Homebuyer's Guide To The
Real Estate Transaction
Agency Law
Mike's Buyer-Client Services
How do I find the right home?
Loan Application
Appraisal & Home Inspections
Closing & Settlement
I have
developed this information to answer some of the many questions I'm
are sure you have, and to help avoid surprises during the purchase of
your new home. The booklet contains explanations of real estate
procedures, and provides you with what I hope are some useful tips.
During any purchase or sale, a great deal of information is exchanged
in a very short time, and this package will enable you to review some
important details at your leisure.
I will be in regular
contact with you during the entire process, and will work very hard to
keep your transaction as stress free as possible. I believe that
finding a home should be a happy and fun process for everyone. Please
don't hesitate to ask questions.
Agency Law - Who Represents Whom?**
In a routine real estate
transaction, real estate agents normally represent the party who has
signed an agreement with them to market their home, i.e. the Seller.
It is important that you, as a purchaser of real estate, fully
understand that all Realtors legally represent the seller, and must
protect the seller's best interests at all times. Realtors have a
responsibility to you to be honest and ethical in presenting property
to you and are required to divulge all KNOWN facts and defects about a
property in order for you to make an intelligent buying decision.
However, at no time can they give you any
information detrimental to the seller, and they must pass on to the
seller any information they have about you, such as your willingness
to pay more for a property than your offer indicates. You may,
however, enter into a written agreement with the Agent to have him or
her act on your behalf. This is called Buyer Agency or buyer
representation.
In my business I choose
to offer Buyer Representation, and will specifically represent you, as
my client, in the buying process, if you wish. As a member of the Real
Estate Buyer's Agent Council (REBAC), I am skilled in providing
excellent representation for buyers. The law requires that we have a
written agreement, stating our mutual obligations. Under such an
agreement, we have a legal duty to divulge to all parties that we are
working under a "buyer agency" agreement. Under such an agreement,
your interests will be represented. Costs are typically paid from the
sellers' funds at closing.
**Alabama Real Estate
Law requires that both buyers and sellers of real estate sign an
Agency Disclosure Form.
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Mike's Buyer - Client Services
As Your Buyer's
Agent, I Will:
-
Meet with buyer to
determine specific housing needs and budget.
-
Provide mortgage
qualification assistance to facilitate the mortgage application
process.
-
Conduct on-going
search of housing availability, through the Multiple Listing
Service.
-
Contact “For Sale By
Owners” and builders as appropriate on your behalf.
-
Schedule appointments
and accompany buyer on all property showings.
-
Complete a
professional comparative market analysis on any home selected for
purchase, providing factual data on recent comparable sales to
assist the buyer in the offer and negotiation process.
-
Assist buyer in
structuring a Purchase Offer and represent buyer's interests in all
negotiations with the seller, maintaining absolute confidentiality.
-
Schedule appointments
to provide access to the property for inspectors, appraisers,
repairs etc.
-
Manage the closing
process, from contract to closing to ensure that all necessary
documentation is completed and available before closing date.
-
Provide a free Buyers
Guide.
-
Provide a free
Relocation Package if required.
-
Follow client's
instructions regarding any transaction, providing such instructions
are legal and ethical, and maintain client's confidentiality.
-
Disclose all known
facts that could affect the transaction.
-
Provide client with
copies of all documents.
-
Accompany buyer to the
closing.
