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Buying a Home from A to Z

  1. Hire Link and Link Real Estate as your buyers agent

    A buyer's agent will represent only you and have a fiduciary responsibility to look out for your best interests. Buyer's agents may ask you to sign a buyer's broker agreement, but it is the seller who pays the commission. Interview agents until you find an agent you trust and with whom you feel comfortable. Once you have settled on an area, try to hire a neighborhood specialist.

  2. Get PreQualified / Preapproved

    Order a free credit report online and fix mistakes, if any. Ask your agent for a referral to a mortgage broker, but also compare rates offered by your own bank and / or credit union. Ask the lender to give you a loan preapproval letter, which means it will verify your income and pull a credit report. Determine your maximum loan amount, but choose only a mortgage type that you understand and a payment level with which you feel comfortable, which may very well be less than the maximum for which you are approved.

  3. Look at Homes for Sale

    Ask your agent to look at homes for you before showing them to you. Narrow your search to those homes that fit your exact parameters to find that perfect home. Ask your agent to give you MLS print-outs of comparable sales in your targeted neighborhood. Consider all homes on the market, including fixer-uppers, REOs, foreclosures, short sales and those overpriced homes with longer DOM. Observe open house etiquette. Tell your agent which online home listings you are interested in previewing and ask for additional input.

  4. Write a Purchase Offer

    Consider writing seller's market offers in sellers markets and buyer's market offers in buyer's markets. Select a home offer price based on the amount you feel a seller will accept or counter. If you are considering a lowball offer, ask your agent to substantiate this price for you. Prepare for multiple offers if the home is considered desirable in a hot location. If your offer is rejected, ask your agent to explain why and don't repeat that mistake with your next offer.

  5. Negotiate and Write Counter Offers

    Expect the seller to issue a counter offer. If the seller counters at full price, continue to negotiate. During offer negotiation, share personal information about your family to give the seller a reason to care about you.

  6. Make an Earnest Money Deposit

    When your offer is accepted, deposit your earnest money check with the appropriate party. Do not ever make your check payable to the seller. Your offer should contain contingencies that will return your earnest money deposit to you if you cancel the contract.

  7. Open Escrow / Order Title

    Your agent or transaction coordinator will open escrow and title, if the listing agent hasn't already done so. Ask for the escrow officer's name, phone and escrow file number. Give this information to your lender and your insurance agent.

  8. Order Appraisal

    Your lender will require an advance payment for the appraisal. If you receive a low appraisal, discuss options with your agent. Ask for a copy of the appraisal.

  9. Comply With Lender Requirements

    Lenders may ask for additional information. Do not make home buying mistakes such as altering your financial situation while in escrow. When the file is complete, the lender will submit it for final underwriter approval.

  10. Approve Seller Disclosures

    Read and question items you do not understand on the TDS, Seller Property Questionnaire, natural hazard report, pest inspection / completion and other documents such as a preliminary title policy. Realize you have 10 days to cancel if lead paint is a health hazard. Read every document in its entirety; ask questions about all seller disclosures.

  11. Order Homeowner's Insurance Policy

    Order your homeowner's insurance early. Sometimes previous claims by a home owner can make it difficult to get insurance. Get replacement coverage.

  12. Conduct Home Inspection

    Hire a reputable home inspector. Bring a home inspection checklist with you. Attend the home inspection.

  13. Issue Request for Repair

    If the home inspection turns up health and safety issues, issue a request for repair by asking the seller to address those issues or give you a credit for them. Realize no home is perfect, and the inspector will find faults. Be reasonable.

  14. Remove Contingencies

    By default, California C.A.R. contracts give you 17 days to remove contingencies. Make sure your loan is firm and the appraisal is acceptable before removing your loan contingency. If you do not remove contingencies, the seller can issue a request to perform and then cancel the contract, on top of demanding your deposit.

