Buyer FAQ

What are the secrets to home purchase negotiation?
What are the buyer’s responsibilities in the transaction?
What is the role of the buyer’s Realtor?
What should the buyer do to investigate and inspect the property?
What other information might the buyer want to look for?
How can buyers protect themselves from the cost of property defects?
Why buy a house instead of renting?
How do I choose between buying and renting?
Do we dig deep and buy a dream home or settle for a starter home?
What is the difference between market value and appraised value?
What is a house worth?
What is the return on new versus previously owned homes?
What is the difference between list price, sales price and appraised value?
How can I save on closing costs?
What are closing costs?
Who pays the closing costs?
Why do I need a title report?
What kind of home insurance should I get?
How are fees and assessments figured in a homeowners association?
Are taxes on second homes deductible?
How do property taxes work?
Are property taxes deductible?
What is an impound account?

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What are the secrets to home purchase negotiation?

Property Specific

1. How long has the property been on the market?  The length of time a property has been on the market may indicate the seller’s willingness to negotiate.
2. Have there been any price reductions during the listing period?  The amount of any price reduction, as it relates to the overall purchase price, may indicate the seller’s desire to attract an offer. 
3. Have there been any other offers on the property?  It will be helpful to know what offers may have been turned down and for what reasons.
4. What is the motivation of the seller?  Motivation is a key element in any negotiation.  As an example, if the seller has already purchased a new property, your ability to close quickly may be an attractive element of the negotiations.
5.
What personal items are included in the sale?  Anything the seller is willing to leave behind that you won’t need to buy when you move in has real value. Consider those items in your offer.

Neighborhood Specific

1. What is the price range of SOLD properties in the area?  This information is important since it will indicate the top and bottom of that specific market.
2. What is the average time on market for properties in this area?  Short market times may indicate a sellers market.  If this is the case, you may face competition from other buyers.
3. What is the list to sale price ratio in this area?  This information may indicate sellers past willingness to negotiate and by how much.
4. What is the average sales price per square foot of recent sold properties most similar to the subject property?  This approach to establish value works best in a P.U.D. (Planned Unit Development) and/or where there are similar homes, lot sizes and improvements.
5. What other known factors about the property or neighborhood could affect value?  Review the Seller’s Property Disclosure Statement very carefully with your sales associate.

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What are the buyer’s responsibilities in the transaction?

Investigate and inspect the property.  Reasonably consider the age and overall condition of the home.   Take an active role, ask questions.  Exercise reasonable care to protect yourself.  Verify verbal statements.  Get them in writing.  Review the Seller’s Property Disclosure Statement (SPDS), paying particular attention to the date prepared and to questions answered “unknown” or left unanswered.  Hire a professional home inspector and attend the inspection.  Be aware of all contractual obligations.

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What is the role of the buyer’s Realtor?

Find properties that meet your needs.  Assist in answering your questions and direct you to other sources for answers.  Prepare the purchase contract according to your instructions.  Submit all offers and counteroffers promptly.  Coordinate inspections and walkthroughs.  Promptly communicate the status of your transaction while in escrow.

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What should the buyer do to investigate and inspect the property?

Tell your Realtor what’s important to you.  Your Realtor can either answer your question or direct you to other sources that can.  Verify all important information from any source that could affect whether you’d buy the property or how much you would pay for it.  Check nearby property uses.  Conduct the necessary inspections.  At a minimum, your inspection of the property should include: the roof, structural integrity, heating and cooling systems, termites or other pests, electrical and plumbing, waste disposal, square footage and property lines.  Conduct a final walkthrough to verify that the property is in substantially the same condition as it was at acceptance and that all requested repairs, if any, have been satisfactorily completed.

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What other information might the buyer want to look for?

This will depend on your needs, plans for the property, and what’s important to you.  Ask your agent for a list of a property’s non-physical conditions that you may wish to address.

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How can buyers protect themselves from the cost of property defects?

