Real Estate Consumer News

Don't Skimp on Title Insurance

Sun, 01 Nov 2009 14:52:00 +0000

Most people are trying to cut costs these days. Some even wonder if it's necessary to pay for title insurance when they buy or sell a home. Skimping here could end up costing plenty if you discover a title defect after you own the property.

Title insurance is paid for once at closing and covers the property for as long as you own it. It protects the purchaser from financial loss deriving from defects in the title to the property. The premium cost varies depending on the title insurance company, and is usually based on the purchase price.

Who pays the title insurance premium often depends on local custom and can vary from one county to the next. For instance, if you were to sell a home in Los Angeles County, where the seller usually pays for title insurance, and buy in Alameda County, where the buyers usually pay, you'll pay for title insurance twice during one move. Buyers typically pay the premium to cover their lender's interest in the property.

The payment of title insurance is not set by law and can be negotiated between the buyer and seller, although local custom usually prevails. Whatever is agreed to in the purchase agreement will dictate who pays the premium.

A buyer who was an attorney thought title insurance was expensive and a waste of money. Given his legal expertise, he decided he'd search the title record himself to avoid paying the title premium. In the end, his agent talked him out of the do-it-yourself approach based on the risks involved.

Title insurance companies search the title to a property to make sure that there aren't any defects in the chain of title. They also look for liens and easements recorded against the property, as well as establish who has marketable title to the property.

In one case, the title company discovered when searching the chain of title that when the property sold to the current owner, an heir to the estate had not signed the deed transferring title. This meant that person still had rights to the property.

Fortunately, the title company located the heir, who was reputable. She relinquished any interest she had in the property. If the heir hadn't been cooperative, the current owner could have made a claim against the title insurance company that issued title insurance to him when he bought the property.

Title companies usually issue a preliminary title report, which is an offer to provide title insurance on the property. It is not the insurance policy, but it shows the results of the title search.

You and your real estate agent or real estate attorney should examine the preliminary report carefully to make sure the person who has marketable title to the property is the person who signed the purchase agreement. Also check for liens secured against the property.

Easements grant the right to use the property to someone other than the owner. Common easements are for utilities, sewer, and drainage. Ask the title company to provide written copies of any easement and CC&Rs (covenants, conditions and restrictions), and to locate the easements in color on a copy of the parcel map. You can't build over an easement.

Both CC&Rs, typically found in condominiums and planned-use developments, and easements restrict your use of the property. Make sure you understand how these will affect your ownership interests before you complete a purchase.

If you find defects in the title, make it a condition of the purchase that the seller cures the defects before closing. Make sure that your purchase agreement includes a clause that gives you that right.

THE CLOSING: Ask your title officer, REALTOR® or attorney for answers to any title-related questions.

Final Walkthrough a Buyer's Best Friend

Sun, 01 Nov 2009 14:51:03 +0000

By�Dian Hymer

Imagine this. You move into your new home for the first time after closing and, although you transferred the utilities into your name, the lights don't turn on. There isn't a single light bulb left in the house, the yard is overgrown, and the leaky faucets the sellers were to have fixed still leak.

Most homebuyers aren't faced with such an unpleasant surprise. You can gain some degree of control over the situation by completing a walkthrough inspection of the property within five days of closing.

Your purchase contract should include a clause that grants the buyers permission to do a final walkthrough inspection sometime close to the closing date. A final walkthrough provides the buyers an opportunity to verify that the property is in substantially the same condition it was when the sellers accepted their offer. The walkthrough is not a contingency of the contract that gives the buyers the right of approval or disapproval.

Your purchase contract should require the sellers to maintain the property in its present condition until closing. So, if a window breaks before closing, the sellers would be responsible for fixing it, depending on the verbiage in the contract.

During the walkthrough, the buyers can also confirm the completion of any work the seller agreed to do before closing. Ask the sellers to provide you copies of invoices for work done before closing. Keep these documents in your house file for future reference. If sellers made repairs themselves, they should provide an itemization of work completed that describes what they did.

HOUSE HUNTING TIP: It's a good idea to have your REALTOR� accompany you on the final walkthrough and take notes as necessary. If the property isn't in the same condition it was when you agreed to buy it, put this in writing and have your REALTOR� contact the sellers' agent to inform them of the items remaining to be done before closing.

Your purchase contract should include a provision for the sellers to deliver the property to the buyers free of personal property and debris, unless otherwise agreed to in writing. For example, the sellers might have agreed to leave the washer, dryer, and refrigerator with the house, and the buyers accepted the offer.

