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- 1 - Table of C on te n ts 1. Int rodu ction 9. Making an O ff e r 2. Buying vs. Renting 10. The Cont ract 3. Do you q ualify for financing? 11. Seller’ s Dis closu re 4. Financing 12. Buyer’s Insp ections A. The “Mo rtgage” 13. The “Home Insp ec tion” B. Loan-to-Value Ratio and 14. “As -Is” Sale Mo rtgage Insu rance 15. Contin gencies C. Basic Charac teristi cs of a Loan 16. Earnest Mon ey and Es crow 1. Fixed Rate Mo rtgage vs. 17. Title Insu rance Adjust able Rate M ortgage 18. Prorationing 2. 15 Year Mo rtgage vs. 30 19. The Closing Yea r M ortgage 20. Good Luck! 3. “Points” D. Pre-Qu alification and Pre- App rov al App endix Listing E. RESPA F. Types of Loans State Rea l Est ate Information 1. Conv ention al Loan – Closing 2. VA Loan 3. FHA Loan State Rea l Est ate Information 4. Own er Financing – Inst rument of Conv eyance 5. Assumption of E xisting Loan State Rea l Est ate Information 5. R eal Estate A gents A. S eller’ s Agent B . B uyer’s A gent C . “Du al” A gent 6. R eal Estate Atto rne ys 7. S etting a n Aski ng Pric e A. Neig hbo rhood C omparis ons B . Pre -a ppr ais al, P re-inspec tion? C . Seasona l Selling D. Appli ances a nd Fix tu res E. The Tempt ation to Over pric e F . Imp rovi ng Yo ur P rop erty G. Home Warra nty I ns ura nc e 8. Adver tising and Showing A. Adv ertising W ithout a n Agent B . Newsp ap er Ads C . Yar d S ig n and F ly ers D. Int erne t Ad ver tising E. Hold a n Open Hous e F . Showing the House – T rans fe r T ax es - 1 - Multi-S tate G ui de t o S el li ng (a nd Bu ying!) Real Estate This Guide was de veloped b y U. S. L eg al F orms, In c. ( USL F) to assi st y ou in the sale of real e st ate and to he lp B uyers a nd S eller s under sta nd t he pr ocess. This Guide may not be reprint ed or dist ribut ed without the writte n cons ent of USL F. 1. I ntr oduct ion This Guide is meant t o h elp B uyers a nd Seller s b ecome fa milia r w ith the v arious pr ocedur es involve d in the pr ocess of bu yin g or s e lling a hom e, and has been writte n as a n over view e sp eci all y f or individua ls who ar e not us ing a r e al e st ate a g ent. S ome s ections of t h e Guide m ay be mo re us eful to B uyers, a nd some to S elle rs, while some s ections will be in for mative to both. W e suggest t h at y ou read the e ntire G uide from st ar t to finish. W hether y ou are s e lling or bu yin g, it will benef it you to know a s mu ch as possible a bout the e nti re situ ation a nd all involve d par ties. T he ba sic st eps of home s a le /purc hase a re c ove re d, including the B u yer’s f in anc in g opt ions, the initia l si gning of the C ont ract, S eller’ s D isclosur e a nd ent ry into the Es crow p er iod, the var ious home inspections a nd insura nce c onc erns, and fin all y t he C losin g, wh ere a ll the t’ s ar e c ross ed a nd i’ s a re dott ed. You ar e e nc our ag ed to thor oughl y qu estion the va rio us pr ofe ssion als th at y ou will enc ount er i n the home s ale /purc hase p roc ess, including ( but not limite d to) the lo an offi cer, hom e insp ecto r, a nd esc row a g en t. Th ese p ersons will pr ovide in- depth e x pl ana tions of subj ects th at can only be g ene ra lly dis cuss ed he re . Th ese pr ofe ssion als ar e va lu able sour ces of inf ormation a nd guida nce i n the ir ar eas of exper tise. 2. Bu ying vs. R en tin g On ce y ou are su re y o u will be re maining in a g ive n ar ea f or a per iod of y ea rs, the wi se f in anc ia l decision is to obt ain a mo rtg age lo an fro m a l ending institution a nd buy a hous e. The onl y r e ason you would not w ant to bu y a h ouse is if y ou may ha ve to (or w ant to) pi ck up a nd move at a ny time . B uyin g is the opposite of re ntin g. M aki ng y o ur monthl y mo rtg age pa ym ents is like putting mone y in a pi gg y ba nk for l a te r us e-- y ou will get mu ch of it ba ck whe n you s e ll the hous e. This is cal le d building up “equi ty ,” whi ch is “actu al ow ner ship” of you r hom e. Thoug h mu ch of y our fir st fe w y ears of pa ym ents w ill be ke pt by the ba nk as int erest on your lo an, so me of this m one y will be pa yin g the pr inciple on the lo an. The pr inciple is the actu al a mount y ou borrow ed. As y ou pay back the l oa n, the house becom es mo re a nd mor e “ your hous e” a nd le ss and le ss “th e ba nk ’s h ous e.” I f y ou e ve ntua ll y pa y o ff y our e nti re lo an, you have som ething t o show f o r it! Y ou ha ve a pl ac e to live th at be longs to y ou (rent fr ee! ), and if y o u want to s e ll, the e nti re purc hase p ric e - 2 - will go to y ou. If y ou dec ided to s e ll bef ore p aying of f y our e nti re lo an, yo u wou ld still g et b ack a subst anti al por tion of the mone y you h ad pa id in month b y month. Monthl y rent p aym ents ar e of te n no le ss than wha t y ou could be p ayin g on a monthl y mo rtg ag e. Y es, bu yin g a home requi res some up-front e x pe nses f or initia l fee s, insura nce e x pe nses, pr oper ty t ax es a nd maint ena nce. A par tme nt living r e qui res none of th ese e x pe nses. B ut th ese c osts ar e tin y in c ompar is on with “ th rowing a w ay” a re nt c he ck e ve ry month. W hen you buy, you are inve sting y o ur monthl y mo rtga ge p ay m ents -- mu ch of this mone y will c ome back to you e vent uall y . B uyin g a home a lso offers tax a dva ntag es th at r e nting do es not. As a B uyer , you m ay de du ct the int erest on you r mo rtg age pa ym ents a nd y o ur pr op erty ta x es. B uyin g a house c ould onl y be w ast eful c ompared to r e nting if y ou move within a y ear o r so of bu yin g. If y ou know y ou won ’t be moving , buyin g m ay be the best f inan cia l d eci sion you can m ake . 3. Do you qualif y for fin an cin g? Depe ndi ng on your cred it ratin g, le ve l o f in com e, asse ts a nd othe r fact ors, y ou may or m ay not qua lify f or a lo an l arg e e nou gh to pu rcha se a hom e. T he su rest w ay to f ind out is to a ppl y to a l e ndi ng institution f or a lo an of the a mount y ou think you will need for the purc hase . You m ay qu alif y f or a n FHA or VA lo an, disc uss ed be low . You will eith er be acc ept ed f or the lo an am ount, or inst ruc te d on how to imp rove y our “ cre dit pr ofile ” ov er time in or de r to become elig ibl e. If t he lo an you qualif y f o r is not e nou gh to purc hase the house y ou want, you might a sk if the S elle r will cons ide r f in anc in g t he di ffere n ce f or y ou ( s e e be low, Own er F inan cin g). 