  15. Do Final Walk-Through

    Do not pass up doing a final walk-through. Inspect the property to make sure it's in the same condition as when you agreed to buy it. If you find a serious issue, address it now before you close.

  16. Sign Loan / Escrow Documents

    In southern California, you will sign escrow documents shortly after opening escrow. In northern California, you will sign escrow documents along with your loan documents near closing. Bring a valid picture ID.

  17. Deposit Funds

    Bring a certified check payable to escrow. Expect escrow to pad the amount, so you will receive a refund after closing. Consider asking your bank to wire the funds to escrow, saving you the hassle of waiting in line at the bank.

  18. Close Escrow

    Your property deed, seller's reconveyance and deed of trust will record in the public records. Title will notify you and your agent when it records. After recordation, unless your contract specifies otherwise, the property is yours -- change the locks immediately

Property Taxes

Q: Where can I find more information about the process of buying a home?

A:  You can find great home buyer tips here. 

Q: How do property taxes work?

A: Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate, on average 1.5 percent of the property's current market value. These annual local assessments by county or local authorities help pay for public services and are calculated using a variety of formulas.

Q: Are property taxes deductible?

A: Property taxes on all real estate, including those levied by state and local governments and school districts are usually fully deductible against current income taxes. Check with your tax professional.

Q: Where can I learn more about appealing my property taxes?

A: Contact your local tax assessor's office to see what procedures to follow to appeal your property tax assessment. You may be able to appeal your assessment informally. Mostly likely, however, you will have to go through a formal tax-appeal process, which begins with an appeal filed with the appropriate assessment appeals board.

Q: How is a home's value determined?

A: You have several ways to determine the value of a home. An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality. This service varies in cost depending on the price of the home. On average, an appraisal costs about $300 for a $250,000 house. A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents offer free analyses in the hopes of winning your business. You also can get a comparable sales report for a fee from private companies that specialize in real estate data. You also can find comparable sales information available on various real estate Internet sites.

Q: Are taxes on second homes deductible?

A: Interest and property taxes may be deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.

Q: What is an impound account?

A: An impound account is a trust account established by the lender to hold money to pay for real estate taxes, and mortgage and homeowners insurance premiums as they are received each month.

Lease Options

Q: What is a lease option?

A: When a renter signs a lease with an option to purchase the property for a specific price within a certain time frame, that is called a lease option. In most lease-option situations, a portion of the rent is applied to a future down payment. Lease options are most popular among buyers who don't have enough funds for a down payment and closing costs.

Q: How do lease options work and what are the benefits?

A: Most lease-option agreements specify that a portion of the rent on the property in question is applied toward the purchase if the option is exercised. This is referred to as rent credit. Institutional lenders accept rent credits as part of the down payment if rental payments exceed the market rent and if a valid lease-purchase agreement is in effect, a copy of which must be attached to the loan application. For sellers, lease options give them several advantages, especially in a slow market. These include a monthly rent higher than market rent and top-market value for the property. Also, the renter is more likely to treat the property like an owner.

Appraisals & Market Value

Q: How is a home's value determined?

A: You have several ways to determine the value of a home. An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality. This service varies in cost depending on the price of the home. On average, an appraisal costs about $300 for a $250,000 house. A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents offer free analyses in the hopes of winning your business. You also can get a comparable sales report for a fee from private companies that specialize in real estate data. You also can find comparable sales information available on various real estate Internet sites.

Q: What is the difference between market value and appraised value?

A: Appraised value is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process; fees range from $200 and up.

Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker.

Q: What's a house worth?

A: A home is worth what someone will pay for it. Everything else is an estimate of value. To determine a property's value, most people turn to either an appraisal or a comparative market analysis.

An appraisal is a certified appraiser's estimate of the value of the property at a given point in time. To make their determination, appraisers consider square footage, construction quality, design, floor plan, neighborhood, availability of transportation, shopping and schools amenities, energy efficiency. Appraisers also take lot size, topography, view and landscaping into account.