Traditional Customer Services
If you elect not to have
your own representation, and opt for the traditional service, wherein
your Realtor represents the Sellers, there are several services which
may be provided. The following list outlines a few of those services:
-
Consultation to
determine your housing needs
-
Suggest lenders who
have performed well in the past
-
Provide access to all
homes currently available for sale through local brokers
-
Show properties
-
Estimate closing costs
and monthly payments
-
Make appointments and
schedule conferences
-
Clarify buyer's needs
vs. wants, and affordability
-
Explain settlement
procedures
-
Schedule property
inspections
-
Transmit offer and act
as liaison between the buyer and the seller
-
Disclose all known
facts regarding the condition of the property (as outlined in the
property condition disclosure from the owner)
-
Monitor contract
deadlines to ensure a trouble-free closing
-
Accompany you to the
closing
As you see, there are
many services provided by Realtors for Buyers. However, unless you are
specifically represented under a Buyer Agency Agreement, we cannot,
under law, disclose anything of a confidential nature about the
seller, i.e. what is his motivation for moving, what will he "really
take" for his property, etc., and in all traditional negotiations our
fiduciary duties lie in obtaining the best possible terms for our
Principal, the Seller.
Agents are also required
to pass on to the seller anything we learn about the buyer's position,
for example, his willingness to pay more for the property than his
offer suggests. It is therefore important that you realize that you
should be careful what you divulge to any agent who is not
representing you as a client.
Should You Buy a Home?
Buyers frequently ask
the question, "Should I buy a home?", or more specifically, "Should I
buy a home today?". I have always felt that the answer to that
questions is almost always an unqualified “Yes!”. The reasons are
relatively simple.
First of all, the price
of new and resale homes has steadily increased ever since the
mid-1940's. The local markets may vary - going up and down with the
economy, but the general trend has consistently been rising values.
Delaying the purchase of a home simply allows prices to go higher.
The second item that
concerns the home buying consumer is interest rates. We are still
enjoying reasonable interest rates, so any delay could mean paying
significantly higher interest rates in the not too distant future.
Do
You Want to Gamble with Interest Rates?
1/4% = adds $.20 per
thousand per month on a 30 year mortgage
1% = adds $.80
Therefore, a 2% change
in interest rates equals $1.60 for every $1,000 borrowed!
Time is Money! Waiting
to buy could cost you more money than it's worth.
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How
Do I Find the Right Home?
Some people feel that
going through the Real Estate Classified Section and finding an ad
that appeals to them is a good way to find a house. However, there is
a better way. That is to sit down with your Real Estate Professional,
and discuss your price range, desires, preferences, needed amenities
and everything you really want and need in your next home. You will
then have access to the entire Multiple List System which covers all
the properties listed for sale. You can leisurely select the homes
that you would like to see. This consultation, is the first step in
your search for a home, and one I always
perform before we look at a single house. This helps me to pick just
the right homes to show you. By setting up appointments, you can see
these homes in a short period of time and have a better idea of what
is right for you. Jot down notes as you go from one home to the next,
and feel free to discuss with me all of your likes and dislikes.
What
Price Home Can I Afford?
Most people use
financing of one type or another to buy a house, since few of us can
afford to pay for a home in cash. The amount you can afford will
depend upon how much cash you have for your down payment, plus the
amount of loan you can afford according to your income and debts.
Before viewing any homes I will set up an appointment with a lender
for you, so that you have an up-to-the-minute estimate on all your
costs, and your qualification amount. Many lenders can pre-approve
your loan before you go shopping for a house. This puts you in a very
strong position when negotiating with a seller.
We've
Found Our Dream House. What Now?
Once you've found the
right home you will want to review detailed information about the
Purchase Agreement and decide what your offer will be. I will review
the contract with you, and together with your lender will provide you
with an estimate of your projected costs, based upon the offer you
make. If the house was built before 1978, Federal law states that you
must also receive a Lead Paint disclosure, and explanatory booklet.
Contract Negotiations
How do you make an offer
to purchase? Once a specific property has been selected, in order to
buy the property several things must be satisfied: the offer must be
in writing, there must be mutual agreement between all parties, and
there must be something of value, or “consideration” in order the make
the offer enforceable. In Alabama the consideration typically takes
the form of a cash security deposit or “earnest money check.”