4. F in an cing A. Th e “M ortgage ” Because most hom es c ost mo re th an the a mount of cash the or dinary p erson ha s availa ble, the ty pi cal B uyer will have to borrow mone y in or de r to aff ord a hous e. A mo rtg age is a lo an obt ain ed for the pu rpose o f p urc hasing r eal e st ate . If y ou qua lify f or a lo an, the l e nd er will le nd you mon ey t hat y ou re p ay ove r m an y y ear s ( nor mall y 15 or 30 yea rs ), with interest. I n addition, you ag re e th at if y ou c annot m ake the pa ym ents, the l ende r ha s the r ig ht to “ foreclose t he mo rtg ag e,” t ake poss ession of a nd s ell y our hou se in o rde r to re pay th ems elv es f or the lo an you are un able to pa y b ack. T he “ mo rtg ag e” its elf is a leg al cla im on the real e state th at s ecur es the promise to pa y t h e de bt. The “ pr incip al” is the a mount of the lo an. “ Int erest” i s the f e e y ou pa y the l e nde r f or keepi ng th eir mone y over a long p er iod of time , pa yin g it back only slo wly . The l e nd er recove rs the int ere st mo re qui ckl y t h an the pr incipa l, a nd ther efor e y our f ir st fe w y ear s o f monthl y paym ents will consist mo re of int erest p ay m ent th an pr incip al pa ym ent. As the mid -point of the lif e of the lo an pa sses, mo re and m ore of each month ly p aym ent re pre se nts pr incip al. Y ou can pre -p ay pr incip al, whi ch will shorte n th e lif e of y our mo rtg ag e, a nd th ere by r e duc e the amount of intere st y ou ha ve to pa y. - 3 - Your monthl y paym en ts e nc ompa ss payin g of f the pr incip al a nd interest, y our hom eown er’s insura nce, yo ur pr op erty t ax es, a n d yo ur mo rtg age insura nce ( unl ess you m ana ge to put down 20 % or more of the pu rc h ase p ric e o f the p roper ty , in whi ch case mo rtg age insura nce m ay not be re qui red) . Y ou will t y pi call y recei ve a sm all pa per book with t ear -out stubs f or e ac h monthl y paym ent to s e nd with y ou r c he ck. You mig ht a lso a sk the lende r if ele ctr oni c pa ym ent ( by a utom atic monthl y d educ tion f rom y our c h ecking account, for e x ampl e) i s a n option, and wheth er y ou get a n y f avora ble t re a tme nt is a va ila ble for m aki ng pa ym ents a utom atica ll y . B . L oan -to- Val ue Ra tio an d M ort gage Insu ran ce The loan- to-v alue ratio is the percent ag e of the tota l s ale pr ic e of the prope rty th at y ou a re a llow ed to borrow. For e xampl e, a mo rtg age with a lo an- to-va lue ra tio of 90% would m ean that y ou could borrow up to 90% o f the c ost of the pr ope rty , but th at y ou would ha ve to m ake a down pa ym ent of the othe r 1 0% of the cost. If the pr oper ty cost $100,000, you c ould bo rr ow $90,000 a nd would have to put $10,000 down. Lend ers t y pi cal ly re qui re the B uyer to purc hase mo rtg age insura nce to pr otect the le nde r in case the Buyer canno t m ake p aym ents. If th is w er e to ha ppe n, the l ende r would be re imbu rs e d by t he mo rtga ge insur anc e c ompa ny, who would then en ga ge in t he m ess y busine ss of foreclosing o n and se lling y our property -- s avi ng the lende r th is t r oubl e. The c ost of mo rtg ag e insura nce will increase y our m onthl y paym ent b y a n av era g e of $20 or mo re p er month f or the li fe of the mo rtg ag e lo an, so it is ni ce to a void this expe nse if possibl e. No rm all y , if y ou are a ble to m ake a n initia l down paym ent of a t l east 20% of the p ric e o f the pr oper ty , the le nde r will have enou gh c onf ide nce in your abi lit y to pa y of f the mo rtg age th at th ey will not re qui re mo rtg ag e in sura nce, and you sa ve a lot of mone y in the long r un. Be su re to a sk y our l e nd er how mu ch you must put down in or der to a void the re qui rem ent of mo rtg age insura nce. R em em ber th at e ar ne st mone y deposit ed by y ou a t the time of the initia l signi ng of the pur cha se cont ract is a pplied to the down p aym ent. C. B asic Char act eris tic s of a L oan 1. F ixed Ra te M ort gage vs. A dju stab le Ra te M ortgage Fix ed or Adjust able refer s to the int erest rate y ou pa y. W ith a f ix ed ra te mo rtg ag e, the ra te neve r c hanges th rou ghout the lif e of the mo rtg ag e. Y ou know tha t e ve ry month you will have to pay a certa in amount. I f intere st ra te s sk yro cke t, y ou will be safe with y our lock ed- in rate ( if r a te s fa ll subst anti all y, you can a lw ays r ef in an ce y ou r mo rtg ag e, m eani ng th at y ou get a new lo an at the lower int erest ra te -- whi ch of c our se involve s some up- front c ost ). If the e conom y exper ie nces in fla tion, yo ur monthl y paym ents w ill not c ha nge, and you’ ll lik ely h ave mo re mone y to p ay th em with. - 4 - An a djust able ra te m ortg age on th e othe r ha nd may o ff e r a n initia l low er int erest ra te th an a f ix ed rate mo rtg ag e, with the ra te st epp ing up la te r on. No rm ally th ere is a cap on the m ax im um y ou mig ht pa y, but if int erest ra te s ris e, you will find y o ur monthl y paym ents r isin g. Of c ou rse if r a te s fa ll, y ou will benef it, but a g ain th ere m ay b e a cap on how low y our pa ym ents c an go. Adjust ab le ra te mo rtg ag es ar e most a ttr active if y ou think you mig ht be moving soon an d don’ t care m uch a bout the intere st ra te in creas es th at y o u won’ t be ar ound to p ay. 2. 15 Y ear M ort gag e vs. 30 Y ear M ort gage These ar e the two time p er iods t y pi cal ly o ffered for re pa ym ent of the lo an. A 15 y ear mo rtg ag e is a dva ntag eous be cause y ou will be a ble to g et a low er int erest ra te th an a 3 0 year mo rtga ge-- in ef fect the l end er is re war di ng y ou with the low er ra te f or pa yin g th em ba ck twi ce a s qui ckl y. Your monthl y paym ent will be in the ne ig hbor hood of 25- 30%- hi gh er ( not doubl e!) th an if you ha d a 30- year mo rtg ag e, but if y ou can ha ndle the pa ym ents, yo u will sa ve a l ot of mo ney in the long r un. Ask y ou r l e nd er to show y ou a c om parison of t he tot al y ou will pay out ove r the lif e of a 15- year vs. a 30- year mo rtg age , and you will be im pre ssed by the di ffere nce in the tot al pa id. This d iffere nce is due not onl y to the in creas ed int erest ra te f or a 30- yea r lo an, but a lso (and m ain ly ) b ecause y ou are p ayin g int erest f or 30 year s r ath er th an 15. You mig ht opt for the 30 y ear mo rtg ag e if y ou f eel unc omfor ta ble with the larg er monthl y p aym ents neces sitate d by the 15 yea r m or tg ag e. You mig ht tr y to pa y of f y our mo rtg age e ar ly ( if y ou have the e x tr a m one y), adding a n ex tr a a m ount on a monthl y basis for pa ying dow n pr in cip al a nd thereb y reduc in g int erest. I n this w ay, you could pay o ff a 30- yea r mo rtg ag e in (fo r e x ampl e) 20 years, a nd sa ve a lot of int erest ex pe nse. B e su re to conf ir m with your le nde r th at th ere is no pe nalt y f or pre -pa ym ent. If y ou are int erest ed in in come t a x de duc tions, the 30- y ear mo rtg ag e is mo re adv ant ag eous in this respect, due to m ore t ax -de duc tible int erest b ein g pa id ove r t he fir st two -thi rds of the life of the mo rtg ag e. 3. “P oints” The purc hase of o ne or mo re “ Points,” a lso known a s a “Dis count P oints,” is an option on m ost mo rtg age loa ns. One point cos ts one -per cent of y our t ota l lo an a mount, and if pu rcha se d, may re du ce y our int ere st ra te b y 1 /8 of a p ercent ag e point. For e x ample if y ou w ant ed to purc hase two points on a $100,000 loan at 7% int erest, y o u would pay $2000 up front to the le nde r in or de r to re duc e the int erest ra te b y 2/8 percent (.250) to % 6.75. T his s a ve s y ou mone y in the long r un, and mig ht be a n attr active option if y ou kno w y ou’ ll be stayin g in t h e house a long time -- a nd if y ou c a n aff ord the a dditiona l up- front c ost. Ask y our l e nd er to show y ou a c ompar ison of lo ans with z ero points, and one or mo re points. - 5 - D. Pre-Quali fic at ion and P re-A ppr oval Bef ore y ou st ar t