These items are usually considered personal property, unless they're built in. If the sellers moved these items out or the movers did by mistake, they would need to be returned by closing unless you make other arrangements with the sellers.

It can be very helpful if the sellers agree to do a walkthrough with the buyers to show them things about the home that the buyers would have difficulty figuring out on their own, like the location of obscure light switches or how to operate retractable skylights.

If something is disclosed about the property that should have been disclosed earlier, put it in writing. If it's something significant, talk to your real estate agent or attorney about how best to resolve the issue. Keep in mind that most real estate agents are not licensed to practice law. Also, seller disclosure laws vary by state.

Doing a final walkthrough to verify the condition of your new home can be complicated if it's tenant-occupied. If you are buying a tenant-occupied property to live in, your contract should provide for the property to be vacant several days before closing.

THE CLOSING: That way you can walk through the property free of tenants' belongings before you close the deal.

Appraisal Rules Tangle with Home Values

Sun, 01 Nov 2009 14:50:14 +0000

By�Dian Hymer

How much your home is worth depends on who's looking at it. Your home insurer will value your home in terms of the cost to rebuild it. A mortgage lender's appraiser will value your property in terms of the sale prices of similar homes in your neighborhood that sold recently. The property tax assessor may have a different set of criteria.

Due to recent changes in the economy, the market value of your home could be considerably less than it was a few years ago. However, don't be too quick to ask your insurance carrier to drop the valuation on your homeowner's insurance. This would save you money but could leave you underinsured.

Replacement cost and market value aren't necessarily the same. When home prices peaked in 2006, the market value of your home might have been much higher than the replacement cost value. Today, the sale price of your home could be a lot less than the cost to rebuild.

Talk to your insurance agent about how much coverage you need. This will depend on the square footage of your home, upgrades and amenities, and the price per square foot to rebuild in your area.

HOUSE HUNTING TIP: Most states levy property taxes, and the property tax structure and rate varies from state to state. In California, your initial property tax assessment is based on the purchase price. If you purchased your home in 2006, your property tax base could be higher than your home's current market value. In this case, you can appeal to the assessor's office for a reduction in your property taxes.

The current appraised value of your home, or one you want to buy, may be lower than you expected due to changes brought about by the Fannie Mae Home Valuation Code of Conduct that took effect May 1, 2009. One of the major changes is that loan originators -- mortgage brokers and loan agents -- can no longer talk directly to the appraiser.

This new restriction, while intended to be in the consumer's best interest by keeping loan originators from pressuring appraisers, is resulting in misleading valuations -- not in every case, but in enough cases to raise concern.

Many loan originators now order arm's-length appraisals from third-party appraisal services. Some of the appraisers who work for these companies are hired to appraise properties outside their area of expertise. In one case, an out-of-area appraiser used a property in East Oakland, Calif., as a comparable for a home in Albany, Calif., a much pricier community located 15 miles away.

Appraisers used to appraising homes in planned-unit developments where there is uniformity in the housing stock often have a hard time making sense of market value in areas with a lot of diversity.

For example, some older neighborhoods were developed over several decades. Some homes have been remodeled and some not. House size can differ significantly. A 1,500-square-foot home could be next door to one with 2,400 or 3,000 square feet.

Another negative repercussion of the new code of conduct is that there are more inexperienced appraisers doing appraisals. Many of the experienced appraisers, who have plenty of work, won't work for fees offered by the third-party appraisal companies, which may take a big chunk of the fee to run their companies.

Homebuyers or homeowners trying to refinance who receive a low appraisal should ask to see the comparable sales used by the appraiser. Even though your mortgage originator can't talk to the appraiser, a homeowner or real estate agent can.

THE CLOSING: Ask your real estate agent to provide you with recent comparable sales that closed within the last three months. Then, ask the appraiser to consider these.

Facing Neighbor Complaints on Eve of Sale

Sun, 01 Nov 2009 14:48:47 +0000

By�Dian Hymer

When the for-sale sign goes up, it's not uncommon for a neighbor to come forth with a complaint -- perhaps about an issue that has never been mentioned to the seller before.

The complaint is often addressed to the seller's agent, either in the form of a letter or phone call. In one instance, a seller's next-door neighbor contacted the listing agent to find out if she knew there was a lawsuit pending against the listing.

The listing agent knew nothing about this. But she was sure, given California's mandatory seller disclosure requirements, that if there was a lawsuit involving the property, it needed to be disclosed to buyers -- there were already several buyers who wanted to make offers.