As your Real Estate
Consultant, I will complete the Purchase Agreement with you. I will
explain the purchase agreement to you, and the various contract
clauses that are placed within a contract for your protection. I will
also provide you with market data in order for you to make a
knowledgeable decision. If I am representing you as your Buyer Agent I
will be glad to give you an opinion as to whether I believe the home
is priced in line with the current market, and to help you formulate
your offer in terms which are beneficial to you.
When you have signed the
Agreement to Purchase, it will be presented to the seller, either in
person, or through the Listing Broker. Following presentation several
things may occur:
-
Once the contract has
been presented to the seller, it may be accepted
unconditionally. Congratulations, you have just purchased a home, or
-
-
The contract may be
accepted in part by the seller, but other portions of the contract
altered. This is called a " counter offer". You are not obligated to
the terms of the counter offer. At that point you have the option of
accepting, countering, or rejecting the counter offer, or -
-
The contract may
simply be rejected.
Each Agreement to
Purchase has a definite expiration time and date. In the event the
seller takes no action prior to the expiration time/date, the contract
is considered to be rejected. Please remember that any change to the
contract constitutes a brand new offer which may or may not be
rejected. I'll be glad to discuss this further with you.
If either party required
to sign the Purchase Agreement and attend the Act of Sale is
unavailable, we will arrange with an attorney to have a Power of
Attorney drafted in order to complete the sale. POWER OF ATTORNEY
DOCUMENTS ORIGINATED IN OTHER STATES MAY NOT BE SUFFICIENT. CHECK WITH
YOUR ATTORNEY.
Deposits
Once an Agreement to
Purchase has been completed and signed, you should be prepared to
provide us with a check for the agreed upon deposit. Typically,
purchasers will pay a cash deposit to demonstrate their good faith.
This may be in the form of a personal check or cash. The deposit will
usually be held by the Listing Broker in his Escrow Account, and will
be credited to you at the closing.
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Loan
Application
Unless you are paying
all cash and the sale does not involve a mortgage, you will be
required to make official loan application, usually within five
working days of the contract acceptance. Some lenders will allow you
to make loan application before you find your house, and will
sometimes approve your loan application in advance. Pre-approved loans
can be a great advantage when negotiating your offer, as the seller
will feel very comfortable accepting your offer if he knows that your
loan is already approved.
The loan processor will
usually require a great deal of personal, financial and employment
data. You should be prepared to provide two recent pay stubs, past two
years tax returns, bank account numbers, approximate account balances,
credit card numbers, creditors' addresses, and personal references.
If you wish I will
assist you in finding the best rates and terms. You are not obligated
to use any suggested mortgage company. However, I will, if you wish,
research the market and make recommendations based on the best terms
and service. The choice, however, remains yours.
In addition to providing
your lender with all the information required, you should be prepared
to pay for the appraisal fee and credit report when you make loan
application. As costs change over time, ask for current fees.
Currently, the amount is approximately $350.
For purchasers who are
self employed, the lender will require that you furnish a great deal
of documentation to support your income history. It is recommended
that you contact your lender immediately to obtain a list of current
requirements. It is certainly wise to do this before you begin your
search for a new home.
Depending on the
activity in the real estate market, loan approval usually takes
between 7 and 45 days. Your processor will provide you with an
estimate of costs and a loan commitment for up to 60 days. This
commitment will lock you into current loan terms.
In real estate matters,
TIME IS TRULY OF THE ESSENCE! In order to ensure a smooth sale, loan
application must be completed in a timely manner, and all dates on the
purchase agreement strictly adhered to. As the lender verifies the
information you have provided, he will sometimes ask you for more
information. Please make sure that you provide all additional
information promptly. This will help in making the loan process as
speedy as possible.
Survey
When a mortgage loan is
involved in a purchase, your lender will usually require a survey of
the property. A survey is simply a one-dimensional drawing as if you
were looking down onto the property from above. A survey provides:
-
Lot dimensions
-
Easements
-
The position of the
home on the property, where applicable
-
Location of out
buildings, fences, pools, etc.