looking f or a de sira ble pr oper ty to purc hase , you need to f ind out ho w mu ch you can borrow. Other wise y ou have no basis for decidi ng on a p rice -r a n ge th at is practical f or y ou. To fin d out how muc h you can borrow , get pr e-qua lifie d with a lender. C onsult famil y, f rie nds or c o-wo rk er s to find a l e nd er in y ou r a re a t hat ha s a g ood re put ation a nd fin anc ia l st abilit y. If y ou com pare l e nde rs, c all them on the s a me d ay to c heck their ra te s, be cause int erest ra te s can cha nge da il y . C all th em or vis it th eir of fic e in or de r to deter mine wh at si ze lo an you can be p re -qu alif ie d f or. P re-qua lifica tion consists of y our a ns wer in g a sh ort s er ie s of que stions re garding y our in com e, asse ts a nd debts, a nd the l e nd er g ivi ng y o u a ba llp ark fig ur e of w hat a mount lo an you qua li f y f or. This is not a c ommitme nt from the l e nder , but i t is a g o od st ar ting point f or y ou to know “ how mu ch hous e” y ou c an a ffor d. Pre -a ppr oval is the l ende r’s c ommitme nt to y ou for a l oan o f a cer ta in a m ount a t a c erta in ra te . This c ommitme nt h as a time limit. You c ould go ah ead and get p re -a pp rove d as y o u zer o in on the house y ou want, or w ait until y o u ha ve si gn ed the initia l c ont ract on the house to g et a ppr oved- - y ou will be g iv en time to obt ain y ou r f in an cing b etw een the si gni ng of t h e c ont ract a n d the closi ng of the sale . In or der to g et a ppr oved for y ou r lo an, y o u (a nd your spous e, if a ppli cabl e) will need to submit the document ation to y our loan offi cer. Exampl es of infor mation re quested inc lude s: 1) Address of the proper ty you w ant to purc hase 2) The Cont ract y ou ha ve si gne d for th at p rop erty 3) Federal W -2 f orms f rom the last 2 y ear s 4) Tax re turns from the last 2 year s 5) Pay stubs from the past 2 -4 months 6) Docum ent ation on a ny l o ng-te rm d ebts 7) Bank st ate m ents on a ll accounts 8) Docum ent ation on a ny i n ve stm ents a nd/or other a sse ts or incom e. The a ddress a nd C ontract a re not re quired f or p re-a ppr oval, but will ultima te ly be re qui red for a pp raisal pur pos es. The l e nde r will app raise the pr ope rty in or der to m ake su re it is wo rth a t least the a mount of the lo an the y int end to m ake to y ou- - other wise th eir lo an would not be ful ly s ecu red b y the property . The a bove in for mation is necessa ry f or the l e nde r to f or m a n accura te id ea of how m uc h mone y y ou can affor d to re pa y. The m ax imum amount of the lo an you are of fered will be b ase d on this infor mation and you r credit histor y. The l end er will or der y ou r credit histo ry r e por t in o rde r to a scer ta in y ou r re liabilit y in re payin g de bts. - 6 - E. R ESPA The R eal Est ate S ettle ment P rocedur es A ct ( R ESP A) requi res l e nd ers to dis close in for mation to pot enti al c ustom ers th rou ghout the mo rtg ag e a ppl ication and a ppr ova l pr ocess. R ESPA pr otect s borrow ers b y m anda ti ng th at le nder s ful ly in for m th em a bout a ll c losing c osts, lende r servi cin g a nd e sc row account pr actices, a nd busine ss rela tionships be tw een closing s er vi ce pr ovider s a nd othe r par ties to the tra ns action. A “ Good Faith Estima te ” will be f urnish ed to the borrow er, listing all f ees pa id be for e c losin g, all closing c osts, a nd an y e scr ow c osts y ou will enc ount er wh en purc hasing the p roper ty . The le nd er mu st suppl y the Good F aith Est im ate within th ree da ys of r e ceiving yo ur a ppr ova l a ppli catio n so tha t y ou c an m ake compar isons whe n shopping f o r a lo an. F . T ypes of L oan s S everal t ype s o f f in an cing ar e a va ila ble, i ncluding the “conve ntional loa n,” the V A ( V ete ra ns Administra tion) loan, the FHA (Fe dera l Housing Administ ration) loan, and possibl y “ own er f in an cin g” o r a ssumption of an e xis ting lo an. E ach is dis cuss ed be low. 1. Con ventio nal L oan A c onve ntiona l lo an is a n or dina ry lo an from a b ank, sa ving s a nd loan, mor tg age c ompa ny or othe r le ndi ng institution. O fte n, a do wn pa ym ent is re qui red, or m ay be he lpful in re duc in g the interest ra te or c er ta in f ees, su ch as mo rtg ag e in sura nce. I f y ou qua lify f or the lo an (m eani ng the l e nd er be lie ves y ou are cap abl e of pa yin g back the lo an) , th en the l e nde r will loan you m oney, but will ta k e y our h ome a s “ secur it y ” ( m eani ng th at if y ou cannot m ake t h e p aym ent s, th ey will for eclose on the lo an and se ll your h ome in or de r to recov er the mone y y ou owe th em ). A c onve ntiona l lo an is th e easi est ty pe to g et a nd doe s not involve a s m uch “re d t a pe ” a s VA and FHA l oans, whi ch both invol ve the f ede ra l g ov ernm en t. You should shop around for the be st Ann ual P ercent age R ate (A PR ) of int ere st y ou can get for y our lo an. Lend ers will ex pl ain the v ar ious de ta ils of the di ffere nt var ie tie s of lo ans th at ar e a vaila bl e, f or e xample f ix ed or v aria ble int erest rate lo ans. Fee s will be in clu de d with y ou r lo an, be su re t o ask a bout all fees t h at will be a ppli ed. You do not h ave to pa y th ese f ees up front, they a re a dde d to the tot al a mount y ou ha ve to ultima te ly p ay back. 2. VA L oan The VA loan is onl y avail able to e lig ible A rm ed Ser vi ces ve terans, has a long er pr ocessi ng time th an a c onve ntiona l lo an and requ ire s mo re pa perwo rk. Y ou may c ont act the D ep ar tm ent of V ete ra ns A ff a ir s a t 1- 800- 827- 1000 to deter mine if y ou qua lify, to re que st a C ertif icate of El ig ibilit y, an d to a sk for a list of le nder s in y o ur ar ea th at of fer VA loans. A dow n pa ym ent is of te n ne cessa ry if the VA ’s a ppra isal of the pr oper ty is low er th an the pur cha se pr ic e (whi ch is o fte n the cas e). This down paym ent m ay not be borro wed from a c omm erc ia l le nder , thoug h it may be borro wed from a frie nd or fa mil y m emb er. The b en ef its of a - 7 - VA loan include : p roba bilit y of r eceivi ng a lo w er int ere st ra te th an tha t of a c onve ntiona l lo an, no penalt y if y ou are a ble to pa y of f y our lo an early , and no re qui rem ent f or m ortg age insura nce, sin ce the VA i s i nsur ing a l a rg e par t of y our lo an. 3. F HA L oan The Federal Housing A dministra tion is an a gen cy of the fe deral g overnm ent whose pur pose is to e n cour ag e home o wn ership by low er-to -mid in come p eopl e. An F HA loan is a v aila ble to anyon e with g ood cre dit, but ha s a m ax imum amount de pendi ng on the area in whi ch you plan to bu y. This m ax imu m is in the low er e nd of the housing m arke t, but can be up to 97% of the purc hase pr ice. At least a sm all down pa ym ent is re qui red, a s is mo rtg age insura nce whi ch m ust be purc hase d by the b u yer a t the c ost of 0.5% of the lo an amount. L ike a V A lo an, the down p aym ent m ay not be bor row ed from a n institution al l ender . Due to the sm alle r down pa ym ent th an the t ypi cal c onve nt iona l lo an, the int ere st r a te on an F HA loan may b e a bit h ig her . Th ere is no pre-pa ym ent pe