General Advice

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After You Move In

The First Week

  • Install new locks and make extra sets of keys.
  • Buy fire extinguishers for the kitchen and garage.
  • Install or check batteries in smoke detectors.

Keep Your House In Shape

  • Perform preventative maintenance early to avoid costly repairs.
  • Watch for termite droppings or wet wood conditions.
  • Keep rain gutters and downspouts clear to drain water away from the foundation.

Home Safety Checklist

  • Install sturdy handrails and automatic night lights outside bedrooms.
  • Service all heating equipment and install carbon monoxide detectors.
  • Use anti-skid material under area rugs.
  • Store paints, solvents, and gasoline in well-ventilated areas.
  • Keep medicines, poisons, and firearms in child-secured cabinets.
  • Install Ground Fault Circuit Interrupters (GFCI) in bathrooms and near the kitchen sink.

Disaster Preparedness

  • Water: 1 gallon per person, per day, for at least three days.
  • Food: A one-week supply of non-perishables.
  • Tools: Flashlights, spare batteries, matches, and a first aid kit.
  • Knowledge: Know exactly where to turn off gas and water mains.

Start a “House File”

Keep all important papers—title insurance, loan info, and property insurance—in a central system. Crucial: Save all receipts for home improvements to use as possible tax write-offs later.

Adding On vs. Buying Bigger

Before remodeling, ask yourself:

  • Would the current foundation support a second floor?
  • What do local zoning and building ordinances permit?
  • Is it more cost-effective to add space or move to a larger home?

Pro Tip: It usually makes more sense to add on to the smallest house in the neighborhood than to further improve the largest one.

9 Steps to Choosing a Reliable Contractor

  1. Verify the license number with the State License Board.
  2. Check for complaints with the Better Business Bureau.
  3. Confirm they have Workman’s Compensation insurance.
  4. Call their insurance carrier to verify the policy is active.
  5. Check for an umbrella general liability policy.
  6. Ask for references.
  7. Actually call and verify those references.
  8. Don’t succumb to high-pressure “decide now” sales tactics.
  9. Never pay a deposit at the very first meeting.

Financial & Tax Considerations

HUD Rehabilitation Loans

The Section 203 (K) program facilitates major structural rehab for 1-4 unit homes. This is often a combination loan used to “purchase and fix” a property.

Tax Deductions

Permanent improvements can be added to your home’s cost basis, which reduces capital gains taxes when you sell. Keep records of improvements, equipment manuals, and replacement cost insurance details.

Know Your Neighborhood

Break the ice and introduce yourself to neighbors. Getting involved in a Neighborhood Watch program can lower crime rates, remove graffiti, and ultimately enhance property values.

Before you buy real estate, educate yourself about the process. These articles are an excellent place to start.

Things to Consider

  • Short-term vs. Long-term: Planning to move in a couple of years? Selling a house costs roughly 7–8% of the sale price, which may outweigh your home’s appreciation.
  • Employment History: Lenders prefer a steady work history (typically 2 years) in the same line of work. Avoid changing jobs right before or during a home purchase.
  • Credit Health: Check your credit report for errors early. Small issues can often be resolved with a letter of explanation to your lender.

Banks vs. Loan Brokers

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Feature Bank / Savings & Loan Loan Broker
Loyalty Works for the bank. Works for you (Fiduciary relationship).
Options Offers a menu of internal programs. Offers a menu of different lenders.
Regulation State Department of Banking. State Department of Real Estate.

The Power of Loan Pre-Approval

Getting pre-approved is a non-negotiable first step. It saves you time and ensures you aren’t looking at homes outside your price range. Most top-tier agents will not show homes until you have a pre-approval letter in hand.

What you’ll need to provide:

  • Income from all sources and past tax returns.
  • Proof of funds for down payment and closing costs.
  • A list of monthly obligations (auto loans, credit cards, child support).

Selecting a Lender

Don’t choose based solely on the lowest rate. A rate well below market value often hides higher closing costs or hidden fees. Choose based on experience, service, and recommendations.

How Much Can I Qualify For?

Lenders use two primary ratios to determine your eligibility:

  • Housing Expense Ratio (25–33%): Your monthly housing payment divided by your gross monthly income.
  • Total Debt Ratio (33–38%): Your total monthly debt payments divided by your gross monthly income.

Closing Costs

In addition to your down payment, expect to pay between $3,000 and $10,000 in closing costs, depending on your loan type and location.

Don’t Jeopardize Your Loan

Taking out another loan, buying a car, or making large credit card charges before you close can jeopardize your loan commitment. Lenders typically run a second credit check immediately prior to closing to look for new debt.

Timing Your Closing

If you close at the beginning of a month, the lender will require you to “prepay” interest from the day of closing to the end of the month. Closing at the end of the month typically requires less upfront cash. Discuss this strategy with your lender.

Buyer’s Remorse

It is common to feel stressed or remorseful during a home purchase. Educating yourself about the process helps minimize these feelings, which usually fade once you move into your new home.

Moving Logistics

Notify Services & Utilities

Contact the following services a few weeks prior to moving to change your billing and mailing addresses:

  • Post Office & Newspaper
  • Insurance Companies
  • Movers & Telephone
  • Water, Gas, and Electric Utilities

Arrange for a Mover

Get at least two written estimates. Check reviews and local directories to compare the costs and services provided.

The Final Walk-Through

Perform your final walk-through as close to the sign-off date as possible. Use this checklist:

  • Appliances: Check for operability.
  • Electrical: Test outlets with a small device and flip all light switches.
  • Plumbing: Check all faucets and flush toilets.
  • Contract Items: Ensure all items included in the purchase contract are still on the property.
  • Repairs: Verify that promised cleaning and repairs are finished.

For New Construction: Document any pending fixes in writing, have the builder sign it, and include a firm completion date.

Closing Costs & Funding

Your closing funds must be deposited in escrow before the sale can close. Do not use a personal check. Funds must be in the form of a certified check or a wire transfer. Always verify wire instructions with your escrow officer via phone to prevent fraud.

Dress For Success

Before you put your house on the market, it’s best to put a shine to it. The way you present your property can make all the difference in how buyers perceive its value.

Curb Appeal

First impressions are everything. If a buyer doesn’t find the outside appealing, they likely won’t even step inside.

The Yard

  • Lawn & Plants: Mow the lawn, trim shrubbery, and plant fresh flowers. Fertilize and water everything 2-3 weeks before listing.
  • Maintenance: Clean oil spots on the driveway and ensure the garage door operates smoothly.
  • Cleanliness: Clean the pool and filters. Remove any “pet droppings”—these can turn a buyer away instantly.
  • Declutter: Have a yard sale to remove items you don’t plan to keep. Recycle old magazines and start packing non-essential items early.

The Exterior

  • Paint & Trim: If a full paint job isn’t possible, hose down the siding and repaint the trim (especially the side facing the street).
  • Entryway: A clean porch and a fresh-looking front door that opens smoothly are essential.
  • Repairs: Fix broken windows and apply a fresh coat of stain to fences.

The Interior

Inside, everything should be spotless. Investing $100 in professional “spring cleaning” often provides a massive return in sales price and speed.

  • Paint: A fresh coat of light-colored paint is recommended. At minimum, touch up the trim and doors.
  • Floors: Steam clean carpets to remove stains and pet odors. Wash and wax linoleum, and replace damaged tiles.
  • Lighting: Replace burned-out bulbs with brighter ones to enhance every room. Keep curtains and blinds open during showings.
  • The “Under Bed” Rule: If you must hide clutter, store it under beds rather than in closets (buyers will check the closets).

Focus Rooms

Buyers react most strongly to kitchens, bathrooms, and closets. Concentrate your efforts here:

  • Kitchen: Clean the oven and stovetop. Clear grease from exhaust fans and keep countertops empty.
  • Bathrooms: Remove soap scum and mildew. Replace old toilet seats and shower curtains.
  • Hardware: Swapping out old door handles, knobs, and light switch plates can create a dramatic improvement for very little cost.