A comparative market analysis is an informal estimate of market value, based on comparable sales in the neighborhood, performed by a real estate agent or broker. You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder's or assessor's offices, through private companies or on the Internet.

Q: What standards do appraisers use to estimate value?

A: Appraisers use several factors when estimating value including historical records, property performance, condition of the home and indices that forecast future value. For detailed information on appraisal standards, contact the Appraisal Institute at 875 N. Michigan Ave., Suite 2400, Chicago, IL 60611-1980; (312) 335-4458.

Tax Considerations

Q: Are taxes on second homes deductible?

A: Interest and property taxes may be deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.

Q: What home-buying costs are deductible?

A: Any points you or the seller pay for your home loan are deductible for that year. Property taxes and interest are deductible every year. But while other home-buying costs (closing costs in particular) are not immediately tax-deductible, they can be figured into the adjusted cost basis of your home when you go to sell (any significant home improvements also can be calculated into your basis). These fees would include title insurance, loan-application fee, credit report, appraisal fee, service fee, settlement or closing fees, bank attorney's fee, attorney's fee, document preparation fee and recording fees.

Q: Are seller-paid points deductible?

A: As of Jan. 1, 1991, homeowners have been able to deduct points paid by the seller. This deduction previously was reserved only for points actually paid by the buyer.

Q: What are the rules on capital gains when inheriting a house?

A: When children inherit a home, the Internal Revenue Service determines their basis in the property on the date of the person's death. The cost basis is not the amount the owner originally paid for the house. It is the property's fair market value on the date of the mother's death, says Pamela MacLean, assistant public affairs officer with the IRS. Cost basis is a tax term for the dollar amount assigned to a property at the time it is acquired, for the purpose of determining gain or loss when it is sold. Assume the property was divided up equally. If one of the three siblings sold her share, she must pay capital gains tax for whatever profit she made over one-third of the new basis, MacLean said.

Other tax consequences include estate taxes. However, the estate must total $600,000 or more before tax issues become a concern. The IRS allow residents to pass on property, cash and other assets worth up to a total of $600,000 before charging the heirs any taxes, according to MacLean.

Regarding the transfer of ownership, quit claim deeds often are used between family members in situations such as this when an heir is buying out the other. All parties must be agreeable to dropping a name from the title. Other resources: IRS Publication 448, "Federal Estate and Gift Taxes." Order by calling 1-800-TAX-FORM.

Q: Can I deduct the loss I suffered when I sold my home?

A: The IRS allows no deductions for losses on the sale of your own home. There's no way to use a loss to your advantage on your income tax return. It won't matter what type of misfortune you may have run into, write Edith Lank and Miriam Geisman in Your Home as a Tax Shelter, Dearborn Financial Publishing, Chicago; 1993.

Q: Where do I get information on IRS publications?

A: The Internal Revenue Service publishes a number of real estate publications. They are listed by number:
• 521 "Moving Expenses"
• 523 "Selling Your Home"
• 527 "Residential Rental Property"
• 534 "Depreciation"
• 541 "Tax Information on Partnerships"
• 551 "Basis of Assets"
• 555 "Federal Tax Information on Community Property"
• 561 "Determining the Value of Donated Property"
• 590 "Individual Retirement Arrangements"
• 908 "Bankruptcy and Other Debt Cancellation"
• 936 "Home Mortgage Interest Deduction"
Order by calling 1-800-TAX-FORM.

Whom to Contact

Q: What standards do appraisers use to estimate value?

A: Appraisers use several factors when estimating value including historical records, property performance, condition of the home and indices that forecast future value. For detailed information on appraisal standards, contact the Appraisal Institute at 875 N. Michigan Ave., Suite 2400, Chicago, IL 60611-1980; (312) 335-4458.

Q: Where do I get information about closing costs?

A: For more on closing costs, ask for the "Consumer's Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120, or call (415) 974-2163.