nalt y . F HA lo ans ar e a va ila ble a t F H A -a ppr oved l ender s, including most typi cal institution al l ender s from whi ch you would o btain a conve ntiona l loan. 4. O wner F in an cing Own er F in an cing r efer s to the owner of the property ( th e S eller ) f in an cing t he sale f or the B uyer. In this situ ation, t he Buyer would m ake monthl y mo rtg age pa ym ents to the S elle r inst ead of to a b ank or othe r le ndi ng ins tituti on. Most S eller s w ant th eir mone y “ up front” a nd are not willing to r isk the c ompli cations of the B uyer de fa ulting on paym ent s s ev era l m ont hs or y ea rs l ater , in w hic h case S elle r would ha ve to for ec lose on the house a nd remove the bu yer, whi ch would involve leg al action. H ow ever , for one r e ason or a nother , some Seller s m ay want to f inanc e a B uyer’s p urc ha se . The option f or O wne r f in an cing a ppears in S ect ion 3 of the Cont ract. 5. Ass um ption of E xis tin g L oan If the S elle r h as a n ex isting m ortg ag e lo an, it may o r m ay not be possible f or the B uyer to simp ly t a ke ove r the pa ym ents on the S eller’ s lo an. W hether or not this is possible will depend on the c ha ract eristic s of the e x isting lo an, the c re dit - wo rthin ess of the B uyer a nd othe r f acto rs. As a B uyer , you may w ant to e nqui re wh eth er o r not a ssumption is a possibili ty , but y ou will want to c aref ully c omp are the pr os a nd cons of th e e x isting loa n to ne w fin anc in g y ou mig ht be a ble to obt ain. As lik ely a s not, you will be a bl e to obt ain mo re fa vor able f in an cing b y g ettin g y our own, n ew l oan. - 8 - 5. Real E stat e A gen ts A real e st ate a g ent can h elp in finding a suit able home a t the r ig ht p rice, but real e st ate a g ents ha ve to be p aid. R ealto rs h ave a cce ss to comput er da ta b ase s c ont aining in for mation on a ll region al p roper ty sa le s a nd can accu rate ly asc er ta in the va lue of pr oper ty in a n y a rea. In tra ns actions wh ere th ere ar e r e al e st ate a g ents r e p re se nti ng both B uyer a nd Seller , the S elle r nor mall y p ays a ll age nts out of t he s a le pr ocee ds ( thoug h this m ay va ry b y r e g io n). Howe ver, if the Selle r is s e lli ng t he home himself , without a n ag ent, th en he m ay not be willi ng to p ay the B uyer’s a ge nt. The B uyer m ay h ave to pa y the a g en t hims elf . W hen a B uyer is c onsider ing obtaining a n ag ent, the B uyer shou ld que stion the a gent on how the a g ent ’s fees will be pa id in th e e ve nt th at the hom e pu rcha se d is “F or S ale by O wn er.” A. S eller’ s Ag en t A S eller’ s a g ent re pre se n ts onl y the s e lle r, a nd has no dut y to pot enti al buy ers othe r th an those pre scr ib ed by l aw, su ch as ( in most st ate s) to reveal a n y d efects the a g ent knows of to the B uyer. The S elle r’s a g ent is t y pi call y pa id b y t he S elle r from the p roceeds of the s a le of the p roper ty . A n ag ent can be ve ry he lpf ul to the S elle r in s e tting an accu rate pr ic e f or the pr ope rty du e to t he agent ’s knowl ed ge of the local real e sta te m arke t. The S eller’ s a g ent, whi le he lpful, must be pa id a c ommission from the p roceeds of the s a le . T he f e e is n eg oti abl e, but usua ll y a ll the r eal e st ate a g enc ie s in on e a re a will be c ha rg in g the s a me ra te -- nor mall y ar ound 6% of the s a le pr ic e of t he pr oper ty . If y our home s e lls f or $150,000, y ou will be f or king ov er $9,000 to y ou r a g ent a t c losing! This is mone y that y ou would be keepi ng f or y ou rs e lf i f y ou so ld your home without a n ag ent. S elling without a n ag en t re qui res be in g home mo re of te n dur in g the da y to show the hous e, m eet inspe cto rs, e tc . ( diffi cult if y ou a nd yo ur spouse w ork) , a nd requi res y ou to t a ke on the othe r p roce dura l re sponsibiliti es th at would ty pi cal ly be h andl ed by you r a g ent . T he a g ent c ould be a v alu abl e re sour ce f o r y ou in s e ttin g the pr ic e on y our hous e a nd a dvisi ng y ou about the lo cal housing market ( wh eth er it is bus y, slow, e tc .) , and how this should affect y our minds et in re gar ds to pr ice. An a g ent is ni ce, but so is keeping th at 6% of y our mon ey! Your de cision on wh eth er or not to use a n ag ent will depend on y o ur c irc umst anc es a nd prio ritie s. B. Bu yer’s Ag en t A B uyer’s a g ent re pre se nts onl y the B uyer , and has no dut y to t h e S elle r. The B uyer’ s a g ent is t y pi cal ly p aid b y the S elle r from t he pr oc eeds of the s a le of the pr oper ty ( par t of the 6% pa id b y the S elle r to the S eller’ s a g ent is pa id to the B uyer’s a g en t) . A B uyer’s a g ent can be ve ry h elp fu l to the B uyer in de ter m ining wh eth er a f a ir pr ic e is be ing a sk ed b y the S eller , due to the a g ent ’s knowl ed ge of the lo cal r e al e sta te m arket. I f the B uyer’s a g ent is g oing to be pa id b y the Selle r (c lar if y this a t the outs et) , th ere is no real downside f or a bu yer using a n ag ent a nd a lot of pot enti al be nef it. The a g ent will tr y to be a s he lpful a s possible to the B uyer in hope s th at the B uyer will use th em a g ain a fe w y ears - 9 - down the ro ad wh en the B uyer is re ad y to s e ll the house th ey found with the re alto r’s he lp. C. “D ual” Age nt A dua l a g ent is a real e st ate a g ent who re pr ese nts both buyer a nd se ller . The dua l na ture of the a g enc y r ela tionship is t y pi cal ly dis clos ed in a dis closur e st ate m ent g iv en to e ach par ty , whi ch must be a g reed to a nd sign ed by e ach party . T he a g ent f a cilita te s the s a le, wo rking f or both par ties, a nd but doe s not have a hi ghe r dut y to one par ty t h an the other . 6. R eal E stat e A ttor neys Thoug h it is possible to sell a home without hi ring a n attorne y, it is o fte n us eful to e mpl oy one for one or mo re of the followi ng f un ctions: 1) P roviding l e g al a dvi ce on real e st ate m atter s. 2) R evi ewi ng doc ument s. 3) R epre se nti ng y ou a t the “closi ng,” or handling/hosting the closin g. Dis cuss the fe es y our la w yer will cha rg e for ta sks in cluding re vi ew of doc uments y ou ha ve p re pa re d, pr epa ra tion of doc uments if n ece ssary , re pre se nt ation at c los ing , a nd/ or actu all y ha ndli ng/p erfor ming the closing its co mpone nt activitie s. I f the pr ic e se ems hi gh, shop around. A r easona ble range is $250 - $750 to ha ndle a closi ng, de pendi ng on the r eg ion in whi ch you live. L esse r servi ces s h ould be mu ch le ss. T alk to fri ends a nd re la tiv es r e g ar di ng the r ol e la w yer s pl ayed in the ir home s a le . M ake su re to f ind an a tto rne y who ha ndl es r eal -e st ate t ra ns actions on a re gul ar ba sis. The a tto rne y will likely be g la d to dis cuss with yo u wh eth er hi ring him or he r is a g ood i de a f or y ou, and what t a sks a nd ser vi ces the la w yer c ould perf orm. I f the la w yer is a br upt or s eems to ha ve little time for or int erest in y our inqui rie s, f ind a nother l aw yer to t alk to. 7. S ettin g an Askin g P ric e A. Ne ighbor hood Compar iso ns How mu ch is y our hous e worth? The a nswer can be found