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Buying Land & Building a Home

Before buying land, research the costs and steps required before actual construction. It may be more cost-effective to buy an existing home and make modifications. Many first-time builders assume you simply buy a lot and get a permit, but several critical issues must be addressed first.

  • Zoning: Check if a home can be built on the lot.
  • Utilities: If zoned residential, determine if it can hook up to city sewer/water or if it requires a septic system and well.
  • Infrastructure Costs: Septic systems generally cost $5,000–$10,000. Wells can cost $15,000–$40,000 depending on depth.
  • Perq Test: Required in certain areas to ensure the ground can support a septic system without contaminating groundwater. This must be done during the rainy season (usually ending in April).
  • Grading: Site preparation can be a major expense. Seemingly cheap lots often have high grading costs.
  • Financing: Lenders typically require 50% down for raw land with shorter terms and higher interest rates.

Advanced Review Group

This group (Planner, Engineer, Plan Review Technician, and Fire Marshal) can meet with owners prior to application. This optional meeting helps both parties understand the project scope, timeframes, and approximate fees.

Land Use & Environmental Applications

One or more applications may be necessary, including Zoning Changes, Tentative Maps, or Conditional Use permits. Projects may also require an environmental review based on the California Environmental Quality Act.

Development Review Group

This group meets weekly to review applications and preliminary plans. Identifying problem areas early can result in significant time and cost savings.

Infrastructure & Utilities

  • Sewer Allocations: Granted by the Engineering Division based on City Council policies.
  • Connections: Engineering handles water, sewer, and storm drainage connections and inspects the infrastructure.
  • Parcel Maps: Required for splitting lots or subdivisions.

Building Permits and Inspection

The Uniform Building Code requires permits for all new construction, demolition, remodeling, or structural alterations. This includes additions, pools, decks over 30″ above grade, and sheds over 120 sq. ft.

Note: Work done without a permit results in doubled fees, and completed work may need to be dismantled for inspection.

Who May Apply for a Permit?

Property owners or licensed contractors may apply. The signer must declare they have no employees or provide proof of valid Workers’ Compensation Insurance.

General Permit Requirements

New construction and additions require 3 to 4 sets of complete plans. These must include the designer’s contact info and incorporated energy calculations.

Information Required on Drawings

  • Plot Plan: Shows lot dimensions, setbacks to property lines, easements, and utility meter locations.
  • Floor Plans: Must show dimensions, wall locations, plumbing fixtures, and electrical layouts.
  • Framing Plans: Indicate sizes of joists, girders, and rafters. Unconventional framing requires specific calculations.
  • Exterior Elevations: Four views showing windows, doors, and building height for zoning compliance.

Engineered Plans

Hillside construction requires engineered footings with soils and geology reports. Calculations must have a designer’s wet signature and stamp. Hillside structures must use noncombustible roofing and interior fire sprinklers.

How Much Will it Cost?

Fees are based on total construction cost (labor and materials). Plan check fees are a percentage of the permit fee. Additional costs include site development, school impact, and mitigation fees, which must be paid before the permit is issued.

Tax Changes and Effects

Under current Section 121 rules, homeowners can exclude a significant amount of profit from their taxable income when selling a primary residence. Married couples filing jointly can exclude up to $500,000 of profit, while single filers can exclude up to $250,000.

  • The 2-out-of-5 Year Rule: You must have owned and lived in the home as your primary residence for at least two of the five years leading up to the sale.
  • Frequency: You can generally use this provision once every two years.
  • Excess Gains: Any profit above these limits is taxed at long-term capital gains rates (typically 0%, 15%, or 20% depending on your total income).

Time Frames and Extensions

The duration of your ownership significantly impacts your tax rate:

  • Under 1 Year: Gains are considered “short-term” and are taxed as regular income (up to 37%).
  • 1 to 2 Years: Gains are taxed at long-term capital gains rates but do not yet qualify for the $250k/$500k exclusion.
  • Exceptions: Partial exclusions may be available if you must move due to specific health issues, job relocation, or other unforeseen circumstances. Consult a CPA for advice on filing extensions or qualifying for these exceptions.

Save Your Receipts

Always maintain a “house file” for home improvement receipts. If you do not meet the two-year residency rule, or if your profit exceeds the exclusion limit, these costs increase your cost basis, effectively lowering your taxable gain.

Penalty-Free IRA Withdrawals

First-time homebuyers can withdraw up to $10,000 penalty-free from an IRA to assist with a down payment or closing costs.

  • Lifetime Limit: This is a $10,000 lifetime maximum per person.
  • Family Use: The funds can be used for the purchaser, their children, or grandchildren, provided they meet the “first-time buyer” definition (not owning a home in the previous two years).
  • Tax Note: While the 10% early withdrawal penalty is waived, Traditional IRA withdrawals are still subject to regular income tax.

Market Impact and Considerations

Tax laws can influence market inventory. When high-value property owners are incentivized to sell (such as downsizing for retirement or relocating for work), it can lead to a surge in listings. If the number of buyers does not keep pace with this supply, properties may stay on the market longer, eventually affecting property values.

Need Professional Answers

Tax consequences for real estate are complex. If you are unsure of your specific liability, consult with a CPA or tax attorney rather than a real estate agent.

 

Before Looking

Before you actively look at homes, it is necessary to know how much you can qualify for. Use mortgage calculators to determine how much you can buy based on your down payment and closing costs, and to estimate what your monthly payments will be.

Know Your Credit Worthiness

Review your credit report before visiting a lender. It is common to find errors, especially if you have a common last name. To get copies of your credit report, start at My FICO Score.

Get Pre-Approved

Once your credit is clear, obtain a pre-approval letter from a lender. This document states the specific price range you are qualified for. Having this letter is vital before making a contract offer, as it proves to sellers that you are a serious and capable buyer.

What Kind of House is Right?

Determine your current and future needs. Consider the trade-offs between different property types:

  • New Construction: Offers modern energy efficiency and the latest design features.
  • Older Homes: Provide historic charm but may require significant updating or repairs.
  • Fixer-Uppers: Can dramatically increase in value if you enjoy “swinging a hammer.”
  • Condos & Townhouses: Relieve you of yard work and exterior maintenance.
  • PUDs (Planned Unit Developments): Often include private recreational facilities like pools and parks.

Wants and Needs Checklist

Sit down with your real estate agent to create a “Wants and Needs” list to narrow down neighborhoods that fit your price range. Consider the following:

  • Building style and design (New vs. Remodeled vs. Fixer)
  • Minimum number of bedrooms and bathrooms
  • Specific features: Fireplace, Home Office, Hardwood floors
  • Outdoor needs: Yard size, Swimming Pool/Spa, Workshop
  • Location factors: School district, work proximity, and special zoning

Narrowing the Search

Once you have a list of affordable homes, perform a “drive-by” to check the surrounding neighborhood. If the area looks promising, have your agent schedule an interior viewing.

Pro Tip: Visit at different times. A quiet street at noon might become a noisy thoroughfare during the morning commute. Visit after dark to see if streetlights or traffic headlights shine into the windows, or if there is noise from nearby nightlife.

Making the Offer

When you are ready to move forward, ask your agent for sales comps (comparable sales) to determine a fair offering price. Be mindful of the current market:

  • Seller’s Market: High demand means low offers on well-priced homes are rarely successful.
  • Buyer’s Market: You may have more room for negotiation.

A properly written contract includes “contingencies” (outs) if certain conditions—like inspections or financing—are not met. Review a sample contract with your agent before you are ready to sign.

 

The following fees are typical when buying real estate. While some are fixed, many are negotiable. Always ask your agent for a localized estimate before making an offer.