Q: Where do I get information on filing consumer complaints?

A: For information about filing consumer complaints, look to these sources:
• Consumer Federation of America, 1424 16th St. N.W., Suite 604, Washington, DC 20036; (202) 387-6121.
• United Homeowners Association; 1511 K St., N.W.; Washington, DC 20005; (202) 408-8842.
• Consumers Union, 1535 Mission St., San Francisco, CA 94103 or call (415) 431-6747.
• Consumer Action Council, 116 New Montgomery St., Suite 233, San Francisco, CA 94105; (415) 777-9648

Q: Where do I get information on housing market stats?

A: A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of REALTORS®, most of which are continuously compiling such statistics from local real estate boards. For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.

Q: Where do I get information on IRS publications?

A: The Internal Revenue Service publishes a number of real estate publications. They are listed by number:
• 521 "Moving Expenses"
• 523 "Selling Your Home"
• 527 "Residential Rental Property"
• 534 "Depreciation"
• 541 "Tax Information on Partnerships"
• 551 "Basis of Assets"
• 555 "Federal Tax Information on Community Property"
• 561 "Determining the Value of Donated Property"
• 590 "Individual Retirement Arrangements"
• 908 "Bankruptcy and Other Debt Cancellation"
• 936 "Home Mortgage Interest Deduction"
Order by calling 1-800-TAX-FORM.

Q: How do I reach the IRS?

A: To reach the Internal Revenue Service, call (800) TAX-1040.

Q: Where do I get information about finding a real estate attorney?

A: To find a real estate attorney, contact your local bar association, which may offer local referral services. You may also ask friends or your real estate agent for their recommendations. When you have several names, call each to find out about fees and their level of experience.

Disclosure

Q: Whose obligation is it to disclose pertinent information about a property?

A: Obligations to disclose information about a property vary from state to state. Under the strictest laws, the seller and the seller's broker, if there is one, are required to disclose all facts materially affecting the value or desirability of the property which are known or accessible only to him. Items sellers often disclose include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property and any restrictions on the use of the property, such as zoning ordinances or association rules. It is wise to check your state's disclosure rules prior to a home purchase.

Q: Do sellers have to disclose the terms of other offers?

A: According to experts, sellers do not have to disclose other offers

Q: Will a neighbor problem reduce the value of my property?

A: While it may not reduce the actual value, a cluttered landscape can detract from the positive aspects of your home. Review your local laws, which should be on file at the public library, county law library or City Hall. A typical "junk vehicle" ordinance, for example, requires any disabled car to either be enclosed or placed behind a fence. And most cities prohibit parking any vehicle on a city street too long. It also may be worthwhile to check into local zoning ordinances. An operator of a home-based business usually is required to obtain a variance or permanent zoning change in residential areas.

In addition, if a neighbor's repair work produces loud noises, he may be breaking local noise-control ordinances, which are enforced by the police department. Before bringing in the authorities, you may want to make a copy of the pertinent ordinance and give it to your neighbor to give them a chance to correct the problem.

Resources: "Neighbor Law: Fences, Trees, Boundaries and Noise," Cora Jordan, Nolo Press, Berkeley, Calif.; 1991.

Q: What are the standard contingencies?

A: Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction. A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract. The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.

Q: What repairs should the seller make?

A: Most sellers like to make all minor repairs before going on the market in order to seek a higher sales price. In addition, nearly all purchase contracts include a buyer contingency "inspection clause," which allows a buyer to back out if numerous defects are found. Once the problems are noted, buyers can attempt to negotiate repairs or a lower price.

Q: How do I get the real scoop on homes I am looking at?