in what simila r hous es ar e s e lling f or in y ou r n eig hbor hood. Local real e st ate a g en cie s ar e g o od source s of in for mation on local housing m arket pr ices. Call an ag en cy a nd ask f or a C omparative M arke t A naly sis, a doc um ent listing re cent s a le p rices f o r hom es in y our a rea. T he a g ent y o u ta lk to will tr y to ge t y ou to a g re e to le t th em s e ll your hous e, but (a ssuming y ou w ant to a void payin g th ous ands of doll ars in c ommission) y ou should te ll the a g ent y ou ha ven’t de cid ed to s e ll yet, but y ou’ d like to s e e wh at hous es a re s ellin g for, and you’ ll keep the a gent in mind if y ou de cide to sell. This a ppr oach should re sult in y ou r eceiving the Comparative Market An aly sis in the mail. - 10 - The interne t is a hit -or -miss option f or obt aining the same infor mation. S ome sites c la im to be able to show y ou th e s ale pr ices f or hom es i n you r ne ig hbo rhood, but m an y of th ese sit es ha ve onl y limite d cover age or m ay not c o nt ain upda te d infor mation. I f y ou are c om for ta ble wo rki ng w ith a n int erne t s earch eng ine a nd n avig ating i n fo- heav y web pa ges, y ou should be a ble to f ind s everal sit es th at mig ht be of h elp to y ou. Hom eP rice.ne t and R eal tor .com a re two site s y ou may w ant to t ry . On ce y ou h ave d eter min ed wh at simila r homes i n you r a re a ar e s e lling f or , you should dr ive b y th ese hous es a n d get a f e el f or ho w bi g t he y ar d is, wh at c ondition the pr ope rty is in, and an y othe r e le m ents y ou fe el w oul d make the home mo re or le ss valuabl e. I f y o ur home ha s a bi gg er y ard and is in be tte r s h ape , cha nces ar e y ou are s af e in s e tting y o ur a sking p ric e hi gh er. B . P re-appr aisal, P re-in sp ect ion? If y ou are willing to pa y a few hundre d dol lar s, a home appra isal sp eci alist will do all th is back ground pric ing wo rk for y ou, and give y ou an accura te a sse ssm ent of the va lue of y o ur hom e. A p rofe ssiona l a ppra is a l can be he lpful in justif yin g y o ur a sking p ric e to pot enti al bu yer s, a nd will l e t y ou know if y ou r id eas about how much you can get f o r the house are realistic. If y our house is old or in que stion able c ondition, yo u m ay wa nt to ha ve a hom e inspector e x amine the house f or y ou in or de r to point out pr obl ems th at mig ht be of g reat c on cer n to pot enti al bu yer s. You can then fix th ese pr obl ems a nd will pr oba bly e nd up payin g l ess to do so th an if a pot ent ia l bu yer’s ins pector id enti fie s the s a m e p robl em s. Hi rin g the inspector will cost y ou a fe w hundre d doll ars, so it m ay not be som ething y o u want to do if y ou f eel y our home is in good c ondition. C. Season al Sellin g S ome thin gs to remem ber a bout seasona l s ellin g: Hom es s ell be st in the sp ring and summ er ( or w hene ver it is c om for ta ble to be out side in y ou r reg ion) . Anoth er s easo nal var ia ble is th at f amilie s with child ren aren ’t lik ely to t a ke th eir kids out of s c hool to move dur ing the s c hool y ear . Th ey’ll wait unt il sp ring /su mmer to bu y the house a nd make t h e move when the kids ar e out of s c hool. B ecause mo re bu yers will be out l ooking in spring a nd summ er, yo u’ ll be a ble to s e t y our a sking pr ic e hi gh er . As implie d abov e, in ve ry w ar m r e g ions w her e s u mme r involve s unbearab le heat, bu yer s will be m or e lik ely to do th eir shopping in fa ll or sp rin g. S eller s m ay b e a ble to s e t hi gh er p rices in the fa ll, how eve r the school pr oblem still a pplies. D. A ppliances a nd F ixtu res Rem emb er to c onside r e ve ry thi ng in clude d in the sale wh en se tting the sale pr ice, e sp eci all y the a ppli an ces . If a n y unusua l a ppli an ces a re to be in clude d in the s a le , the pr ic e should ref lect th is a ddition. A nythi ng c onnec te d to a g as line or built -in is o rdinar il y in clude d in the s a le . The stove is ty pi cal ly in clude d, re g ardl ess if it is e lect ric or g as, a s is t h e dishw asher . The r e fri gera to r, an d cloth es w ash er/d ry er a re t ypi cal ly not inc luded in - 11 - the s a le . A “f ix tu re” – any thing a tta che d to the pr oper ty b y being built -in or s crew ed in, is in clude d in the s a le unl ess speci fical ly e xclude d in the c ont ra ct or dis closure . E. Th e T em ptat ion to Ov erp rice Th ere a re dis adva ntag es to over pric ing y ou r hom e. If othe r ne arb y ho mes for s a le a re l e ss ex pe nsiv e, your hom e m ay t a ke lo nger to s e ll. A l a rg e pr opo rtion of p ot enti al bu yers vi ew a hom e dur in g the f ir st month in whi ch it is list ed for sale . If poss ib le , y ou should keep tr ack of th ese p eop le and noti fy th em of a n y sub se que nt p ric e re du ction (e -m ail is perf ect f or this ). Th ese bu yers a re lik ely to be mo re int erest ed in the m or e r easona bly pr iced hous es in y ou r a re a. A fte r a month or two, pe ople m ay b eg in to w ond er w hy y ou r house ha s been on the m ar ke t so long , and wheth er this is a n indi catio n of som ething be ing w ron g with y our hous e. On ly i f y ou are not in a hur ry , or just t e sti ng the m arke t, should you cons ide r ov erpr ic in g y o ur hous e-- som eon e m ay fa ll in love with y our house and pay y ou r a ski ng p rice. If this is y our g oa l, m ak e su re the c ont ra ct y ou ul tim ate ly s ig n ha s N O pr ovision requi rin g th at, “ The p roper ty must a ppr aise f o r a t least the a g ree d sa le p rice. ” U.S. L eg al F or ms, I nc .’ s, C ont ract for S ale and P urcha se of Re al Est ate doe s not c ontain s uch a pr ovi sion, but othe r cont racts v ery w ell mi gh t. S uc h a c ont ract pr ovi sion is be nef ic ia l to the buy er in th at it pr otects him from un wittin gly a greei ng to p ay “ m or e th an th e house is wo rth.” Of c our se , from the se ller’ s per spectiv e, the house is wo rth as mu ch as an y individua l bu yer is willing to pa y for it, on the a ssumption that th ey r eal ly like t h e h ouse a nd have c onsidered nearby a lter nativ es. If y ou are a bu yer, you would do well to m ake su re su ch a p rovision is inc luded in your c ont ract. The re is a sp ace in the U SLF C ont ract ( m entione d abov e) f or optiona l pr ovisions where y ou could w rite i n t his provision. L end ers m ay r e qui re a n appra isal a nd mig ht not loa n you more th an the a ppra ised value of the hous e. F. I mprovi ng Yo ur P ro p ert y Spe nding mone y to “ imp rove ” a n alread y pristin e, upda te d house will not increase the va lue b y m uch- - pr oba bly b y le ss th an the a mo unt y ou spend. But if y o ur house is in poor c ondition, improve ments can result in a big jump in m arke ta bili ty and a sking pr ice, e sp eci all y imp rove ments to the kit che n and bathrooms. Your hous e onl y gets on e c ha nce to m ake a f ir st imp ression on pot enti al bu yer s. M ake su re th ey s ee it with its be st f oot f or ward. A nythi ng to imp rove the e x ter ior of the hom e, sh rubs, etc ., he lps. M ake su re the home a nd yard ar e w ell m ani cu re d, neat, fre e o f w eeds, d ebr is a nd t oys, a nd unc luttered. Additiona l f