Down Payment and Financing Fees

  • Down Payment: Typically 10%–20%, though programs exist for 3%–5%. Loans with less than 20% down usually require Private Mortgage Insurance (PMI).
  • Loan Origination Fee: The lender’s fee for establishing the loan. Generally 1% for FHA/VA, while conventional loans vary (1–3 points). A “point” equals 1% of the loan amount.
  • Assumption Fee: Charged if you are taking over an existing loan ($250 to 1% of the balance).

Mandatory Lender Services

  • Appraisal Fee ($300–$500): A non-refundable fee for an objective estimate of the property’s market value.
  • Credit Report ($50–$60): A non-refundable fee for the lender to evaluate your credit history.
  • Tax Service Fee (Approx. $75): Paid to a company that ensures property taxes are paid on time.

Inspection Fees

Inspections protect the buyer by identifying hidden issues before the sale is final.

  • Pest Inspection ($75–$175): Checks for wood-destroying organisms and dry rot. Customarily, sellers pay for Section 1 (existing damage) and buyers pay for Section 2 (preventative).
  • General Home Inspection ($300–$400): Covers foundation, electrical, plumbing, and overall construction.
  • Specialized Reports: Roof ($75–$125), Geological/Fault Zone (approx. $100), Septic ($200–$400), Radon ($50–$100), and Asbestos ($75–$125).

Government and Legal Fees

  • City Transfer Tax: A municipal tax (often $3.30 per $1,000 of the sale price). Note: The VA prohibits veteran buyers from paying this fee.
  • Escrow Fee ($750–$2,500): Based on the sales price. Responsibility for this fee varies by county but is always negotiable.
  • Miscellaneous ($150): Covers notary fees, document recording, and endorsements.

Prepaids and Impound Accounts

Lenders often require “prepaid” items to be deposited into an escrow/impound account at closing.

  • Hazard Insurance: The first year’s premium is usually paid upfront, plus a two-month reserve.
  • Prepaid Interest: Interest from the date of closing to the end of the month.
  • Tax Impounds: Lenders may require 2–10 months of property taxes upfront to ensure future bills are covered.
  • Mortgage Insurance (PMI): For loans over 80% LTV, 14 months of premium may be collected in advance.

Negotiating Your Costs

Many of these “non-recurring” costs can be negotiated. A skilled real estate agent can often persuade the seller to credit the buyer for some or all of these expenses, potentially saving you thousands of dollars at the closing table.

 

First Time Buyer: The Condo Alternative

Condominiums are an excellent entry point into the housing market if a single-family home is out of reach or if you prefer a low-maintenance lifestyle. One key distinction to remember is the nature of ownership:

  • Condominiums: You own the “air space” inside the walls, ceiling, and floor. You do not own the exterior structure or the land lot.
  • Townhouses: You typically own the individual unit as well as the lot beneath it.

In a condo, you are generally restricted from making exterior changes, such as painting or landscaping, as these fall under the jurisdiction of the Homeowners’ Association (HOA).

What to Consider when Buying a Condominium

Before committing to a complex, perform thorough due diligence on both the physical property and the governing association:

  • Noise & Location: Check the soundproofing. Upper and end units are often more desirable for privacy. Consider proximity to “high-traffic” amenities like the pool or parking facilities.
  • Owner-to-Renter Ratio: Complexes with a high percentage of renters can be harder to finance, as many lenders have strict owner-occupancy requirements. Absentee owners may also be less likely to vote for necessary maintenance increases.
  • Financial Health: Obtain the HOA’s latest financial statement. Check for planned special assessments (one-time large fees) or ongoing litigation between the association and the builder.
  • Rules and CC&Rs: Review the Covenants, Conditions, and Restrictions carefully. Rules regarding pets, parking, and rentals will dictate your daily experience.

Buying in a New Complex

If you are looking at new construction, caution is advised during the early phases:

  • Occupancy Rates: It is generally safer to wait until at least 60% of the units are sold and closed. If a developer goes bankrupt with low sales, the value of your unit could drop significantly.
  • Warranties: Ensure a comprehensive one-year warranty is provided for everything inside the unit. Confirm exactly what the developer is willing to warrant before signing.

Are Condos a Good Investment?

Despite occasional stories of association conflicts, condominiums have historically held their value well and, in some markets, have appreciated at rates equal to or higher than single-family homes.

While litigation can hurt resales and discourage lenders, modern associations are becoming much more sophisticated. Professional property management is now the norm, helping to resolve disputes early and protect the long-term investment of the owners. Buying a condominium remains an excellent way to begin building equity through homeownership.

 

Contract Knowledge

Buying a home involves entering into a legally binding contract. It is essential to clearly understand your rights and obligations before signing. Because modern real estate contracts are lengthy and complex, you should ask your agent for a sample contract to review before you find a home you want to buy.

  • Put it in writing: Verbal agreements are not enforceable. Ensure every blank is filled and every term is specific.
  • Seek Clarification: Use the time before the “heat of negotiation” to ask your agent about clauses you find confusing.
  • Documentation: In the event of litigation or disputes over fees, only the written word in the signed contract counts.

Presenting the Offer

When you find the right home, you must move quickly. Your agent will run “comps” (comparable sales) to help you determine a fair price. Before writing the offer, your agent should investigate the seller’s motivation:

  • Why are they selling and where are they moving?
  • How long has the home been on the market?
  • Are there other offers pending, or is this a probate/foreclosure sale?
  • Are the sellers willing to “carry back” a loan (seller financing)?

Be Realistic with Your Offer

Negotiations can be highly emotional. A “lowball” offer can offend a seller, causing them to reject your interest entirely. Trust your agent to present the offer on your behalf; they are often more effective when you are not personally at the negotiating table, as they can maintain a professional, objective tone.

The Paperwork Trail

Expect a series of counter-offers, disclosures, addendums, and reports. Always get a copy of everything you sign, ensuring it includes the signatures of all parties involved. Once an offer is accepted (ratified), the 30–45 day escrow process begins.

The Road to Closing

Once the contract is signed, several wheels turn simultaneously:

  • Inspections: Must be ordered and scheduled immediately to meet contract deadlines.
  • The Loan Process: This generates a significant amount of paperwork and requires constant communication with your lender.
  • Agent Support: Your agent will track the transaction through to the closing date, keeping you informed of every milestone.

The process can be confusing, but staying educated and realistic will help you navigate the 30–45 days it typically takes to close escrow.

 

Good FICO Scores = Best Loan Rates

FICO scores are the primary tool used by American mortgage lenders to evaluate home loan applicants. These scores range from 300 to 850, with higher scores indicating lower risk. Lenders typically reserve their most favorable interest rates and lowest fees for applicants with scores of 700 and above.

Applicants with scores in the low 600s and below often receive higher rate quotes and may be charged additional loan fees. While your FICO score only looks at your credit report, lenders will also consider your income, job stability, and the type of credit you are requesting.

How Scores are Established

Your FICO score is calculated based on five main categories of information:

  • 35% Payment History: This is the most important factor. Lenders want to see if you have paid past accounts on time. While late payments hurt, a strong overall history can outweigh a few minor slips.
  • 30% Amounts Owed: This considers how much of your available credit you are using. High balances can indicate over-extension, while small, consistent balances show responsible management.
  • 15% Length of Credit History: Generally, a longer history—including the age of your oldest account and the average age of all accounts—will increase your score.
  • 10% Types of Credit in Use: A healthy mix of credit cards, retail accounts, installment loans, and mortgage loans is viewed favorably.
  • 10% New Credit: Opening several new credit lines in a short period can lower your score. If you plan to buy real estate soon, avoid taking out new debt, such as a car loan, until after your home purchase closes.

What Your Score Takes Into Account

Your credit file contains various data points that the FICO model analyzes to determine your risk level:

  • Payment information on credit cards, retail accounts, and installment loans.
  • Public records including bankruptcies, foreclosures, liens, and judgments.
  • The severity and frequency of delinquencies (how late a payment was and how recently it occurred).
  • The total number of accounts you have that show no late payments.