-
Any encroachments
-
Flood Zone
It is strongly
recommended that a survey be obtained on all purchases of real estate,
whether or not one is required by the lender. A survey can help
eliminate many boundary disputes and ensures that you are purchasing
the correct property.
Even in cash sales
purchasers are encouraged to obtain a current survey, simply to
protect themselves. Costs vary according to the property, but a
typical residential survey is in the $200 - $300 range
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Appraisals
An appraisal is ordered
on almost all real estate sales covered by a mortgage. The mortgage
company orders an appraisal upon initial loan application.
The cost of an appraisal
is normally borne by the purchaser and is customarily paid for at the
time you make loan application. The cost is usually around $300.
Appraisals normally take one to two weeks to complete. During very
active market periods, the time it takes for an appraisal can vary
significantly. If an appraisal is not required, should you get one
anyway? An appraisal is one person's opinion of the value of a
particular property on a specific date. An appraisal gives some
assurance to the purchaser that the price they are paying represents a
fair market value and appraisals are always recommended.
Inspections
When purchasing real
estate with improvements (dwellings, barns, pools, etc.) it is
incumbent upon the purchaser to thoroughly inspect the property. Most
Purchase Agreements allow for inspections by the purchaser, and/or his
representatives. The cost is normally borne by the purchaser. A basic
professional home inspection usually costs in the $200 - $450 range
depending on the property. Soil testing, radon testing, lead paint
testing and other specialized tests will cost more.
The Agreement usually
specifies that inspections be completed within 10 days of contract
acceptance, and items of concern to you should be addressed in writing
during this time. Inspections may include, but are not limited to,
home inspection, roof, plumbing and electrical systems, structural,
square footage, pool inspection, well and septic system inspections,
etc. The Purchase Agreement requires the property to be inspected for
termites. The Seller will be required to furnish a termite letter at
closing from a licensed termite inspection company.
Purchase agreements may
specify that all systems and appliances are to be in working order on
the date of the act of sale. In that case, it is incumbent upon the
purchaser to conduct an appliance and systems check approximately five
days prior to closing and to ensure everything is as it was when the
purchase agreement was signed. The purchaser will be required to sign
a statement that everything was checked and was in working order, or
the exceptions so noted.
Please note that the
agreed price for the property will be based on its existing condition
and the seller is not obligated to make any repairs discovered by an
inspection, unless so specified in the Purchase Agreement. The
inspection should be for the purpose of determining the physical
condition of the property so that the buyer can make a knowledgeable
decision to purchase, and not for the purpose of establishing a list
of cosmetic repairs for the seller to perform An inspection report
should not be considered an opportunity to re-negotiate the contract
unless a major defect is discovered. You may then have a valid reason
to ask for repairs or for release from the contract.
I STRONGLY RECOMMEND
INSPECTIONS FOR YOUR OWN PROTECTION.
Insurance
Prior to closing, you
MUST be able to show proof to your lender that you have obtained
adequate insurance on a property with improvements. There are so many
different types of insurance policies available that it would be
impossible to cover them all in any detail. It does pay, however, to
shop around to obtain the best possible price and terms. You may wish
to investigate the difference between simple coverage and actual
replacement cost coverage. Replacement cost coverage costs a little
more, but the coverage escalates with the value of the home. This
could be a significant advantage in the future. Homeowners policies do
not usually cover damage caused by rising water, and your lender may
also require that you carry flood insurance on the property. If flood
insurance is not required by the lender, it is still wise to purchase
it, and it is relatively inexpensive. As we are located in an area
which may be affected by tropical weather systems it is a prudent
measure. Do not wait until the last minute to begin researching your
home insurance options.
Title
Insurance
At the closing table you
will notice that, if there is a mortgage involved in the sale of the
property, you will probably have to split the cost of an "an owner's
title insurance policy." This is a cost that is normally split between
the purchaser and seller and covers the lender and the purchaser in
the event there is a title problem in the future.
