apply to the “unearned” income of “High Income” taxpayers. The new Medicare tax on unearned income will take effect January 1, 2013. Proceeds from the tax will be allocated to shoring up the Medicare fund.
Q-3: Who is a “High Income” Taxpayer?
A: Those whose tax filing status is “single” will be subject to the new unearned income taxes if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than $250,000 will also be subject to the new tax. (The AGI threshold for married filing separate returns is $125,000.)
Q-4: Are the $200,000 and $250,000 thresholds indexed for inflation?
A: No.Thus, over time, more individuals may become subject to this tax.
Q-5: What is “unearned” net investment income?
A. Unearned income is the income that an individual derives from investing his/her capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses if the investor is not an active participant in the business. The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. (Hence the term “net” investment income.)
Q-6: So the new tax will apply to rents from investment properties that I own?
A: Maybe. Remember that net investment income includes only netrental income. Thus, gross rents would not be subject to the tax. Rather, gross rents would be reduced (as they are under the income tax) by all allowable expenses, including depreciation, cost of repairs, property taxes and interest expense associated with debt service. AGI includes net income from rent, so if your AGI is above the $200,000/$250,000 thresholds, then the rental income might be subject to the tax.
For many investment real estate owners, the net rents will be the same as or similar to the amounts reported on their Schedule E, filed with their Form 1040 Income Tax Return. (For calculations, see Q-7, below. See also Q-8 through Q-12 related to capital gain from sale of principal residence, losses on sale and to vacation homes, below.)
Q-7: Does the tax apply to the yearly appreciation of an asset?
No. Capital gains are subject to this new tax only in the year when the asset is sold. The amount of the gain will be measured in the same way that it is for income tax purposes. This rule applies to real estate and all other appreciating capital assets. Net capital gains are taxable only in the year of sale.
Q-8: How is the new 3.8% Medicare tax calculated?
A: The new 3.8% Medicare tax is assessed only when Adjusted Gross Income (AGI) is more than $200,000/$250,000. (See Q-2 above.) AGI includes net income from interest, dividends, rents and capital gains, as well as earned compensation and several additional forms of income presented on a Form 1040 Income Tax Return.
The tax is NOT imposed on the total AGI, nor is it imposed solely on the investment income. Rather, the taxable amount will depend on the operation of a formula. The taxpayer will determine the LESSER of (1) net investment income OR (2) the excess of AGI over the $200,000/$250,000 AGI thresholds. Thus, if net investment income is the smaller amount, then the 3.8% tax is applied onlyto the net investment income amount. If the excess over the thresholds is the smaller amount, then the 3.8% tax would apply only to the excess amount.
Q-9: Give me an example.
If AGI for a single individual is $275,000, then the excess over $200,000 would be $75,000 ($275,000 minus $200,000). Assume that this individual’s net investment income is $60,000. The new 3.8% tax applies to the smaller amount. In this example, $60,000 of net investment income is less than the $75,000 excess over the threshold. Thus, in this example, the 3.8% tax is applied to the $60,000.
If this single individual had AGI if $275,000 and net investment income of $90,000, then the new tax would be imposed on the smaller amount: the $75,000 of excess over $200,000.
Rules of thumb for predicting the application of this tax year to year are not readily determinable, largely because the proportion of net investment income compared to AGI will vary from year to year and from individual to individual.
Q-10: Will the $250,000/$500,000 exclusion on the sale of a principal residence continue to apply?
A: Yes. Any gain from the sale of a principal residence that is less than $250,000 (individual) or $500,000 (joint return) will continue to be excluded from the income tax. The new 3.8% tax will NOT apply to this excluded amount of the gain.
Q-11: Will the 3.8% tax apply to any part of the gain on the sale of a principal residence?
A: Maybe. The new Medicare tax would apply only to any gain realized that is more than the $250K/$500K existing primary home exclusion (known as the “taxable gain”), and only if the seller has AGI above the $200K/$250K AGI thresholds.
So, for example, if the taxable gain was $30,000 and a married couple had AGI (which would include the taxable gain) of $180,000, the 3.8% tax would not apply because AGI is less than $250,000. If that same couple had AGI of $290,000, then the application of the 3.8% tax would be subject to the same formula described above. The $30,000 taxablegain on the sale would be less than the $40,000 excess above $250,000 AGI, so the $30,000 gain would be subject to the new 3.8% tax.