Manage Your Credit Effectively

Understanding these factors can help you manage your credit more effectively. Closing unused accounts in good standing will not necessarily raise your score, but establishing a track record of on-time payments will gradually improve it over time.

To get a copy of your current standing, visit My FICO Score.

 

Mandatory Disclosures Required

With increasing mandatory disclosure obligations, it can be difficult for sellers to keep up with new requirements. Real estate agents and sellers are held to stringent standards of care; currently, the leading claim on Errors & Omissions Insurance is the “failure to disclose” items deemed material by the buyer.

While no method completely prevents lawsuits, following these general guidelines can significantly help protect against non-disclosure liability:

  • Put it in Writing: Always make disclosures in writing and ensure you obtain acknowledgment signatures from the buyer.
  • When in Doubt, Disclose: If you are unsure if a defect or issue is important, do not wait for the buyer to ask. The golden rule of real estate is: disclose, disclose, disclose.
  • Be Specific: Provide as much detail as possible regarding past repairs, neighborhood noise, or structural history to avoid future claims of misrepresentation.

What is Escrow?

Escrow is the depositing of funds and documents by the parties to a transaction with an impartial or neutral third party. It takes orders from sellers, buyers, lenders, inspectors, and others, setting out the terms and conditions under which further delivery is to be made.

Many escrows are handled through title companies, which provide essential reports and title insurance.

The Purpose of Escrow

Escrow enables the parties in a real estate transaction to reduce risk. The Escrow Holder acts as:

  • A custodian for funds and documents.
  • A clearinghouse for payments of all demands.
  • An agency to perform the clerical details for the settlement of accounts between parties.

What is a Preliminary Report?

The preliminary report shows the ownership of a specific parcel of land and lists title defects, liens, and encumbrances. It may also show recorded restrictions from prior deeds or CC&Rs (Covenants, Conditions, and Restrictions).

Ordered after escrow opens, this report allows the buyer to seek the removal of objectionable items prior to purchase.

What is a Policy of Title Insurance?

Title insurance is real estate ownership insurance or an insured statement of the condition of “title” for a property. It protects your rights and interests against claims. Policies are typically issued to both the buyer and the lender.

Note: All lenders require title insurance. The two most common forms are the CLTA (standard coverage) and the ALTA (loan extended coverage).

Escrow Officer’s Responsibilities

  • Reviews and provides copies of the preliminary report to all parties.
  • Receives and prepares escrow instructions for both buyer and seller.
  • Handles buyer funds and complies with lender instructions.
  • Arranges hazard insurance and new loan funding.
  • Prepares and records documents with the county recorder.
  • Disburses monies and documents to the appropriate parties.
  • Prepares final closing statements and issues the title insurance policy.

 

Why a Real Estate Appraisal?

There are many reasons why you need a real estate appraisal, including reducing property taxes, probate, estate planning, and divorce settlements. However, the most common reason is to obtain a mortgage.

Most lenders are required by federal and state laws and current banking regulations to obtain an appraisal for most loans secured by real estate. As of Jan. 1, 1993, all appraisals for mortgage loans from federally insured lenders must be performed by a licensed or certified appraiser.

What is an Appraisal?

An appraisal is an objective, supported opinion of the value of a property. It is conducted by an appraiser with the knowledge, training, and experience to accurately estimate worth.

In this detailed report, appraisers use comparable sales, neighborhood data, and local/national economic trends to support the final value.

Look Objectively, Not Subjectively

When previewing a home, look at it as if it were empty: four walls, floors, and a roof. Do not let the current owners’ furniture or decor influence your judgment.

Important Tip: If the owner is “carrying the paper” (providing the loan), it is worth the cost to hire an appraiser to ensure you aren’t overpaying. Many agents include an appraisal contingency in the purchase contract for your protection.

How is Value Established?

Value is based on recent sales of similar neighboring homes, as well as rentals and listing data. Appraisers ideally look for properties of the same size, age, and condition. Since no two houses are identical, adjustments are made for features like:

  • Extra square footage or bedrooms
  • Fireplaces and upgrades
  • Parking facilities and swimming pools
  • Lot size and location

A minimum of three verified closed sales with photos are required to establish a value.

Houses Appraise for More When:

  • Well maintained inside and out.
  • Located in a good school district.
  • Additions are done with proper building permits and conform to the existing house.
  • The property is not “over-improved” for the neighborhood.
  • The style of the house fits the surrounding homes.

Location, Location, Location

You can change everything about a house except its location. Adverse location factors include being:

  • On a feeder street or under an airport flight path.
  • Near industrial odors (factories, farms) or waste dumps.
  • Next to commercial property, apartments, or school playgrounds.
  • In close proximity to a freeway or railroad.

The Importance of Permits

Important Tip: Always obtain a building permit for additions. An addition built without a permit is often given zero value in an appraisal. This can cause major issues during refinancing or resale.

When buying a house with an addition, verify it was permitted prior to closing. Do not just take the seller’s word; get copies of final sign-offs. If an appraiser cannot verify permits, the result could be a denied loan or a failed sale.

Work with An Agent

A real estate agent provides “comps” (comparable sales) to help you determine how much to offer. They can also compare list prices with actual sale prices to show you the current market trends and what percentage of the asking price sellers are actually receiving.

 

What To Do First

Obtain a copy of your credit report and check for errors before your lender orders one. Next, gather your financial data. Lenders will typically require:

  • Bank account statements
  • Paycheck stubs and W-2 forms
  • Tax returns for the last two years
  • Proof of investments and other income sources

Down Payment Sources

  • Personal savings
  • Liquidation of assets (selling a car, boat, or other property)
  • Tax-free gifts from parents or relatives
  • Borrowing against a pension plan or life insurance policy
  • Equity sharing with parents or friends
  • Using your business as collateral

If you have a small down payment, consider seller financing. Sellers can “carry back” a second mortgage to reduce the first mortgage amount, potentially helping you avoid Private Mortgage Insurance (PMI) by keeping the first loan at or below 80% loan-to-value.

Other Financing Options

If you don’t qualify for a conventional loan, explore specialized programs:

  • VA (Veteran): For eligible service members.
  • FHA 203(k): Designed specifically for fixer-uppers.
  • BMR (Below Market Rate): City-specific programs for new homes.
  • MCC (Mortgage Credit Certificate): Tax credit programs for qualifying buyers.
  • Fannie Mae Programs: Including “HomeStyle” and “Neighbors” initiatives.

Questions a Borrower Should Ask

  • What is the Annual Percentage Rate (APR) and the specific term of the loan?
  • Are there “up front” fees or points?
  • Is there a prepayment penalty or a balloon payment?
  • Is the loan assumable by a future buyer?
  • What happens if interest rates change during the loan process?

Financing Facts

Mortgage interest and points paid on a first or second home are generally tax deductible. Additionally, property taxes are often fully deductible, leading to significant savings on your income tax bill.

  • Interest rates and fees are often negotiable; shop around.
  • A larger monthly payment often means a larger tax deduction.
  • A short-term mortgage builds equity faster.
  • PMI is usually required if your down payment is less than 20%.

Tips to Expedite the Loan Process

  • Pay off credit cards before the lender pulls your credit report.
  • Avoid new debt: Do not buy a car or take out other loans prior to or during the application process.
  • Source your funds: Have clear verification for the source of your down payment. If receiving a gift, obtain a “Gift Letter” from the donor.
  • Be thorough: Completely fill out the application with all account numbers and addresses.

 

All of us want a bargain.

There are no better bargains in real estate today than the purchase of distressed properties at substantially less than fair market value. Success in this field requires a significant investment of time for research, though often a more modest amount of initial capital.

Five Ways to Acquire

In general, there are five basic ways to acquire foreclosures at discounted prices. Most permit the use of professional assistance (like title or escrow companies), except for Trustee’s Sales, which require the buyer to perform their own thorough title and debt investigation within a limited timeframe.