low ers or pott e d pl ants m ay be be nef ic ia l. R ake leave s, pi ck up limbs, a nd cut the g ra ss re g ul arly while y our h ome is on the m arket. The li g ht a nd door bell should be in w or king or der . R epa int y o ur door if ne ede d. R epa ir , cle an or re pl ace a ny lo se , be nt, dirty or de ta che d shudder s, s creens or g utt ers-- y ou may ha ve been over looking th ese little inc onve nienc es f o r y ear s, but th ey st and out to pot enti al bu yers a s - 12 - Indi cative of the g ene ra l condition of the pr ope rty a nd le ve l o f care pr ovide d by t h e c urre nt ow ner s. Inside yo ur hous e, c le an, c lean, c lean. H ave a fri end c omm ent ( hon est ly ) on you r pr og ress. Ma ke y ou r ho use a ppe ar sp acious b y re movi ng c lutte r a nd prov iding pl ent y o f li ght (c onsi der b rig ht er bulbs ). D ark col ors m ay tu rn bu yers off. Y ou may w ant to c onside r r e-pa intin g a d ark r oom with white or off- white paint. C lean up y our c los ets a nd g ara g e, and othe r st ora ge a reas to wh ate v er e x te nt possibl e. Elimin ate s queaks, ra ttles a nd wobbl es, a nd re pa ir pa st w ate r st ains on walls or ceilin gs b y usi ng K ilz -ty p e s eal er sp ra y a nd paint. Your local har dware sto re w ill have g ood a dvi ce on how to re m edy th ese pr obl ems, a nd all the pr oduc ts y ou need. If pr os pective bu yer s s e e w ate r st ains, the y will think there is still a l eak, ev en thou gh t he l eak has been fix ed. Repa ir l eaki ng plumbing or fa uc ets b y re pl aci ng rubbe r w ash ers or g ask ets. A gain, the har dware sto re will be he lpful. R epa ir sti cking door s, cabine ts and windows a nd nail down loose molding . G . Ho me W arran ty I n su ra n ce A home w arra nty insu ra nc e poli cy, pr ovide d by the s e ller , is be coming c o mmonpl ace in home s a le s n ationwid e. B uyer m ay b e wise to r e que st one of th ese insur anc e p ack ag es, pa y for one hims elf , or ask the selle r to split the cost if the selle r ha s ol de r a ppli ances or doe s not offe r a “H ome W arra nty” poli cy. S uch a poli cy is de sira ble f or bu yer be cause it t ypi cal ly c over s a n y b re akdowns in a ppli ances a n d the heatin g/c ooli ng s y ste m f or a y ear af te r the s a le . H avi ng a Home W arra nty P oli cy g iv es bu yer pi ec e o f m ind that if the a ppliances f a ll a part a s s oon as the s elle r move s out, the insura nce will be ther e to c ove r the pr obl em. T he Home W arra nty poli cy c over s a ppl ia nces a nd items not c overed by the st andar d hom eown er’s insura nce poli cy. If the selle r c hoos es t o pr ovide a home warrant y policy, s ell er should a dver tise the f act, as it will make the home mor e attractive to pot enti al purc haser s a nd can raise the a sking p ric e. Ask the home w ar ra n ty c ompa ny of y our c hoi ce a bout the deta ils, options a nd prices. 8. A dvert ising an d Sho wing A. Ad vertising Wi th ou t an Agent In or de r to g et y our hous e sold, you h ave t o get t h e wo rd out to pot enti al bu yers th at y o ur home is on the m arke t. You have to adv ertis e. A chi ef a dva ntag e of using a r eal e st ate a gent to s e ll your home is th at the a g ent acts a s y our “ adver tising executiv e,” using a da ta ba se known as the “ multiple listing s ervi ce” t o get the w ord out to a ll othe r r ealto rs th at y ou r home is f or sale . This m ake s a dver tising eas y. As m entione d bef ore how ever , the pr obl em with usi ng a re altor is the big c om mission y ou pa y t h em o nc e y our house gets sold (around 6% o f the tot al s a le pr ic e – thous ands of doll ars!). S ome f or ward thinking real e st ate offi ces a re t r y in g to m ake a little mone y a nd captur e pot enti al c ustom ers b y o ffer in g us e of th eir multiple listing s er vice (a nd some othe r s er vi ces) f or a great ly r e duc ed fla t f e e . This c ould be m one y w ell sp ent in y our eff ort to a dver tise y ou r hom e. C all all the local real e st ate o ffi ces y ou can, and - 13 - ask if th ey will allow y our hom e adver tisem ent onto the multiple listing s er vi ce f or a f la t f ee. B . N ew sp ap er A ds In addition to ( o r inst ead of) usi ng t he multiple listing servi ce, it is e sse ntia l th at y ou call y o ur lo cal ne wsp ap er s a nd ask about real estate s ale s a dver tising. F or a r easona ble price y o u can plac e a n ad, proba bly with a pi ctu re , th at will run for seve ra l w ee ks. You will ha ve to w rite a b rie f a dv ertis em ent blur b to s end to the n ewsp ape r. T he b est mode ls for y o u to look at will be in e x isting a dver tisem ents. Looki ng a t th ese will help y ou get a feel f or wh at y our a d should sa y . In clude y ou r a sking p ric e, numbe r of r ooms a nd an y sp eci al f eatu re s ( whi rlp ool, pool, g ame room, gou rm et kitc hen, etc .) that m ake y our home a ttractiv e. I f y our home is near ni ce s c hools, or h as been recent ly built, in clude th at in fo. I n clude the a ddre ss of y our home a nd a numbe r a t whi ch you can be re ac he d. Invite reade rs to call a nd set up a visit. C. Ya rd S ign and F lyer s You will need a “F or S ale B y Own er" s ig n in y o ur front y ard. P urchase one from a hom e-suppl y sto re or m ake one y our se lf . M ak e su re y our s ig n looks ni ce , is dura ble, in clude s y ou r phone nu mb er, and can be s e en and read cle arly from t h e st reet. S tick-on l e tter ing is y our best option for the pur pose of visibilit y. Your sign will need to ha ve an a ttache d clear e nve lope t o hold the f ly er s y ou ’ll n eed to prepare. Th ese f ly ers shoul d be pr int ed on 8½ x 11 pa per a nd in clude y our d esc ription of the hom e (in cluding addre ss), the a ski ng pr ic e, and yo ur phone num ber . P rint a pi ctu re of the home a t the top of the f ly er if possibl e . Place a su fficie nt numbe r of copi es in the e nvelope on the y ar d-si gn. C heck to s e e th at th ere i s a su ffi cie nt a mount of f ly ers re m aini ng each day, a nd ref ill as neede d. If y our house is on an out -o f-th e-w ay st reet, y ou may n eed to put up some di rection al si gns pointing the w ay th rou gh the n eig hbor hood to you r hous e. The si gn should sa y “ Home F or S ale ,” a nd have a n arro w pointing i n the r ig ht di rec tion. P lace e noug h signs to l eav e a tra il to y ou r home from n ear by busi er st reets. T hese s ig ns a re a va ila ble a t hom e-suppl y store s, a nd should be pl aced on cor ner t e le pho ne pol es, a t t h e ba se of stop si gns, etc . D on’ t pl ace in a neig hbo r’s y ard without per mission. D. In tern et A dve rtisi ng M an y in ter ne t w ebsit es o ffe r the same home l is ting s ervi ces a s ne wsp ap er s. Mo re pe ople ar e br owsi ng hom es on the int erne t e ve ry da y, an d it ma y be in y our int erest to c heck into pl acing a n ad on one or mo re re al e st ate w eb sit es. Use a n int erne t s earc h en gin e to s earch for the t er ms “ Re al Est ate Adv ertisin g.” P lea se see ForSalebyOwner.com . - 14 - E. Hold an Open Ho use You m ay find it useful to hold an “Op en Ho use .” Invite fri ends, neighbor s and co- wo rker s and te ll them to bring a fri end. Adv ertise the ope n house in the re al e st ate s ection of y our lo cal