Q-12: Is rent from a vacation home subject to the 3.8% tax? And what about the gain on sale of a vacation or rental property?
A: The application of the tax will depend on whether the vacation home has been rented out, the period for which it has been rented and whether the property is solely for the enjoyment of the owner. If the owner has rented the home out to others, then the 14-day rent exclusion will continue to apply. Thus, if the owner rents the property to others (including family members) for 14 or fewer days, there would be no net investment tax. (Note that no deductions for expenses would be available, as under current law.)
If the home has been rented to others (including family members) for more than 14 days, then the rents (minus related expenses) would be considered as part of net investment income and could, depending on AGI and the calculations described above, be subject to the new tax.
If the vacation home has been used solely for personal enjoyment (i.e., there is no rental income and no associated expenses), then a gain on sale would be treated as net investment income and could be subject to the tax, depending on AGI. Similarly, if the property had generated rents, any net gain on sale could also be included in net investment income. The amount of the tax (if any) would depend on the calculation formula, above in Q-8 and Q-9.
Q-13: My rental property generates a net loss each year. How will those losses be factored into the new tax? And what if I have net capital losses when I sell?
A: Net losses from rents and net capital losses reduce AGI. Thus, the losses themselves would not be subject to the tax. If, after losses, AGI still exceeds the High Income thresholds, the 3.8% tax would still apply to any net rental, interest or dividends income.
Q-14: I earn all of my income from real estate investments that I own and operate myself. Will my rents and gains be subject to the new tax?
A: No.If the ownership and operation of real estate you own is your sole occupation, then those activities are what’s called your “trade or business.” Income derived from a trade or business is not subject to the new 3.8% tax. If the owner of rental properties has a “day job,” however, real estate investments are not considered as a trade or business, but are rather considered as investments, even if they are a major source of income.
Many Realtors engage in business activities are that are the “typical” selling, leasing and brokerage endeavors usually associated with the term “Realtor.” If they also own rental real estate assets as part of their own personal investment portfolio, the net rents from that portfolio could become subject to the new 3.8% tax on net investment income, depending on AGI.
Q-15: Will “High Income Filers” lose any portion of the Mortgage Interest Deduction?
A: No. The mortgage interest deduction is unchanged. No cap was imposed on any itemized deductions.
Q-16: Why is this new tax called a “Medicare tax?”
A: The revenues generated from this tax will be allocated to the Medicare Trust Fund that is part of the Social Security System. That fund is currently on shaky financial footing. These additional revenues are intended to shore up the Medicare Trust Fund.
Q-17: How will this new tax affect marginal (the highest) tax rates when it is combined with existing law and with the possible expiration of the Bush tax cuts enacted in 2001?
A: Marginal tax rates are the tax rates assessed on the “last” dollars included in taxable income. If the Bush tax cuts are allowed to expire, then the marginal rates for upper income individuals will increase, particularly for capital gains income. The chart below reflects the impact of those changes, presented based on implementation of current law effective dates.
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I saw this entry on the National Association of Realtor’s Facebook Page and thought it was interesting.
According to the 2011 NAR Profile of Home Buyers and Sellers, beating a market does not rank high on the reasons people move. “The biggest factors influencing choice of location were quality of the neighborhood, cited by 67 percent of buyers, convenience to jobs, 49 percent, overall affordability of homes, 45 percent, and convenience to family and friends, 39 percent,” says Walter Molony, a spokesman for NAR. “Other factors with relatively high responses include neighborhood design, 32 percent, convenience to shopping, 28 percent, quality of the school district, 27 percent, convenience to schools, 22 percent, and convenience to entertainment or leisure activities, 21 percent.”Click Here to Respond with Your Moos and Views
January 20th, 2012 categories: Featured Properties
Hard to find horse property in desirable Center Point subdivision with end of road privacy. House is well taken care of and full of upgrades and updates: masonry, all sides, granite in kitchen and baths, new light and plumbing fixtures, walk in shower, lots of custom cabinets, new tile, stone fireplace, new roof in 2009, new exterior HVAC unit in 2010. Additional features creating nice curb appeal, ambience and convenience: gated entrance, mature trees, circular drive, attached 2 car garage, covered porch in back, and nice landscaping. Outbuildings include carport and small barn with 2 stalls. Property prepped for round pen and arena – just add the fence panels. Limited restrictions in neighborhood. Schedule your showing today! 830-995-2511.Click Here to Respond with Your Moos and Views