Delinquent Seller

The simplest way to buy below market value is finding a delinquent (but not yet defaulted) owner. These owners may have missed payments for principal, interest, taxes, or insurance. When an owner realizes they cannot meet their future commitments, they may choose to sell at a discount rather than face the full foreclosure process.

A wise buyer can explain the benefits of a pre-foreclosure sale: the owner avoids a recorded foreclosure on their credit report, preserves what remains of their credit standing, and avoids potential IRS tax liability on debt reduction that occurs during a trustee’s sale.

Defaulted Seller

An owner becomes “defaulted” once a Notice of Default is recorded. During the subsequent three-month and three-week periods, a Notice of Trustee’s Sale is published. Negotiating with a defaulted owner can be complex due to California Civil Codes (for 1-4 unit primary residences). These laws protect equity sellers from “unconscionable advantage” for up to two years and may require special contracts with a Notice of Cancellation.

Trustee’s Sale

Many investors prefer the Trustee’s Sale because it allows for a purchase without direct contact with the owner or lender. This is a verbal auction where the property is sold to the highest bidder. Successful bidders often pay off only the remaining balance of the foreclosing loan, and debt recorded after that loan is typically eliminated. However, risks include unanticipated repairs, the need for evictions, and payoff of superior liens.

REO (Real Estate Owned) Lender

If no one bids at a Trustee’s Sale, the property reverts to the lender as an “REO.” Lenders generally prefer to sell these nonperforming assets rather than hold them. While finding substantial discounts from large institutions is difficult, smaller lenders or private individuals often present better opportunities for discounted purchases.

Friendly Junior Note

This method involves buying a “junior” promissory note (like a second mortgage) at a discount from the current holder. The buyer then “cures” the senior loan (pays the arrears) and forecloses on their newly acquired junior position. This can be a highly effective way to acquire equity with significantly less competition than a public auction.

 

How Much House Can You Afford?

Before you go house-hunting, get pre-qualified for a mortgage so you’ll know your price range. It is not unusual for first-time buyers to be baffled by mortgage estimates, down payments, and closing costs. Pre-qualification lets you know exactly how much a lender is willing to loan you, saving time and frustration.

Understand that pre-qualification is informal and involves no fees. It is different from pre-approval, which is a formalized process resulting in an actual letter of credit. Pre-qualified buyers often have an edge because sellers know a lender is ready to back the deal.

Budgeting for Home Ownership

Aside from the down payment, your three largest expenditures are monthly mortgage payments, insurance, and taxes. As a rule of thumb, most buyers target a home price roughly 2.5 to 3 times their gross annual income.

  • Taxes: Expect yearly taxes to be around 1.25% of the purchase price.
  • Maintenance: Set aside funds for “rainy day” repairs like plumbing, painting, or water heaters.
  • Tax Benefits: Homeowners can often deduct mortgage interest and property taxes from their income tax bill.

Finding the Right Mortgage

When comparing loans, look at the Annual Percentage Rate (APR), which includes interest and fees amortized over the life of the loan. Determine if the lender charges “points” (1 point = 1% of the loan amount).

  • Fixed-Rate: Best if you plan to stay long-term and expect inflation/rates to rise.
  • Adjustable-Rate (ARM): May be better if you only plan to reside in the home for a few years.

Qualifying with Past Credit Problems

Credit issues don’t disqualify you, but they may result in higher interest rates or larger down payment requirements. To improve your chances:

  1. Request a credit profile from a major reporting agency.
  2. Optimize your profile by showing prompt payment of rent and utilities.
  3. Provide candid explanations to your loan officer regarding past late payments.

5 Common Mistakes Made by First-Time Buyers

  1. Looking outside your price range: Always pre-qualify first.
  2. Buying on impulse: View a good selection of homes before deciding.
  3. Not planning ahead: Consider your needs for the next 5 to 7 years (e.g., family growth).
  4. Failure to focus on location: Research the safety, noise, and zoning of the neighborhood.
  5. Failure to understand the process: Work with an agent who will explain negotiation and escrow.

New Homes vs. Older Homes

The choice usually comes down to lifestyle and property condition:

  • New Homes: Generally better insulation, modern energy efficiency, and design technology.
  • Older Homes: Offer unique charm but may need re-plumbing (especially if they have galvanized pipes over 15–20 years old) or electrical updates.

The Importance of Professional Inspection

Always hire a professional home inspector. An inspection reveals major issues (corroded plumbing, unsafe electrical) and minor ones (ventilation issues) that can be corrected before closing. This provides peace of mind and leverage for price negotiations.

Is Real Estate a Wise Investment?

Real estate is a localized investment. Success depends on local economic indicators, such as companies moving into or out of the area. Consult a real estate agent for local trends, price fluctuations, and market projections.

Home Warranties and Walk-Throughs

Home Warranties protect against system failures after move-in. For new homes, distinguish between patent (visible) and latent (hidden/delayed) defects.

The Final Walk-Through is your last chance to verify the home’s condition. Test every appliance, faucet, and light switch. If items are damaged or missing, inform your agent immediately so the seller can remedy the issue before closing.

What are Contingencies?

A contingency is a “rider” or escape clause. Common examples include home inspections, attorney approval, or the sale of your current home. Buyers who are pre-qualified or offer cash have an edge because their offers have fewer contingencies regarding lender approval.

How Much is Your Home Worth?

Determining your home’s value in a fluctuating market involves four primary criteria. First, investigate area trends. Compare your home with similar properties that have recently sold rather than just what is currently listed.

Second, track “migration” trends. If businesses and people are moving into the community, prices typically rise. Finally, consider both upgradable features (fixtures, windows) and unchangeable elements (lot size, story count) that set your home apart from the neighbor’s.

Why Do Some Homes Sell Quicker than Others?

The number one determinant of time-on-market is pricing. While homeowners often have emotional attachments that lead to overestimation, a successful sale requires objectivity.

  • Evaluate price per square foot, age, and condition.
  • Research future developments: Visit local planning commissions to see if nearby vacant land is slated for desirable or undesirable projects.
  • Request a Comparative Market Analysis (CMA) from a real estate professional to see verified data.

Thinking About Selling Your Home?

You can sell it yourself (FSBO) or engage a REALTOR®. While “selling yourself” avoids commission, statistics show that professional representation often results in a shorter sales cycle and a higher final price. A Realtor provides an objective view, identifying flaws you might be “blind” to and handling complex disclosure laws.

Which Home Improvements Add Value?

Not all renovations offer a high return on investment (ROI). Focus your efforts where they count:

  • Kitchens and Baths: These have the highest impact. You don’t need a $20,000 remodel; “spot improvements” like new countertops, cabinet faces, or a new sink can provide a fresh look for much less.
  • Curb Appeal: Exterior paint and fresh shrubbery are crucial first impressions.
  • Maintenance: Refurbishing hardwood floors or improving insulation is often a smarter investment than a room addition, which may not pay for itself.

Over Pricing Property?

The first 30 days are the most critical period for a listing. If a home is priced too high, buyers and agents will simply “cross it off” and move on. Even if you plan to drop the price later, you may have already lost the most motivated prospects.

How to Make a House Look “Bigger and Better”

Clutter makes a home look small and cramped. Erring on the side of space makes a home more marketable:

  • Hold a garage sale before you list the house.
  • Clear all kitchen and bathroom countertops.
  • Organize closets and cupboards (buyers will look inside!).
  • Store excess furniture and knickknacks to create an open feel.

How Can Two Similar Homes Vary in Price by $10,000+?

Exterior factors play a massive role. Homes on quiet cul-de-sacs generally command higher prices than those on busy primary streets. Location prestige also matters; properties on the “prestigious” side of a dividing street can be worth significantly more. Always check the community Master Plan to see how future land use will affect your value.

Should you Appraise your Home Before Listing?

