You, you are the buyer and thus have complete control as to what you will buy and for how much. All of real estate revolves around you, the Buyer!
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All transaction involving real estate must be in writing to be enforcable. There are many different types of contracts. The following are some of the most used:
Listing agreement- The listing agreement is a contract between the seller and the broker for the purpose of marketing and selling property.
Purchase and sale contract- These forms are filled out and state the terms of the purchase: price, inspection periods, escape clauses, purchase method (i.e. cash or financing), property physical location, parties involved (broker, owner, buyer, banks, etc.)
Diclosures- There are various disclosures required by law that the broker must provide. These disclosures vary from state to state and may seem a bit tedious but the law is the law and they must be signed.
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Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
In real estate, much like anything else in this world, the terms are negotiable. There is no set commission percentage when selling or buying real estate. With that said, the average real estate commission for residential property is 6% and vacant land and commercial real estate is 10%. When you are a seller you may want to get a lower percentage for the commission but it will come at a cost. The unsaid truth about commission based sales is; if a realtor, car salesman or any commissioned job the representative will naturally go to the source of the greatest commission which equals more money to them.
Here is an example: if an agent has a buyer looking for a 3 bedroom, 2 bath house he will put the home with the lowest commission at the bottom of this list. After seeing 5-15 homes they will have decided to buy before they even get to the home with the lower commission. The seller will miss out on many potential buyers over the commission. There are many realtors that hate for me to let that information out but you need to know the truth so you can make the best possible decision.
On occasion, the brokers involved in the sale will negotiate their percentage to get the property to the closing table.
Generally, the seller pays the commissions at closing form the proceeds of the sale.
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Residential property is property used as a dwelling for people. Your home is considered residential, if you are renting a home it is considered residential, and an apartment is considered residential. There are different types of residential properties. The different types are divided into categories based on occupancy. As with any property classification the residential type has it's own taxes and exemptions.
Generally, most residential properties have provisions for home based businesses. Be sure to check with the local zoning department to get the okay for your home based business.
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The term of a listing agreement is negotiable. Real estate generally takes time to sell because it is in a fixed location. If you make it impossible for the broker to properly expose your property they will be at a great disadvantage and may decline to sell the property for you.
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A short sale occurs when a property owner can no longer pay the mortgage and stops payment all together. Short sale properties are on the verge of foreclosure. This often happens when the value of the property has declined and the property can no longer be sold for the original purchase price. Generally, the property owner will put the property up for sale for less than the amount due on the mortgage in hopes to get an offer that they can submit to the bank. The bank will either accept or reject the offer. If the bank accepts the offer one of two things will occur:
1. The bank will go ahead and accept the offer for less than the mortgage and get a deficiency judgement against the property owner. With the deficiency judgement, the bank will attempt to collect the remaining amount of the original mortgage. Collection attempts may start right away or in a couple of years, but rest assured it will happen.
2. The bank will accept the offer and release the property owner from any future financial obligation for the deficiency. The release will effectively stop any collection attempts from the bank now and in the future. This is the ideal scenerio for the property owner.
If you are going through a short sale, be sure to read the closing documents thoroughly to verify that you are getting what you were told and there are no mistakes. This is very important and it goes for both the buyer and seller!
There are definitely many downsides to a short sale. It hurts your FICO score to have a settlement for less than the original amount. Short sales can also take a long time to close because of all the parties involved. You can expect a short sale to take 6 to 12 months or longer to close.
Buyers of a short sales can get a really good deal if they can put up with the lengthy bureaucratic process involved. Cash deals generally get more attention and close faster but banks have no problem with buyers using financing.
- Default: Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
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The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Foreclosure is the end of the road for the property owner. In a foreclosure the bank is attempting to take possesion of the property. The law dictates how and when this can take place. The one escape the property owner has once the property is in foreclosure is to get the payments caught up in full before the judge grants the foreclosure. If the property owner comes up with the money and the judge has not ruled it doesn't matter what step the foreclosure process is in if the owner pays they stop the foreclosure.
The foreclosure process can be very lengthy and allows the property owner to get their finances in order and potentially get caught up and stop the foreclosure.
If the property owner can not get caught up right away they can hire an attorney to litigate the foreclosure. Generally the attorney can lengthen the process substantially. This should not be used as a stall tactic but if the property owner believes he was the victim of fraud or unfair lending practices.