The dispute centered on a possible encroachment involving a sliver of land. The seller's and neighbor's attorneys worked out a resolution regarding the encroachment. The seller's attorney prepared a detailed disclosure package explaining the issues involved for prospective buyers to review before they made offers.

The offer date was postponed to give time for the issues to be cleared up and for interested buyers to have the opportunity to review the attorney's disclosures. A couple of buyers dropped out of the competition. However, the seller received multiple offers and the listing sold in excess of the asking price.

HOUSE HUNTING TIP: If an issue with a neighbor arises during the course of a home sale or transaction, it's best to deal with it promptly. In the example above, the seller lost a little time getting his home under contract, but wasn't damaged in terms of the sale price. It could have been a different story if the dispute hadn't been revealed to the buyers until after an offer was accepted. It could have killed the deal.

More recently, a neighbor walked into a Sunday open house of a listing in the hills above Oakland, Calif., and presented the agent hosting the open house with a letter. The letter was addressed to the listing agent and referenced a possible drainage problem that might involve the listed property.

The listing agent informed the sellers immediately. They had no knowledge of any such problem. The agent and sellers quickly developed a game plan. The listing agent wrote to the neighbor who complained and acknowledged receipt of the letter.

The neighbor's letter arrived just after the sellers accepted an offer. The listing agent immediately forwarded a copy of the letter to the buyers' agent. Without delay, the buyers, sellers and their agents investigated to see if there was a water problem at the neighboring property that might emanate from the listed property.

The house and yard of the listed property were tested for leaks, but none were found. The sellers checked with the local water company to see if their consumption was out of line. It was not. The buyer talked directly with the neighbor and consulted with his home inspector. It was concluded that the yard of the listed property was being overwatered, which was easy to correct.

Not all neighbor complaints are legitimate, and some that are can be difficult to resolve. A Piedmont, Calif., seller had to pay $20,000 to a neighbor for a drainage easement that had never been recorded. If there is a problem that needs to be corrected in order for the buyer to feel comfortable moving forward with the transaction, consult with knowledgeable professionals and get several estimates.

THE CLOSING: Be sure to consult with a top-notch real estate attorney -- preferably one who specialized in residential real estate -- if you have any questions about your rights and responsibilities.

Finding Middle Ground for Home Repairs

Sat, 03 Oct 2009 06:12:57 +0000

By�Dian Hymer

Today's home sales are all about negotiation. Negotiating the purchase price is the first step. A second round of negotiations can occur after the buyers complete their inspections. For sellers who negotiated to their rock-bottom price, this can be disappointing and a possible deal-breaker.

Buyers who are willing and able to buy in this market need to feel they are getting a good value. Property condition is a big consideration. Correcting defects adds to the cost. If the buyers still want to buy after completing inspections, and the sellers need or want to sell, an attempt should be made to reach an agreement on inspection-related issues.

First, sellers should carefully review the buyers' reports and their request for repairs, price concessions or credits. Keep in mind that there is a certain amount of subjectivity in inspectors' opinions. For example, one roofer might think a roof needs to be replaced. Another may feel that the roof is serviceable with routine maintenance and is not at the end of its life.

HOUSE HUNTING TIPS: Sellers have the right to get another opinion for repairs. A second opinion could result in a lower estimate, or it could be higher. Seller disclosure requirements vary from one state to the next. Even if it's not required, it's a good idea for sellers to give all reports and estimates to the buyers. In California, sellers who concealed reports they didn't like have been successfully sued by buyers.

Sometimes sellers have work done before they put their home on the market. Occasionally, a buyer's inspector finds damage that was to have been repaired but was not. In this case, the sellers should have the original inspector visit the property to make sure the work was completed.

Recently, an Oakland Hills, Calif., homeowner had a wood-destroying -- commonly called "termite" -- pest inspection done and had the damage corrected before marketing the property. When a second pest company inspected the house, damage was found at some areas where the previous pest company had done work.

The first pest company agreed that the job hadn't been completed. The company agreed to finish the job at no additional cost. This eliminated an inspection issue at no cost to the sellers or buyers. Defects in items that are under warranty may be corrected at the company's expense.

Sellers can get bogged down on principle, particularly if the buyers make an "as is" offer, had reviewed presale inspection reports before making an offer and then asked the seller to repair defects included in those reports. Some sellers feel this is not playing fair.

The buyers may not have intended to make repair requests when they initially negotiated the purchase agreement. But, after researching costs to repair defects, they may find themselves outside their financial comfort zone.