While not strictly necessary, an appraisal provides a theoretical value. Most sellers rely on “comps” from their agent. Appraisals are most useful for unique, custom homes where no similar properties exist for comparison.

What is the MLS?

The Multiple Listing Service (MLS) is a computerized database of virtually all homes for sale. Listing here ensures your home is exposed to the largest possible pool of buyers and agents. It includes details like square footage, school districts, and specific amenities.

What is Escrow?

Escrow is a neutral third-party process that manages funds and documents until all contract requirements are met. The escrow holder tracks obligations like termite inspections and title searches.
Pro Tip: To speed up the process, provide your homeowner’s insurance info to the escrow officer immediately.

Closing Costs

Responsibility for closing costs is negotiable. Typically:

  • Buyer: Pays for inspections, credit reports, and loan-related fees.
  • Seller: Pays the agent commission, title search, and documentary transfer tax.

What is a Home Warranty?

A home warranty is a service contract that helps protect homeowners against the cost of unexpected repairs and replacements of covered major systems and appliances that fail due to normal usage.

What Does a Home Warranty Cover?

Standard coverage typically includes:

  • Heating and Electrical systems
  • Plumbing systems (including water heaters)
  • Range, oven, cooktop, and built-in microwave
  • Dishwasher, garbage disposal, and trash compactor
  • Ceiling fans, central vacuums, and ductwork
  • Telephone and doorbell wiring

What it Doesn’t Cover

Standard policies generally exclude structural elements and non-permanent items, such as:

  • Roof, doors, and walls
  • Items not built-in (unless added as an option)
  • Pre-existing conditions: Items not in working condition when coverage begins are excluded.

Optional Warranties

You can often add specific coverage for a fee to include:

  • Air conditioning
  • Swimming pools and spas
  • Roof leaks and well pumps
  • Washer and dryer

Where Can I Get One?

Warranties are primarily available through real estate companies and their agents. In many transactions, the seller pays for and provides the coverage to the buyer as a benefit of the sale. If you are a buyer, consider asking for a “seller-provided” warranty when making your offer.

How Much Do They Cost?

A basic one-year home warranty typically ranges from $295 to $400. Beyond the initial premium, each contract requires a service call fee (deductible) paid directly to the contractor, usually ranging from $35 to $50. The warranty company covers the repair costs above that amount.

Why a Home Warranty?

For Sellers: Providing a warranty adds confidence to your listing, making it more attractive than homes without coverage. It also acts as after-sale liability protection—if an appliance breaks after the move-in, the buyer calls the warranty company instead of you.

For Buyers: It offers peace of mind when purchasing a home with older appliances and fixtures, protecting your budget from major repair bills during your first year of ownership.

Pay at Closing

For sellers providing a warranty, there is typically no upfront charge. The fee is generally paid through escrow at the time of closing.

How Much is Your Home Worth?

In today’s fluctuating real estate market, determining an accurate selling price involves four criteria. First, investigate area trends by comparing your home with similar properties that have recently sold, rather than just what is currently listed.

Next, monitor “migration” trends. If businesses and people are moving into the community, prices typically rise. Finally, remember that side-by-side homes can command radically different prices based on unchangeable elements like lot size or upgrades like new windows and additions.

Why Do Some Homes Sell Quicker than Others?

Pricing is the number one determinant. A competitively priced home attracts interest, while overestimating worth based on emotional attachment can lead to a stagnant listing. Objectivity is key: evaluate price per square foot, age, condition, and location.

Cosmetics are also crucial. A fresh coat of exterior paint, tidy landscaping, and a clean interior create a vital first impression.

Thinking About Selling Your Home?

You can sell it yourself (FSBO) or engage a REALTOR®. While selling yourself avoids commission, professional representation often leads to a faster sale and a higher price. Professionals provide an objective view, identifying flaws and managing complex disclosure laws that many owners might overlook.

Which Home Improvements Add Value?

Kitchens and baths offer the most impact on a buyer’s perception of value. You don’t always need a full remodel; spot improvements like new countertops, oak cabinet faces, or a new sink can add significant value for a relatively low cost.

  • Central Air: Often a feature buyers will pay extra for.
  • Hardwood Floors: Refurbishing is a high-return investment.
  • Energy Efficiency: Upgraded insulation and storm doors are increasingly important to modern buyers.

Overpricing Property

The first 30 days are the most critical. If a property is priced too high, buyers and agents will cross it off their list and move on. Interest is highest when a property is fresh; starting too high may cause you to lose your best prospects.

How to Make a House Look “Bigger and Better”

The time for a garage sale is before you list. Eliminate clutter in closets, cupboards, and the garage. Most homes occupied for several years are over-furnished; removing extra items and clearing countertops makes a home feel spacious rather than cramped.

Location Factors and Master Plans

Exterior factors like traffic patterns (ingress/egress streets) or being on a quiet cul-de-sac influence price. Always check a community’s Master Plan to see what is slated for nearby vacant land, as future developments can significantly impact your property’s value.

Should You Appraise Your Home Before Selling?

It isn’t strictly necessary, as a real estate agent can provide a Comparative Market Analysis (CMA). However, appraisals are useful for expensive, custom homes that lack local “comps,” giving buyers more confidence in the asking price.

What is the MLS?

The Multiple Listing Service (MLS) is a computerized database of virtually all homes for sale. Listing on the MLS ensures your property is exposed to the maximum number of buyers and agents, providing detail on everything from square footage to specific amenities.

The Escrow Process

Escrow begins when a purchase offer is signed and ends when the loan is approved and requirements are met. The escrow holder acts as a neutral intermediary, holding funds and ensuring obligations like termite inspections and title reports are fulfilled before money is transferred.

Understanding Closing Costs

Responsibility for closing costs is negotiable, though local custom often applies:

  • Buyer: Customarily pays for inspections, loan fees, and recording fees.
  • Seller: Customarily pays the agent’s commission and documentary transfer taxes.

Market Value vs. Replacement Cost

When deciding on home insurance, focus on replacement cost rather than market value. Market value is the selling price of your home, which fluctuates based on the economy and local demand. Replacement cost is the actual amount required to rebuild your home at today’s labor and material prices.

  • Adequate Coverage: Ensure your policy covers the full cost to rebuild and includes your personal property.
  • Mortgage Irrelevance: Your mortgage balance is irrelevant to the amount of guaranteed replacement cost insurance you should carry.
  • Building Code Endorsement: Ensure your policy includes this so that your home is rebuilt to modern building codes, not the outdated codes from when it was originally constructed.

Insurance Optimization Tips

  • Start with a guaranteed replacement cost insurance policy.
  • Raise your deductible to $500 or $1,000 to lower your premium.
  • Compare quotes from at least three different insurance agents.
  • Choose full replacement cost for personal property rather than depreciated value.
  • Review your liability limits; an “umbrella policy” often provides better protection at a lower cost.

Take Inventory Now!

In the event of burglary or fire, remembering every item you owned is nearly impossible. Keep accurate records to simplify the claims process:

  • Room-by-Room List: Create an inventory of items in each room as you move in.
  • Visual Documentation: Take photos or videos of every room and its contents.
  • Serial Numbers: Record serial numbers for all electronics and appliances.
  • Safe Storage: Keep owner’s manuals and receipts in a fireproof safe or digital cloud storage.

Burglary Prevention Tips

Making your home a difficult target is the best way to prevent crime. Use these simple strategies:

  • Lived-in Look: Set timers for lights in different rooms and leave a radio on to signal presence.
  • Visibility: Trim shrubs around windows and doors so intruders cannot hide. Install motion-activated exterior lighting.
  • Access: Keep garage doors closed and locked at all times.
  • Windows: Leave drapes and shades open; closed drapes during the day are a common sign of an empty house.
  • Community: Post a “Beware of Dog” sign and join or start a neighborhood watch program.

Abstract (Of Title)

A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale-Clause.

Acknowledgment

A formal declaration before an authorized official (usually a notary public) by a person who has executed a document, that he did in fact execute (sign) the document.