Foreclosure and your FICO score do not mix. A foreclosure will put a major ding in your credit score. It is just a step above bankruptcy. Avoid it at all costs.
Deed-in-Lieu: Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
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All real estate transactions can be negotiated. Taxes are the only thing you can't negotiate.
Negotiating the purchase of real estate can be a little imtimidating, but don't let it be. Here are my thoughts on negotiations. Aside from legal disclosures the party that gives the least amount of information has the advantage. If the seller has extra information like your wife loves the house or you have to buy because you have already sold your home. The seller now has confidence in his position and will negotiate much more aggressively. Probably the best negotiation trait is your ability and willingness to walk away from the deal. It sounds simple but when you're in this frame of mind all your actions will tell the seller that he had better get flexible or be ready to let you go.
There is definitely a skill to negotiating and the only way to get good at it is to do it. Everything in this world is negotiable except taxes and death. Go ahead and try it. Negotiate your next purchase. Believe it or not, I have been known to negotiate prices at major department stores. To do that or any negotiations you need to get to the right person, the decision maker.
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The comparitive market analysis (CMA) is a tool used by realtors to determine the market value of property. It is similar to an appraisal but let me make it very clear, it is not an appraisal. An appraisal is much more detailed and done by a licensed appraiser. If your realtor tries to tell you otherwise get rid of them.
Realtors collect data on similar properties in the area and do some math and make decisions according to the properties condition. This allows them to get a realtively accurate market value for the property. The CMA may show a value that is different than the actual appraisal the bank will perform to grant a loan. A word of advice don't get hung up on the CMA's evaluation. The market will dictate the amount a buyer will pay.
Most real estate agents conduct a CMA for the prospective seller in hopes of getting their business. I wouldn't pay for it and if the company tries to charge you don't hire them.
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An opinion of a property's fair market value , based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
An appraisal is performed by licensed appraisers. An appraiser has gone through extensive education and must pass a difficult exam to become an appraiser.
The appraiser looks at all the aspects of the property and will be very detailed in the descriptions and conclusions.
If you are a going to sell a piece of property it is always a good idea to get it appraised before hand. This does many things. It gives you confidence to that you are pricing your property correctly. When a potential buyer makes an offer you already have written proof of the value and can negotiate firmly. One of the more important advantages to getting an appraisal is this; if the property is priced to high it will sit for a long time and the relationship between the broker and seller will be strained and may fall apart. Conversely if the property is priced too cheap people will see that and before you know it you will be saying to yourself, that happened fast and now you are second guessing your decision but it is too late you are under contract for less than the property is worth.
My suggestion to you is get an appraisal before you hire a realtor. The whole process will go much faster and smoother.
- Fair Market Value: The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
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- Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
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Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
Escrow Account
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount commision above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.
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The purpose of a listing agreement is twofold. For the broker it protects them and the money they spend marketing your property. These costs can be quite substantial. The time it takes to sell a piece of property can make sellers a bit anxious and possible break the contract with the broker. Sellers must be prepared for their property to take months and even years at times to attract the right buyer. Real estate is different than other products. There are many variable affecting the sale. One of the attributes of real estate is it is fixed in its location.
The listing agreement spells out what the brokers responsibilities to the seller are. When you enter into a listing agreement the broker now has a legal responsibility to serve you and your best interest even when it is not in their best interest.
- Broker: Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working for themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
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A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet." Click here for an example. Hud 1
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
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This usually refers to the written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
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A deposit made by the potential home buyer to show that he or she is serious about buying the property.
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There are many ways to take ownership (Take Title). When buying a home most people take title in their name and if married in the spouses name as well. Those of you buying commercial real estate have many options of title. I would suggest you speak to your accountant and decide the best way to take title because of liabilities and tax issues.
Chain of Title: An analysis of the transfers of title to a piece of property over the years.
- Clear Title: A title that is free of liens or legal questions as to ownership of the property.
Cloud on Title: Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
Title Insurance: A policy which insures a property owner should a prior claim arise against the property after the purchase has been completed. This also covers a lender should a question of ownership arise.
Here are just two ways to take title.
Fee Simple: The greatest possible interest a person can have in real estate.
- Fee Simple Estate: An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
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By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
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