Buyers should focus on health and safety issues when they approach sellers for help repairing defects. Sellers will often take care of these. However, buyers shouldn't expect sellers to pay to upgrade the property.

It's hard for some sellers to repair items they have lived with for years with no adverse consequence. At some point, defects need to be corrected to prevent further damage to the property.

Buyers should prioritize their request for repairs. Then buyers should ask for help with the most pressing issues, unless they already factored the cost into their initial offer price.

Before walking away from a sale due to inspection-related defects, sellers should seriously consider if they will do better pricewise if they put their home back on the market, particularly if prices in the area are declining.

THE CLOSING: Before giving up, buyers should consider how easy or difficult it will be to find another home they like as much.

Sellers Think Twice About High Offers

Sat, 03 Oct 2009 06:12:32 +0000

By�Dian Hymer

Sellers who are lucky and receive more than one offer should carefully consider all aspects of the offers before accepting the one with the highest price. Even if you receive only one offer and it's lower than your asking price, you might want to consider bending some on your price in exchange for a transaction that is likely to close.

Ideally, you want a committed buyer who has a good credit score and financial resources, and who has been preapproved for a mortgage, as lenders have tightened their qualifying criteria considerably.

HOUSE HUNTING TIP: Your real estate agent should ask the buyer's agent for permission to contact the buyer's mortgage person directly to find out if there is any reason the buyer wouldn't receive credit approval. An offer from a gold-plated buyer at a lower price may be a better deal than a higher-priced offer from a marginally qualified or low-cash-down buyer.

Another issue to consider if you receive more than one offer is the likelihood of the property appraising for the higher price. Appraisals have become a problem recently, particularly in declining markets. Appraisers make downward adjustments for properties that are deemed to be in declining markets.

Are there at least three comparable sales that closed within the last three months that can be used to justify the buyer's offer price? If not, the appraiser might have difficulty appraising your property for the purchase price.

Buyers usually include an appraisal contingency in their offer. If so, the buyer usually has the option to withdraw from the contract if the property appraises for less than the contract price. Some buyers won't buy a home that appraises for less than they've agreed to pay.

A buyer who is committed to making the deal work is more likely to be able to accept an appraisal that is lower than the purchase price. In this case, the buyers and sellers negotiate a mutually acceptable resolution. For example, the sellers could agree to accept a lower price if the buyers agree to increase their cash down payment.

Many buyers don't have additional cash. In this case, if the seller wants to keep the deal together and the buyers won't or can't complete the purchase at a price higher than the appraised value, the contract price will need to be reduced or the deal will fall apart.

There are a lot of uncontrollable elements in a home-sale transaction. One is that you have no control over who represents the buyer. That is, unless you receive more than one offer. In some cases, it may be worthwhile to accept a lower-priced offer from a buyer who is represented by an agent with a good track record in your area -- one who is experienced, trustworthy and diligent.

A clean offer is one that is not loaded up with contingencies. Typical contingencies are for inspections, and loan and appraisal approval. An offer that's contingent upon the sale of another property is riskier than one that's not. A noncontingent offer, even at a lower price, might be the best offer because it has more certainty of closing.

An offer that is contingent upon the close of another escrow may be worth the risk, particularly if all contingencies have been removed from the buyer's contract. Request confirmation from the buyers that contract contingencies have been removed and find out from the closing agent or escrow officer when the closing is likely to occur.

THE CLOSING: The uncertainties in the current market make it important to carefully consider the terms of an offer, not just the price, before you accept it.

Resale Value High on Buyers' Minds

Sat, 05 Sep 2009 18:36:23 +0000

By�Dian Hymer

There's not much you can do about keeping a down market from having some impact on the value of your home. But, you can carefully choose the home you buy so that you end up with a property that holds its value well, even in a slow market.

Gerry and Patty Montmorency have lived in their Oakland, Calif., home for 11 years. Prior to this relatively long period of ownership, at least for them, they bought and sold seven homes in six different cities. It took them between 12 hours and two weeks to sell the last six homes, even one they owned in Nashville, Tenn., for less than four months.

What is the secret to their success? Location is at the top of the list of features to look for. A convenient location with good public or private schools, public transportation and a commercial district close by are a plus. But, being too close to a school or commercial zone can detract from value, particularly in a buyer's market.

HOUSE HUNTING TIP: To make sure they don't end up buying in the wrong neighborhood, the Montmorencys walk the neighborhood on different days and at various times. They are on the lookout for a pride of ownership that is reflected in good care and maintenance of the homes and yards. They also check for loud neighbors and noisy pets.