A: Home inspections, seller disclosure requirements and the agent's experience will help. Disclosure laws vary by state, but in some states, the law requires the seller to complete a real estate transfer disclosure statement. Here is a summary of the things you could expect to see in a disclosure form:
• In the kitchen -- a range, oven, microwave, dishwasher, garbage disposal, trash compactor.
• Safety features such as burglar and fire alarms, smoke detectors, sprinklers, security gate, window screens and intercom.
• The presence of a TV antenna or satellite dish, carport or garage, automatic garage door opener, rain gutters, sump pump.
• Amenities such as a pool or spa, patio or deck, built-in barbeque and fireplaces.
• Type of heating, condition of electrical wiring, gas supply and presence of any external power source, such as solar panels.
• The type of water heater, water supply, sewer system or septic tank also should be disclosed.

Sellers also are required to indicate any significant defects or malfunctions existing in the home's major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems. The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachments or easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property. Also look for, or ask about, settling, sliding or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, floods or landslides. People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions.

It's important to note that the simple idea of disclosing defects has broadened significantly in recent years. Many jurisdictions have their own mandated disclosure forms as do many brokers and agents. Also, the home inspection and home warranty industries have grown significantly to accommodate increased demand from cautious buyers. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.

Negotiating

Q: Is a low offer a good idea?

A: While your low offer in a normal market might be rejected immediately, in a buyer's market a motivated seller will either accept or make a counteroffer. Full-price offers or above are more likely to be accepted by the seller. But there are other considerations involved:
• Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, a low offer, even a full price offer, may not be as attractive as an offer without that condition.
• Is the offer made on the house as is, or does the buyer want the seller to make some repairs or lower the price instead?
• Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.

Q: What is the difference between market value and appraised value?

A: Appraised value is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process; fees range from $200 and up. Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker.

Q: What contingencies should be put in an offer?

A: Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction. A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract. The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.

Q: How is the price set?

A: It's very important to price your home appropriately relative to current market conditions. Because the real estate market is continually changing, and market fluctuations have an effect on property values, it's imperative to select your list price based on the most recent comparable sales in your neighborhood. A comparative market analysis provides the background data on which to base your list-price decision. Study the comparable sales material presented to you by the different agents you interviewed initially. If the analyses are more than two or three months old, have your agent update the report for you. If all agents agreed on a price range for your home, go with the consensus. Watch out for an agent whose opinion of value is considerably higher than the others.

Q: What is the best time to sell your house?

A: In addition to supply and demand, and other economic factors, the time of year you choose to sell can make a difference both in the amount of time it takes to sell your home and in the ultimate selling price. Weather conditions are less of a consideration in more temperate climates, but most of the time, the real estate market picks up as early as February, with the strongest selling season usually lasting through May and June. With the onset of summer, the market slows. July is often the slowest month for real estate sales due to a strong spring market putting possible upward pressure on interest rates. Also, many prospective home buyers and their agents take vacations during mid-summer. Following the summer slowdown, real estate sales activity tends to pick up for a second, although less vigorous, fall market, which usually lasts into November when the market slows again as buyers and sellers turn their attention to the holidays. Sellers often wonder whether or not they should take their homes off the market for the holidays. Generally speaking, you'll have the best results if your house is available to show to prospective buyers continuously until it sells.

Q: Are low-ball offers advisable?

A: A low-ball offer is a term used to describe an offer on a house that is substantially less than the asking price. While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the offer will probably be rejected. You should always do your homework about comparable prices in the neighborhood before making any offer. It also pays to know something about the seller's motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons.

Q: Do I have to consider contingencies?

A: If you are a seller in a seller's market, in which there is more demand than supply, you probably won't have to entertain too many contingencies. But if you are selling in a buyer's market, when buyers are few, prepare to be very flexible. Granting contingencies also depends upon what kind of price you want to get and on the condition of your property, most experts agree. Remember, contingencies are written into the contract and are negotiable during the negotiation phase only.

Escrow & Closing Costs

Q: What contingencies should be put in an offer?

A: Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction. A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract. The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.

Q: Where do I get information about closing costs?

A: For more on closing costs, ask for the "Consumer's Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120, or call (415) 974-2163.