p ap er , and put a n “Op en Hous e” s ig n in y our front y ar d showi ng the da te a nd time of the op en hous e. M ake su re y ou r si gn is up a w eek or two ahead of t im e. Your m ain g oa l in holding the ope n house is not to se ll the home (th oug h you may ha ppe n to find a b uyer), but rather to broadcast the fact that the house is for s ale . The pe ople who a tte nd the o pen house will spread th e wo rd to ot her s. M ake su re pl ent y o f f ly ers a re a va ila ble a nd tr y to h and them out to p eople a s th ey le ave . W eeke nds a re obvious ly the best time to hold an ope n hous e. Y ou mig ht g et lu ck y a nd find a bu yer , but the main obj ective of y ou r ope n house is to infor m y our neig hbor s and enlist th em in y our s a le s camp aig n. You sho uld have compl ete d pr oper ty di sc losur e st ate m ent s a vaila ble. F . Sho win g t he Ho use Alwa ys a ppe ar ni cel y d re sse d and friendl y w hen you show y ou r hous e. Obvious ly a sp eci al e ffor t should be m ade to ensur e the hous e is clean w hen you kn ow a pot enti al bu yer is c oming f or a look. If y ou ha ve pe ts, m ak e su re th ey ar e o n a very shor t leash a nd ke pt in a sto ra g e a re a o r outside in th eir pe n-- p ets, e sp eci all y d ogs, should not ha ve the r un of the house ( o r y ard) while y ou are showing the hous e. C ats will normall y m ak e th ems elv es s car ce w hen stra ng ers a re a bout. C hildren, on the ot he r h and , m ay re quire sp eci al c onside ra tion de pending on your c irc um stances. Answe r que stions a bout the home truthf ully ( “ I don’ t know” is a lw ays a ccept able if y ou real ly don ’t know a n answ er) a nd give y our visitor a c op y of the seller’ s dis closur e st ate m ent f or the hom e. Alwa ys g et the na me, numbe r a nd e-m ail addre ss of the per son to whom y ou showe d the hous e, in or de r to in for m th em if y ou decide to lower y ou r a sking pr ic e in the future . 9. M akin g an Off e r As a B uyer, you don’ t w ant to ove rpa y f or the ho use y ou purcha se . The S elle r of c ou rse w ants to g et a s mu ch as he can for his hous e, so hi s a sking pr ic e is lik ely to be som ewh at mo re th an he is ultima te ly willing to s e ttle f or , in or de r to g ive hims elf some r oom to ne goti ate . As the B uyer, y ou obvious ly w ant to pa y the minimum accept able pr ic e for the hous e-- but w hat is this minimu m? M aking a ve ry low o ff er mig ht l a nd you the house f or c he ap, but it mo re lik ely will cause the s e lle r not to t a ke y o u s er ious ly . If the hous ing m arket in the ar ea i n whi ch you are looking is a t l east modera te ly activ e, the S elle r will have no fear of r e je cting y our low offer. You will soon be out -bid by so meone w ho is willing to pa y c los er to the a ski ng pr ic e f or the hous e. I n or de r to m ake a c omp etitive offer, it is v ery h elp ful to know how m uc h c ompa rabl e hous es (c lose to the same squar e foot ag e, nu mber of rooms and f eature s, e tc .) h ave recent ly sold for in the area. If y ou know this, y o u ha ve a ba sis fo r knowing w hat the house is actu all y wo rth , a nd can gau ge you r o ffe r accor dingly . Ot her f acto rs c an inf luenc e the ultima te s a le pr ice, includi ng how ur gent ly the S elle r needs the mone y or n eeds to - 15 - move (a nd how ur gent ly YOU want/n eed to bu y the hous e), the l e ve l of activit y in the housing m arket, the amount of work n eede d to “ upd ate ” the hous e, e tc . W hen m aking a n of fer , you will submit a w ritte n offe r to t h e S eller . You should be pre - a ppr ove d for f in an cin g in a t l east the a mount y ou are willing to pa y. The offe r c an be in the f orm of U. S. L eg al F or ms, I nc .’s, C ont ract f or S ale a nd P urchase o f Re al Est ate , with the a ppr opria te ite ms fill ed in to y our likin g. T he s e lle r will eith er a ccept y our o ff er, re ject y our of fe r out rig ht ( in whi ch case y ou can make a nothe r off er) , or r ejec t y ou r o ffer but m ake a count er of fe r f or y our accept ance, reje ction or count er-o ffe r. 10. Th e Co ntr act The C ontract is the c ent ral l e g al doc ument t h roug h whi ch B uyer a nd S elle r (“ the P artie s” ) a g re e upon the t er ms a nd conditions of the pr ope rty s ale . B ec ause real e st ate s ale s ar e r e la tiv ely c om plex a nd impo rta nt tra nsactions, state l a w nor mall y re quires a w ritte n, si gne d c ont ra ct f or su ch t ra ns actions to be e nforc eabl e. This leg al re qui rem ent is r oot ed in practical r e alit y: with so m an y d eta ils involve d in the t y pi cal home s a le , the P artie s c ould e asi ly b eco me c onf used and fall into disag reem ent ove r th eir var ious r ig hts a nd re sponsibiliti es re la te d to the s ale . The C ontract pr ovide s a n or gani zed fra mew o rk within whi ch the Partie s can proceed with the sale pr ocess from be ginning t o end without unnecessa ry disput es, omissions or misunderstanding s. 11. S eller’ s Dis clos ure A “ Selle r’s Dis closur e of P roper ty C ondition” state m ent, or similar ly n am ed doc ument, is re qui red by la w in m an y s ta te s. This is a fo rm on whi ch the S elle r re veals a ll kno wn in for mation a bout the c ondition and ag e of the pr oper ty (a nd som etime s a ppli ances ), in cluding a n y known defects. Most dis closure s r e qui re the S elle r to re veal onl y wh at he knows, and do not req ui re the Selle r to g o to speci al le ngths to dis cove r unknown pr obl ems. In fact, most que stions on a dis closur e a llow a ppr ox ima tions (pr ovide d they ar e l ab ele d as su ch) , or “ unknown” a s a ns wer s. Most litigation following home sale s is due to defects that the B uyer dis cov ers a fte r t he s ale , a nd th en bl am es the S elle r for c onc ealin g. In or de r to m ake a home s a le l e ss li ke ly to e nd in a n unf avor able l a wsuit, a S elle r should be honest and thor ough in a ll disclo sure s. As a B uyer , you should not think th at a s eller’ s dis closur e state m ent is a substitute f or B uyer’s I nspe ctions. The S elle r is onl y obl ig ate d to re veal w hat th ey kn ow, a nd defects hidde n from the S ell er will not a ppear on the dis closu re. Uns crupulous S ell er s m ay e ven t r y to hide defects. The onl y w ay to dis cov er the t r ue c ondition of a pr oper ty is to ha ve it inspect ed b y a pr ofe ssio nal. - 16 - 12. Buyer’s Insp ect ions P roper ty C ondition options of y ou r c ont ra ct ma y i nc lude one or mo re of the followin g: ( 1) B uyer a ccepts pr operty “ as-is ”; ( 2) B uyer will c onduc t desi re d inspections; or (3) B uyer a ccepts “as is” if S elle r will ma ke cer ta in r epa ir s. Most B uyer s will w ant t he house inspecte d, a nd will (a nd should) have s econd thoug hts if a S elle r a tte mpts to s e ll the house while f or bidding a ny insp ections, unl ess there a re sp eci al c irc umst anc es. Most le nding institu tions a lso re qui re inspections bef ore th ey will m ake a lo an to the pr os pective B uyer . Option tw o will theref ore most lik ely b e us ed in a ll home s ale s. T ypi cal insp ections in clude pe st (ter mite ) insp ection, c ontractor inspection ( in clude s e lect rical, plumbing , heating s yst ems ), r oo f