Addendum

Something added. Items added to a document, letter, contract, escrow instructions, etc.

Agent

A person who acts or has the power to act for another. A real estate agent acts on behalf of the principal (the buyer or seller) and has a fiduciary responsibility towards the principal.

Amenities

Features that enhance and add to the value or desirability of real estate. Common amenities include swimming pools, professional landscaping, gourmet kitchens, and so on.

Amortization

The reduction of a debt over time by making periodic payments, usually monthly, a portion of which is interest and a portion of which reduces the outstanding amount of the debt.

Appraisal

An estimate of the value of property, made by a qualified professional called an “appraiser”.

APR – Annual Percentage Rate

The actual interest rate taking into account the points and other prepaid fees expressed in annual percentage terms.

ARM – Adjustable Rate Mortgage

A loan that allows the interest rate to change periodically up or down based on a specified financial index plus a margin.

Debt-to-income Ratio

The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her gross monthly income.

PITI Payment

A loan payment that combines Principal, Interest, Taxes, and Insurance.

Time to Sell – Your Goals

  • The right price
  • The right terms
  • The right amount of time

To Reach These Goals:

  • Make your home look good
  • Price it at market value right away
  • Use real estate professionals

Make Your Home Look Good

It’s important to make your home look presentable before you put it on the market. Exterior and interior paint will give you the best return on your money.

Clean up the yard, fertilize, and add some flowers for that most important first impression. Have an agent preview your house to give you suggestions.

If yours is an older house, your agent should recommend a termite and/or property inspection at the beginning. This works to your advantage in several ways: negotiations go smoother if you are aware of problems at the start.

Knowing of problems up front allows you time to fix things before an offer is brought in, giving the buyer confidence to offer more. If you choose not to fix them, it gives you and your agent more time to plan a negotiation strategy.

Price It Right

Pricing your house at market value from the start typically results in the best price in the least amount of time. Listing your property high only helps sell other similar houses on the market; buyers preview many homes and recognize what is overpriced.

The sales price must also appraise at market value for the buyer to secure a loan. When you factor in extra mortgage payments, property taxes, insurance, and the energy required to keep a home “show-ready,” overpricing is simply not practical.

Real Estate Professionals

Real estate today is labor-intensive. Most homeowners don’t have the time or specialized knowledge to successfully market their home for the best price. While some try FSBO (For Sale By Owner), most eventually list with an agent.

Most buyers work with an agent because they want professional guidance. Since commissions are typically paid by the seller, FSBOs get far less market exposure. Agents often prefer not to work with FSBOs because they end up doing the work of both sides without a clear framework for consultation.

Professionals use a Comparative Market Analysis (CMA) via the Multiple Listing Service (MLS) to determine market value. This survey of similar recent sales allows an agent to factor in the specific value of your home’s unique features.

Beware of agents who recommend the highest price just to get the listing; ensure any estimate is justified by data. Homes that sit on the market too long typically end up selling below market value.

Understanding Commission

Commissions are negotiable, typically varying between 4% and 10% depending on the property and market (6% is common). This fee is usually divided four ways: the listing agent, the listing broker, the buyer’s agent, and the buyer’s broker.

5% vs. 6% Commissions

A lower commission may not net you more. Agents often prioritize homes offering a 3% co-op commission over those offering 2.5%. If your home offers lower incentives, it will likely receive fewer showings, essentially helping other sellers move their homes first.

Marketing Your Home

The MLS remains the most effective tool for marketing. However, the internet is now the primary method for finding homes. Real estate companies using virtual tours and high-tech web marketing serve their clients significantly better.

  • Signs: A “For Sale” sign with a flyer box is essential for local visibility.
  • Lock Boxes: These secure devices allow agents to show the property easily. Restricting access dramatically reduces exposure.
  • Talking Houses: Modern devices allow drive-by prospects to hear features via radio, helping agents capture leads instantly.

Choosing the Right Company

Bigger is not always better. Large franchises (often owned by entities like NRT) have higher overhead costs. Smaller companies often have less overhead and can be more flexible on commissions while offering the same effective marketing through the MLS and the internet.

Criteria for Selection:

  • Good local market knowledge
  • Active marketing through the MLS
  • Strong website and internet presence
  • Best overall value for the commission rate

Real Estate Agent Needed

At some point during your search to buy or sell real estate, you will need the services of a real estate agent. Selecting an agent can be confusing.

There is a way to determine who is most likely to succeed in helping you get your price and terms when selling, or finding the perfect house when buying.

Questions to Ask a Prospective Realtor

  • Do you work as a full time Real Estate Agent?
  • How do you market your property?
  • Do you have a full time Assistant to see that no details are overlooked?
  • How do buyers contact you?
  • Are you marketing real estate on the internet?
  • If I choose to do a tax deferred exchange, are you experienced in such transactions?
  • In what ways will you encourage other Real Estate agents to sell my home?
  • Do you have a system to follow-up with other agents so that we get valuable feedback after every showing?
  • How many properties have you sold within the past 30 days? 90 days? 6 months?
  • Do you have a list of references that I may check? Are you on the internet exposing my property to millions of buyers instantly?
  • What is my property worth? What listing price do you recommend?
  • How did you arrive at that price?
  • How will you assist in my relocation plans?
  • Do you have a written Specific Marketing Plan designed to sell my property quickly and for top dollar?
  • Are you affiliated with a Mortgage Broker with over 300 wholesale lenders & have underwriting experience?
  • Will you offer 24 hour Talking Home Marketing on my property, for any prospective buyer who drives by?
  • Do you guarantee my satisfaction by allowing me to exit the listing agreement at any time, if I am not happy?

If the agent you are interviewing does not answer the above questions to your satisfaction, you should probably find another who does!

Setting the Price on your Home

The three factors to consider in selling your home: Location – Condition – Price.

Location

Your home’s location and setting influences its value. A home inside a quiet subdivision sells for more that the identical home on a busy street. Remote areas typically sell for less than close-in areas. Views, streams and trees usually enhance value. You obviously have no control over location.

Condition

New homes enjoy a marketing edge over resale homes because they are shiny and clean. And builders enhance their appeal by offering model homes (clean, bright, decorated in current colors and amenities) for buyers to examine.

Pricing

If IBM stock is trading between 110 and 120, it does no good to insist on selling at 150. Likewise, your home must be priced within the appropriate range. You must actually “sell” your property twice: first to a buyer and then to an appraiser. The buyer is more subjective and compares the amenities of your home to those of other homes in the same price range. The appraiser is more objective and compares age, size, and cost-identifiable features in your home against other properties that have sold.

Your agent must use his experience and expertise to fine-tune the price by taking into consideration all of these variables.

Prequalification

Most homebuyers go about the process completely backwards! That is they spend several weeks, months and sometimes years, looking at Real Estate ads, driving neighborhoods and attending open houses looking for the perfect home.

Once they’ve found the house of their dreams, they place an offer to purchase it subject to obtaining financing. Then they shop for a loan. More often than not, it is above their means and they lose the sale because they can’t finance it. Not only are they frustrated but so is the inexperienced agent who chauffeured them around for a year.

The savvy buyer of today shops the loan first and then knowing exactly how much they can afford, will then seek only properties that are within their reach.

There are two methods of doing this. The standard way is to call or meet with a loan agent, tell them their financial and credit history, have the agent “run the ratios” and then tell the borrowers about how much they will qualify for.

The flaws in this scenario are that the borrowers often forget to tell about their 5 late credit card payments, their new boat payment or push their income figures beyond reality.

The preferred method is to complete an application, provide income and employment records, have the loan agent run a credit report then actually submit the file to a wholesale lender for underwriting then receive an approval and commitment for a loan for the borrower.

This is also a powerful negotiating tool when presenting an offer to purchase.