Patty and Gerry steer clear of buying the smallest or largest home in the neighborhood. Both of these can be tough sells in a slow market, and you can't always time your move to sell when the market is hot. In a hot market, buyers tend to overlook defects because they're so intent on buying when home prices are appreciating.

Other features on the Montmorency's list are: at least a two-car garage, ideally with inside access to the house; at least 2,000 square feet of living space; three bedrooms and two and one-half bathrooms; wood and tile floors throughout; a newer kitchen and bathrooms, or ones that can be updated; and no aluminum windows or siding.

They also prefer to live on a cul-de-sac, if possible. But, if not, there should be no double yellow line in the street in front of the house. They always buy single-family homes -- never split-level homes or condos. For decades, single-family homes outpaced condos in terms of appreciation rate. However, that turned around at the beginning of this decade.

Many things can be improved in a house, such as the color scheme or lighting fixtures. However, some qualities are difficult or impossible to correct. For example, good natural light is appealing to most homebuyers. You might be able bring more light into a house by adding skylights or enlarging windows. But, some homes are oriented in such a way that they will never have good natural light.

Other incurable defects that you might want to avoid are a lot of steps leading to the front door; a house with living space on more than three levels; a location near a noisy freeway, under the flight path of a local airport or on a busy street; a choppy floor plan that doesn't flow easily; lack of a bathroom on each level; and limited storage space.

Buying a home involves making compromises. The perfect house doesn't exist and probably can't be built. However, you can and should avoid buying a house with incurable defects like a bad floor plan that can't be fixed without rebuilding the house.

THE CLOSING: Resale value shouldn't be the only reason you buy a home. But, it should be seriously considered.

Tips on Buying Home Through Relo Company

Sat, 05 Sep 2009 18:32:22 +0000

By�Dian Hymer

Approximately 1.5 million sellers per year take advantage of an employer-assisted relocation, according to the Employee Relocation Council. Buying one of these listings involves a different procedure than you'd ordinarily expect.

One of the hardest parts of making an offer on a relocation listing is that it can take three to five business days to get a response to your offer from the relocation company. The sale procedure differs from one relocation company to the next. But, generally, the process goes like this:

If the relocation company has a commitment to buy the seller's property, the buyer's offer is made to the relocation company, not to the owners who may still be living in the house. The relocation company could be located out of state.

In some cases, the offer is negotiated verbally between the owner -- assuming the relocation company hasn't already purchased the property -- and the buyer. Verbal contracts to sell real estate aren't binding until they are signed by all parties.

The contract and any counteroffers are then sent to the relocation coordinator, either by overnight mail or via e-mail. The contract is then reviewed to make sure that it's acceptable and that no signatures or initials are missing.

If the relocation company hasn't already bought the property from the owner, the company draws up a contract mirroring the terms and conditions of the contract verbally negotiated between the buyer and owner.

After that has been signed by the owner and relocation representative, the relocation rep signs the buyer's purchase contract and sends it back to the listing agent. The time it takes for a buyer to receive the contract signed by the relocation company depends on how complete the contract is when it's sent for review and signing.

HOUSE HUNTING TIP: Until the contract is signed by the relocation company and delivered to the buyer's agent, the property is still for sale. Another buyer can make an offer. A listing agent is required to present any and all offers to the seller. So, it's important to do everything you can to expedite the process by providing as complete a contract as possible to the listing agent so that it can be forwarded to the relocation company.

Make sure that your agent calls the relocation company's listing agent to find out what relocation company requirements must be complied with before an offer can be accepted. For instance, the relo company might have a multipage addendum that needs to be a part of the contract and signed by the buyer.

The relo company might not accept an offer unless it's accompanied by a preapproval letter from a lender or mortgage broker. The preapproval letter might need to include that a loan application has been submitted by the buyer, that the buyer's funds needed to close have been verified, that the buyer's income and credit have been checked and the that buyer doesn't need to sell another property to close the sale.

Relocation companies often won't accept offers made contingent on the sale of another property. But, they might consider an offer made contingent on the close of the buyer's property sale if an offer has already been accepted and all the contingencies removed. In this case, the relo company will need copies of the complete contract that confirms the sale of the buyer's property.

At the closing of a relocation listing sale, the relocation company signs the seller's closing documents, including the deed transferring title to the buyer. Usually, there is no warranty regarding condition of the property. The relo company may or may not provide inspection reports at or before an offer is accepted.

THE CLOSING: Regardless, buyers should include an inspection contingency in their contract.