Get a home inspection.  The seller and the agents may not know of existing property defects.  A home inspection is critical to the buyer as it enables a buyer to determine the condition of the property before close of escrow and negotiate possible solutions to any problems before electing to go forward with the transaction.  Get a home warranty.  Buyers are strongly encouraged to buy a home warranty.  However, all policies are not alike.  Read your policy for possible coverage limitations or restrictions.

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Why buy a house instead of renting?

You need a tax break.  The mortgage interest deduction makes home ownership very appealing.  You will also be building equity in an asset.

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How do I choose between buying and renting?

Home ownership offers tax benefits as well as the freedom to make decisions about your home.  When renting you do not have to worry about the maintenance and other financial obligations associated with owning property.

There are a number of economic considerations.  Unlike renters, homeowners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially.

Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment.  However, such returns depend on home-price appreciation.

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Do we dig deep and buy a dream home or settle for a starter home?

Choosing between a smaller house in an affluent neighborhood, an older, bigger house in a more working-class community or a brand-new home is not easy.  If you’re in this situation, start by examining your priorities

 
 
 
 
 
 
 
 
 
 

What is the difference between market value and appraised value?

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 to $300.

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

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What is a house worth?

A home is worth what ever someone is willing to 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.

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What is the return on new versus previously owned homes?

Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood, but any increase in home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the overall economy.

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What is the difference between list price, sales price and appraised value?

The list price is a seller’s advertised price, a figure that usually is only a rough estimate of what the seller wants to get.  Sellers can price high, low or close to what they hope to get.  To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area and your Realtor.

The sales price is the amount of money you as a buyer would pay for a property.

The appraisal value is a certified appraiser’s estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.

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How can I save on closing costs?

Studies show that the closing costs, which can average 2 to 3 percent of a total.

Home purchase price, are often more costly than many buyers expect.  But there are some ways to save:

 

 
 
 
 
 
 
 
 

 

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What are closing costs?

Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home.  They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes.  Unless, these charges are rolled into the loan, they must be paid when the home is closed.

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Who pays the closing costs?

Closing costs are either paid by the home seller, home buyer or both.  It often depends on local custom and what the buyer or seller negotiates.

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Why do I need a title report?

As much as you the buyer may want to believe that the home you have found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict you use of the property.

A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you.

When reading a preliminary report, it is important to check the extent of your ownership rights or interest.  The most common form of interest is “fee simple” or “fee,” which is the highest type of interest an owner can have in land.

Liens, restrictions and interest or others excluded from title coverage will be listed numerically as exceptions in the report.

You may also have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property.  Some buyers attempt to clear these unwanted items prior to purchase.

A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This sections included items the buyer may want to investigate further, such as any laws governing building and

zoning.

 

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What kind of home insurance should I get?

A standard homeowners policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage and water damage from plumbing, heating or air conditioning systems, according to the Insurance Information Institute, a Washington, D.C.-based nonprofit group for the insurance industry.

Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents.

A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business.

Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home, for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000.

For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property.

Some experts recommend an inflation rider, which increases coverage as the home increases in value.

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How are fees and assessments figured in a homeowners association?

Homeowner’s association fees are considered personal living expenses and are not tax-deductible. If, however, an association has a special assessment to make one or more capital improvements, condo owners may be able to add the expense to their cost basis. Cost basis is a term for the money an owner spends for permanent improvements throughout their time in the home and is used to reduce eventual capital gains taxes when the property is sold. For example, if the association puts a new roof on a building, the expense could be considered part of a condo owner's cost basis only if they lived directly underneath it. Overall improvements to common areas, such as the installation of a swimming pool, need to be considered on a case-by-case basis but most can be included in the cost basis of any owner who can show their home directly benefits from the work.

To find out more about how the IRS views condo association fees, look to IRS Publication 17, "Your Federal Income Tax," which includes a section on condos. Order a free copy by calling (800) TAX-FORM.

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Are taxes on second homes deductible?

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

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How do property taxes work?

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.

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Are property taxes deductible?

Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.

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What is an impound account?

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.

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