Reasons to Buy Owner's Title Insurance
-
Conveyances altered
before recording
-
Instruments executed
under fabricated or expired Power of Attorney
-
Fraud, duress or
coercion in securing essential signatures
-
Deeds delivered after
death of grantor or grantee, or without consent of grantor
-
Invalid, suppressed,
undisclosed and erroneous interpretation of wills
-
Undisclosed or missing
heirs
-
Deeds by persons of
unsound mind
-
Deeds by minors
-
Deeds by persons
supposedly single but secretly married
-
Birth or adoption of
children after date of will
-
Mistakes in recording
legal documents
-
False representations
in appointment of Guardians and Administrators
-
Undisclosed community
property rights
-
Liens for unpaid
estate, inheritance, income and gift taxes
-
Destruction or
mistakes of records which may later appear
-
False or misleading
statement of fact
-
Tax titles invalid
because of irregularity of proceedings, reversals of court decisions
-
Defective foreclosures
of mortgages
-
Old unsettled estates
-
Errors by
administrators and executors
-
Insufficient evidence
to establish title by inheritance
-
Falsification of
records
-
Illegal acts of
trustees
These are just some of
the problems which may arise after a sale. Of course, the vast
majority of sales are completely unencumbered by any defect in the
title, but the relatively low cost of owner's insurance can bring much
needed peace of mind.
Taxes
and Homestead Exemption
Madison County has a
Homestead Exemption that is applied to all primary residences. As you
are probably aware, homes are assessed for tax purposes. Once your
Homestead Exemption is applied for, your taxes will be 10 % of the
assessed value x the millage rate. Application for the exemption may
be made at the Assessor's Office. Your closing attorney will explain
the application process in more detail.
REMEMBER, FAILURE TO
APPLY FOR HOMESTEAD EXEMPTION COULD COST YOU A GREAT DEAL OF MONEY!
Mortgage Payments
This remains an area
where many homeowners are confused. When paying RENT, the tenant pays
in advance of actually renting the property. When you close on the
home you are buying, the first full payment does not become payable
until some 30 to 45 days later. However, at closing you will pay
interest from the date of closing until the end of the month in which
the property is closed. You then “miss a month” and your first full
payment becomes due on the first of the subsequent month. The
confusion exists primarily when the property is sold. Simply remember
that your payment is after the fact,rather than before the fact. For
example, a mortgage payment which is due on the first of August pays
the interest for July.
Closing Costs
The term “closing costs”
covers a multitude of fees which are involved in any real estate
transaction. The lender will have fees which you will be responsible
for paying, and the closing attorney will also have fees for
researching the title, preparing paperwork, etc. A simple rule of
thumb to follow is to ask who is responsible for which cost. The
following are some items that are normally considered purchasers
closing costs.
-
Purchaser's attorney
fees
-
Title Search or
Abstract
-
Recording Fees
-
Lender's Title
Insurance
-
Purchaser's Title
Insurance
-
Document preparation
The following items are
also included in the term "closing costs" and are fees involved in
obtaining your loan:
-
Discount points
-
Origination Fee
-
VA funding Fee
Pre-Paid Expenses
What are "pre-paids"?
This is a description that simply means TAXES AND INSURANCE. In order
to purchase a home, a buyer must have sufficient cash available, in
addition to his down payment and closing costs, to pay for
approximately 15 months of home owners insurance and 3 months of
taxes. There are few, if any, loan companies that will permit a seller
to pay for a purchaser's pre-paid items.
Home
Warranty Plans
When investing in a
home, be it new or previously owned, it is always a good idea to have
some type of warranty placed on it. There are several Homeowners
Warranty Plans available. They are similar, in that they all cover
mechanical items only and not structural items. Typically, plans cover
air conditioning units, heating units, electrical and plumbing
systems, built-in appliances, etc. Some restrictions apply to each
plan, and each plan has some form of deductible.