insp ection, swimming pool inspection, a nd foundation inspection. If the Buyer’s inspe ctions reveal various defects, the p artie s a re f re e to re-n eg oti ate the C ont ract, f or e x ample lowerin g the sale pr ic e in o rde r to a llow f or f utur e f ix es th at will be necessa ry , or ha ving the S elle r a g re e to f ix defect s pr ior to the s a le . S elle r m ay c onsider the “de fects” insig ni fican t or e x ag gera te d, and may not be willing to m ak e a llow ances f or f ix ing th em -- in whi ch case the B uyer m ig ht wa lk aw ay from the deal (recov erin g a n y ear nest mo ney p re viously p aid) or , if w anti ng the house ba d enou gh, be w illing to i g no re cer ta in m arg in al “ defect s.” 13. Th e “Hom e I nsp ect ion” B uyer s a nd le nde rs will normall y insist on various “ home inspections,” i n cluding but not limite d to, soil, f oundation, e lect ric al, st ruc tural, h eatin g/c ooling , a ppli ance , plumbing , r oof , pe st/ter mite and swimming pool inspectio ns. Most of th ese ins pections will be t a ke n car e of a ll at onc e b y a “ hom e inspecto r” s er vice. The inspector will c ome to the hous e, and spend time looking a t e v ery thi ng in or de r to m ake a de ta ile d re por t, whi ch will be submitte d to the Buyer ( a c op y should be f ur nishe d to S eller) . Defec ts m ay b e re veal ed th at w ere unkno wn to the S elle r a nd/or not include d in a “Seller’ s Dis closur e of P roper ty C ondition Sta te m ent.” At this point, th e B uyer a nd Selle r will be ar m ed with su ffi cie nt knowl ed ge to m ake f inal ne goti ations on the s ale p ric e of the hous e, or B uyer m ay d ecide th at too many pr obl ems ha ve b een re veal ed and decide to g et out of the deal, recove rin g a n y de posit ed ear nest mon ey. - 17 - 14. “As-Is” S ale “As -is,” re la te s to the c ondition of pr oper ty . If som ething is sold “as-is,” it m eans th at it is be ing sold with a ll defects, wh eth er a pp are nt or hidde n, and the B uye r cannot c la im af ter war ds th at de fects w er e c on ceale d from B uyer. W hen purc hasing som ething “ as-is,” the B uyer is t a ki ng the r isk th at th ere m ay b e so mething s e rious ly w ron g w ith the ite m or pr oper ty , but is bu yin g it a n yw ay-- us uall y b ec ause it is su ch a g ood deal, or bu yer is unwilling to pa y the pric e f or a p rofe ssion al insp ection. 15. Con tin ge ncies A “conti ngenc y” is a n e vent th at must occur p rior to a s econd e vent ha ppe nin g. In hom e s a le s, the s a le of the ho me can be c onting ent on man y thin gs, f or e x ample on the S elle r m aking re qu est ed repair s or the B uyer obt aini ng fin anc ing. If a c onting en cy doe s not occur , th en the c ont ra ct cannot be c ompl ete d, an d ear nest mone y may b e a w ar de d to the S elle r or r e tu rne d to the B uyer, depe ndi ng o n wh at t he c ont ra ct s a ys a bout the c irc umst anc es. 16. E arnest M oney an d E scrow Ear ne st mone y is mone y de posit ed by the B uyer ( usua ll y one to th re e pe rcent of the s a le pr ice, $1,000.00, or whate ve r r e g iona l c ustom dicta te s- the a mount is neg oti abl e) a t t he time of the initia l si gning of the c ont ract. Dep ending on you r S ta te , the e a rne st mone y is de posit ed with the sell er , real e state a gent, e scr ow a g ent or atto rn ey. An Es crow A gent is a ne utral thi rd par ty who h olds the var ious moni es involve d in a n e scr ow a ccount, pays p artie s, a nd ensure s th at the mone y changes h ands a t the s a me time a s the d eed is recor ded and own ership t ra ns ferre d. W ho the Es crow A gent var ie s f rom st ate to state a nd can in clude a ttorne ys, title insu ranc e c ompa nies, rea l e state a gents, e scr ow c ompa nies, c los ing c ompa nies, e tc . The S elle r should alread y h ave a n Es crow Ag ent on st andb y, r ead y f or wh en a bu yer is f oun d and the cont ra ct initia lly sig ne d. If the B uyer b acks out of the c ont ract f or a n y r eason that is not a llow ed in the c ont ract, th ey h av e “ de fa ult ed” a nd th ereb y forfe it the e arne st mone y to the S elle r a s liquid ated da mag es. S elle r mig ht a lso pur sue “sp eci fic p er for manc e” (for cin g Buyer to g o th rou gh with the purc hase) , but t his would requi re a c our t case a nd could be pot en tia ll y c ostly in time and mone y. 17. T it le Insu ran ce A title insura nce Own er’s P oli cy is t y pi cal ly pur cha se d by o r f or the B uyer in or de r to s af eg u ard ag ainst a n y title pr obl em th at m ay a rise af te r the s a le - - f or e x ampl e, a dispute involving som eone e lse c la iming p artia l ow nership of the pr operty . W ith a n Own er’s P oli cy , the ne w own er w ill be a ble to re ly on the title insura nce c ompa ny t o addre ss an y e x pe nsive le g al pr obl ems th at m ay ar ise, and to pa y f or a n y act ual da mag es su ff ered by the Buyer. Assuming the B uyer is b orrowi ng mon ey from a l e nding institution in or de r to m ake the purc hase , th e L ende r’s P oli cy will be re qui red insu re the mo rtg age l e nde r th at th ere ar e - 18 - no enc umbra nces a g ainst the pr oper ty . If it turns out th at a pr ior va lid li en ex ists wh en the house is la te r sold, the L end er’ s P oli cy will reimbu rse the le nde r the f ull a mount of wh at is ow ed. B uyer a nd Selle r should ag re e on a title insura nce c ompa ny f or the tra nsac tion. The Es crow Agent will be a ble to recomm end a re liable c ompa ny. W ho pa ys f or the var ious poli cie s of title insu ranc e v ary d epe ndi ng o n reg ion al c ustom, a nd is ultima te ly ne goti abl e. The c ost of t itle insura nce is par t of c losing c osts a nd re sponsibili ty to pa y o r divide these costs should be agre ed to in the Cont ract. 18. P ro rat ionin g Prora tioning r ela te s to a ny cost a sso cia te d with hom e-own ership that must be divide d due to the own ership of the home c ha ng in g in m id-y ear . The be st e x ample is pr oper ty t ax , whi ch is asse ssed on a yearly ba sis. F or ex ampl e, assume the pr oper ty ta x on the pr oper ty is $1,200.00, and the ta x y ea r runs fro m J a n. 1, to D ec. 31. I f the s a le c los es (a nd own ership tra ns fe rs ) on Jul y 1 (mid -y ear), and the pr oper ty t a x bill will be a sse ssed a g ainst the n ew own er a t y ear’s e nd, then $600 should be credit ed by S elle r to B uyer to re pre se nt th at B uyer a nd Selle r each liv ed in the house f or one-h alf of the y ear , a nd are th eref or e pa yin g p ropor tionate , or “ pr ora te d” tax es. A ny othe r i te ms th at l e nd thems elv es to pr ora tioning should be ha ndl ed in like m an ner . T he Es crow A gen t will calcul ate a nd/or che ck pr orate d f igure s. 19. Th e Closi ng The “closi ng” is the fin al m eeting th at t y pi call y o ccurs a t the escr ow a ge nt’s offi ce. All c onting en cie s will have b een sa tis fie d b y the time this f in al st ag e is reach ed. B uyer a nd S elle r both atte nd the m eetin g, alo ng with lo an ag ents, an y real e st ate a g ents, and an y othe r par ties with a f in an cia l in terest. B uyer pre se nts a pa id hom eow ner's insura nce poli cy or a b inder a nd r eceipt showi ng th at the pr emium has be en pa id. Num erou s doc uments ar e s ig ne