I don’t know of a single seller who would prefer to accept an offer from a buyer subject to obtaining financing over the buyer who already has a loan commitment! This can and will save you money when negotiating the contract. As a hunter once told me, you don’t go out looking for a bear, find him then go and get your bullets!

Get a loan commitment first, then find your dream house.

What is Tax-Deferred Exchange?

Under Section 1031 of the Internal Revenue Code, owners of real estate held for investment or use in a trade or business can swap their property tax-free for “like-kind” real estate. Exchanges are made for people wanting to stay invested in real estate, increase their leverage and to avoid paying hefty taxes upon the sale of property.

Like Kind

  • Apartments
  • Rental Houses
  • Retail Properties
  • Commercial
  • Raw Land
  • Office Buildings
  • Industrial
  • Ranches

Non Qualifying Properties

  • Personal Residences
  • Dealer Property
  • Partnership Interests
  • Inventory

Reason to Exchanges

  • Restoring Depreciation that will soon expire – by exchanging one property for another of greater value.
  • To upgrade size and/or quality of investment. An exchange can be utilized to combine the equity of one or more properties into a larger singular investment.
  • To change investment location. An exchange can be executed in anticipation of market trends to maximize appreciation potential.

7 Steps for a Successful 1031 Tax Deferred Exchange

Step 1: Consult with your tax and financial advisors to determine if a tax deferred exchange is appropriate for your circumstances and compatible with your investment goals.

Step 2: Listing the Relinquished Property for sale with a licensed real estate broker. During the first step the Exchanger will list the Relinquished Property with a real estate broker. The broker/agent will disclose the intent to complete an exchange in the listing agreement.

Step 3: Offer, Counter Offer and Acceptance. The Exchanger enters into a contract with the Buyer for the sale/exchange of the Relinquished Property. The broker/agent discloses the Seller/Exchanger’s intent to exchange into the Purchase Agreement and Receipt for Deposit.

Step 4: Open escrow for the Relinquished Property and coordinate with the Facilitator. The Facilitator prepares the exchange agreement and coordinates with the escrow holder to close escrow as Phase I of a tax deferred exchange. Important: The exchange agreement must be in place and signed by all parties prior to close of escrow. Additionally, all earnest money deposits should be placed with the title company.

Step 5: Replacement Property Identification. After closing escrow for the sale of the Relinquished Property, the Exchanger must identify all Replacement Property within 45 days from day after close of escrow.

Step 6: Contracting for the Replacement Property. After closing on the Relinquished Property the Exchanger has 180 days to acquire the Replacement Property. With the help of his or her agent the Exchanger enters into contract to purchase the Replacement Property from the Seller. In the contract to purchase the agent discloses the Exchanger’s intent to complete the exchange and obtains the Seller’s cooperation.

Step 7: Open escrow for the Replacement Property. The Facilitator prepares the Phase II Exchange Agreement and coordinates with the Replacement Property Escrow holder. The funds held in trust by the Facilitator are placed in escrow and the Replacement Property is purchased by the Facilitator from the seller. The Facilitator then transfers the Replacement Property to the Exchanger and the transaction is closed as Phase II of a delayed exchange.

Identification of Replacement Property

Regardless of the number of relinquished properties transferred by the Exchanger as part of the same exchange, the maximum number of replacement properties that the Exchanger can identify is as follows:

3 Property Rule: Three properties without regard to the fair market values of the replacement properties.

Or

200 Percent Rule: Any number of properties as long as their aggregate fair market value as of the end of the identification period does not exceed 200 percent of the aggregate fair market value of all the relinquished properties as of the date the relinquished properties were transferred by the Exchanger.

Exception – 95 Percent Rule: Any number of replacement properties identified before the end of the identification period and received before the end of the exchange period, but only if the Exchanger receives before the end of the exchange period identified replacement property the fair market value of which is at least 95 percent of the aggregate fair market value of all identified replacement properties.

Glossary of Terms

Accommodator: A principal involved in the exchange transaction who agrees to assist the exchanger to effect a tax-deferred exchange. Same as Facilitator or intermediary.

Accommodating Party: In an exchange of properties there is always a person or entity that steps in to accommodate or facilitate the exchange transaction. Depending on how the transaction is structured, the accommodating party may incur additional liability in their efforts to assist in the exchange.

Acquisition Property: Replacement property

Actual Receipt: When the Exchanger actually receives the funds from the sale of the Relinquished Property. Receipt of cash by the Exchanger before he receives the Replacement Property may be enough to destroy the tax deferred treatment of the transaction.

Adjusted Basis: Generally speaking the adjusted basis is equal to the purchase price plus capital improvements less depreciation. Transactions involving exchanges, gifts, probates and receiving property from a trust can have an impact on calculating the property’s adjusted basis. The taxpayer’s C.P.A. or tax advisor is the party to look to for these types of questions.

Boot: Boot is any type of property received or given up in an exchange that does not meet the like kind requirement. Generally speaking, receiving boot will trigger the recognition of gain and taxes. If the Exchanger receives boot, they will be taxed. Boot added or given up by the Exchanger does not necessarily trigger a taxable event. In a real property exchange, boot received is any type of property received by the exchange which is not real property held for investment or productive use in a trade or business.

Cash Boot: Cash Boot consists of cash and nonqualifying property. A car, a boat or receipt of the beneficial interest in a promissory note are all examples of Cash Boot.

Mortgage Boot: Mortgage Boot consists of the secured debt given up and received as part of the same exchange. If the exchanger increases the amount of debt on the Replacement Property verses the Relinquished Property, they have given mortgage boot. If the exchanger decreases the amount of debt on the Replacement Property verses the Relinquished Property, they have received mortgage boot. Generally speaking, mortgage boot received triggers the recognition of gain and it is taxable, unless offset by Cash Boot added or given up in the exchange.

Constructive Receipt: Even if the Exchanger does not actually receive the proceeds from the disposition of the Relinquished Property, the exchange will be disallowed if the Exchanger is treated as having constructively received the funds.

Delayed Exchange: Also called non-simultaneous, deferred and Starker. A delayed exchange is a tax deferred exchange where the Replacement Property is Received after the transfer of the Relinquished Property. In a delayed exchange the Exchanger must identify all potential Replacement Properties within 45 days from the transfer of the Relinquished Property and the Exchanger must Receive all Replacement Properties within 180 days or the due date of the Exchanger’s tax return whichever occurs first.

Like-Kind Property: Refers to the nature of the property the Exchanger gives up or receives as part of the same tax deferred exchange transaction. In order to qualify as like kind the property given up or received must be held for productive use in a trade or business or held for investment to qualify as like-kind.

Realized Gain: Refers to a gain that is not necessarily taxed. In a successful exchange the gain is realized but not recognized and therefore not taxed.

Recognized Gain: Refers to gain which is subject to tax. When someone disposes of property at a gain or profit in a taxable transfer such as a sale, the gain is not only realized, but recognized and subject to tax.

Relinquished Property: The property given up by the exchange to start the 1031 exchange transaction. This property usually passes through an accommodator before transferring to the ultimate Buyer.

Reverse Exchange: An exchange where the Exchange acquires or gains control of the Replacement Property before disposing of the Relinquished Property.

Simultaneous Exchange: Also referred to as a concurrent exchange. A simultaneous exchange is an exchange transaction where the Exchanger transfers out of the Relinquished Property and Receives the Replacement Property at the same time.

Transfer Tax: A tax usually assessed by a city or county on the transfer of property. It may be based on equity or value. When structuring a multi-party exchange an exchange agreement will usually call for direct deeding to eliminate additional transfer tax.

April 15th

A taxpayer must identify replacement property within 45 days after the transfer of the relinquished property, and acquire the replacement property within the earlier of 180 days of the relinquished property closing, or the due date of the taxpayer’s tax return.

This means that 1031 escrows that close after Oct. 18 will not have the full 180 days to acquire the replacement property unless the taxpayer files an extension.

Contact your CPA or tax attorney for advise.