Sometimes, sellers offer
a Home Warranty Plan with the home, in which case the seller pays for
it. However, in the event a seller does not provide a home warranty
the purchaser can buy one. The warranty plan normally runs for one
year from the date of purchase. Some plans are renewable. Costs vary,
but typically are in the $350-450 range. You may purchase additional
coverage for such things as swimming pools and spas.
Please understand,
machines being what they are, an appliance or air conditioning unit
may work perfectly one day and fail the next. There is usually no
warning when a machine is about to fail, and it would be most
difficult to prove that a seller had prior knowledge that something
was defective. The warranty plans have saved homeowners millions of
dollars.
Imagine, should an air
conditioning compressor fail, the repair could cost hundreds of
dollars to repair or replace. For the simple payment of a small
deductible, the compressor may be repaired or replaced.
HOME WARRANTY PLANS ARE
WORTH THEIR WEIGHT IN GOLD!
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What
Happens at the Closing or Settlement?
This is the time when
the buyers, sellers, real estate agents and the lender's
representative, meet to sign the final papers to transfer the title
from one owner to the next. At this time the buyer brings a check for
the cash down payment and closing expenses, the bank brings the check
for the amount of the loan, and the seller brings the keys to the
house. The seller signs the title (or deed) over to the buyer. Other
documents relative to Federal law are signed by both the buyers and
sellers, and a settlement sheet is drawn up so that all parties
understand their costs. If a loan is involved, there will be several
papers relating to the loan to be signed by the purchasers. All costs
will be shown on the Settlement Statement. This form is furnished to
give you a written statement of your actual settlement costs. If
possible, I will review the settlement statement and closing
procedures with you prior to closing. Typically, when the you leave
the table, you will have the keys to the house, you will have signed
the mortgage and you can take possession of your new home!
WHO PAYS FOR WHAT? Many
of these items are negotiable and one party or another may pay them.
| ITEM |
PURCHASER |
SELLER |
| Down Payment |
X |
|
| Deposit |
X |
|
| Discount Points |
X |
|
| Origination Fee |
Negotiable |
|
| VA Funding Fee * |
X |
|
| Loan Application Fee |
Negotiable |
|
| Appraisal Fee |
Negotiable |
|
| Survey Fee |
Negotialble |
|
| Title Search/Abstract |
Negotiable |
|
| Lender's Title Insurance |
1/2 Buyer |
1/2 Seller |
| Attorney Fees |
Negotiable |
|
| Recording Fees |
Negotiable |
|
| Tax Certificates |
Negotiable |
|
| Homeowners' Warranty Plan |
Negotiable |
|
| Real Estate Commission |
Negotiable |
Typically Seller |
| Termite Inspection |
|
X |
| Underwriting Fee** |
Negotiable |
|
| Tax Service Fee *** |
Negotiable |
|
* In VA sales, the VA
Funding Fee can be paid by the purchaser, paid by the seller if he
agrees, or the purchaser can include the fee in the mortgage amount.
** In FHA and VA sales
the underwriting fee must be paid by the seller
*** In FHA and VA sales,
the tax service fee must be paid for by the seller.
Reminder: This table
represents costs NORMALLY paid by either party. Almost anything is
possible, provided all parties agree and it is within the law and
complies with the mortgage company's underwriting guidelines.
Fair
Housing and the Law
It is very simple.
RE/MAX Huntsville, and their associates do not discriminate in any way
involving the listing and/or sale of real estate. Prospective
purchasers who are financially qualified to look at properties will be
shown properties regardless of race, color, religion, sex, age,
familial status, handicap, etc.
I hope the information
in this booklet has been helpful to you. Buying a home is an exciting
and often scary experience. I will work hard to make sure that you not
only find the home you want, but that you have an enjoyable time.
We have covered a great
deal of material in this booklet. If you have any questions on any of
the things covered, or any other real estate matters, please don't
hesitate to call me at 256-508-0211.
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