Buyer's Agent Services
Selecting a buyer's agent. - Questions buyers often ask.
The way we do business. - How we work with buyers.
Short Sales - Short Sale Explanation.
Buying your home. - Valuable tips to assist in your purchase.
Useful links. - Real estate market news, mortgage lenders, etc.
Selecting a buyer's agent
Buyers often ask the following questions.
Q: Why use a real estate agent?
A: Agents offer you distinct advantages...
1 Access.
We can access up-to-date, computerized information. An agent can retrieve listings by computer, and can search for properties which match your needs. We can search by size, number of bedrooms and baths, price, schools, and dozens of other characteristics.
2 Knowledge.
We are knowledgeable about properties.
3 Paperwork.
We know how to do the paper work properly to avoid problems later.
4 ...and we're free.
Best of all we are normally free to buyers -- whom we chauffeur around in our comfortable automobiles.
Q: Why use a buyer's agent?
A: Historically real estate agents all worked for sellers, and it was generally understood that the listing agent worked for the seller of the property. It was not generally understood that agents who worked with buyers were sub-agents of the listing agents, and consequently, also worked for the seller. The seller of a property paid the listing agent for successfully marketing the property, and the listing agent paid the sub-agent who worked with the buyer.
In 1996 the law changed and buyers can hire agents to work for them. Benefits of hiring a Buyer's Agent include:
- Exclusive representation -- Complete loyalty without conflicts of interest
- Confidentiality concerning your money and motivation
- Unbiased showing of all available homes whether listed or offered by owners
- Information and advice about the property
- Disclosure of everything an agent knows or can discover
- Hassle-free relocation -- your interests and timetable are foremost
- A fair and straightforward buyer agency agreement
- An agent/agency that gets the job done right with no surprises
- Assistance in determining if a property is overpriced, advice about offering less than the asking price, and information about the seller's motivation. This information is not available from a seller's agent
- Help in finding good home inspectors, lenders and information
Q: Are members of the Cooper Team Accredited Buyer's Representatives?
A: YES! We are Accredited Buyer's Representatives (ABR) -- which means that we have taken courses and completed the requirements for that designation. We are also Real Estate Brokers, and John is an economist by training. You can be assured that we will be on your side throughout the entire home buying process. You deserve to have a well qualified agent at your helping you.
The Way We Do Business
Buyers are diverse in their real estate needs. We help different buyers in different ways. One size does not fit all. People from outside the area have different needs than local residents. A first time homebuyer's needs are different from the needs of an experienced homebuyer. Internet users typically seek information electronically while non-computer types prefer telephone and paper communications.
Some buyers prefer to search the newspaper ads and visit weekend open houses, hoping to find their new home. That approach is satisfactory if you enjoy the process. On the other hand, if you are busy and want to find your new home with a minimum investment in time, you will do better using our services. This is true because we have access to better data than do non-Realtors® and because we have a lot of specialized knowledge about finding homes.
We normally work one of two ways, depending upon our buyer's needs and preferences.
Many buyers like to come to the office and review on the computer screen (descriptive material and photos) all the properties that might be of interest to them. Some buyers like to drive by the properties which survived the computer review and shorten the list to those that which have satisfactory neighborhood and curb appeal.
Other buyers choose to depend on us to select the properties which they view. This is frequently the case with out-of-town buyers who are not acquainted with our streets and neighborhoods.
Frequently buyers want us to monitor the market as new properties become available in order to find a home that meets their specific wants. We have software that allows us to monitor new listings effectively. All of this takes time and is a labor-intensive process.
Finding the home for a buyer is just the beginning. A buyer's agent also negotiates for price and conditions that benefit his buyer client.
Buyers are in the fortunate position of not having to pay for the services of Realtors®. Realtors® are paid out of the proceeds that go to the seller of the property. This means that you as a buyer can (normally) have professional representation at no cost.
We believe that most buyers are not in a position to judge an agent's experience, technological skills, willingness to give the necessary time, and personal compatibility until they have met and worked with the agent. We believe that buyers should have an opportunity to become acquainted with a Realtor® prior to signing an agreement to use that agent exclusively in the pursuit of their new home. Accordingly, our policy is to work with buyers the first day in order to give them a chance to judge if they are comfortable with our expertise, technology, and personality.
After the first day, we require a written agreement which outlines mutual responsibilities.
Short Sale Explanation
A short sale is a pre-foreclosure sale which means the seller still technically owns the property but the lending institution controls the sale since it has to accept less than the mortgage balance for the property to sell. Lenders sometimes accept less that the mortgage balance that is due in order to avoid the high costs and delays that are associated with foreclosure on a property.
Sometimes seller's can avoid the credit damage associated with short sales by bringing money to closing to pay the difference between the sales price and the larger mortgage balance - in which case the transaction is not a short sale. Properties that have been foreclosed and are therefore owned by a bank or mortgage company are similar to properties that are owned by individuals and normally are less difficult to buy than short sale properties.
Due to the massive problems in mortgage markets there are more short sales than the lending companies can handle and frequently an offer on a property that would require lender cooperation (short sale) goes months before a potential buyer gets a response. Many disgruntled buyers give up and look for a different property. When and if the mortgage company responds to a buyer's offer, it can reject or accept or counter that buyer's offer. The mortgage company can also decide to sell to someone else while a buyer is waiting for a response.
The Market Reality
Buyers are interested in short sales because they think that short sales are apt to result in bargins. The reality is that short sales simply reflect the fact that often the sellers of the property bought at high prices close to the peak of the market, say mid 2007, and the market has been depreciating since then.
For example, it is possible that two identical condos (same floor, size, finishes, views, etc.) could be on the market at the same time. The first seller who bought several years ago and who has enjoyed years of appreciation has to move to another city and prices his unit to sell quickly and can do so due to substantial equity in the property. The second buyer who bought at the peak of the market with a maximum loan faces a short sale situation and cannot meet the neighbor's price due to the lender's unwillingness to accept market realities. A buyer who focuses on short sales would miss the better buy.
In addition, from our perspective, a short sale offers potentially a lot of work, with no guarantee of payment from the seller/lender. While we love real estate, it's a very expensive hobby. If you choose to look at short sales we are going to ask you to commit to a Buyer's Broker Agreement up front.
Our Advice
Do not assume that the listed price of a short sale is the road to a bargain. Normally the lender has not consented to accepting the list price of a property. It would be better to look for properties that match your criteria as to location, size, price, amenities, etc. and select from a list that includes properties owned by individuals and lenders as well as the more problematic pre-foreclosure (short sale) properties.
You will need to be pre-approved for the loan at the time you make an offer. Get pre-approved by a good lender in advance of doing the property search.
We will be happy to email you a list of property listings including, short sale properties that match you interests in terms of location, size, price, etc. We are also prepared to discuss short sales with you in person. You should be pre-approved for the loan and have committed to a Buyer Broker Agreement before actually viewing short sale properties.
In summary, the short sale process is apt to be a frustrating experience due to lack of communications, long waits and excessive demands for paperwork. Lenders often keep the property on the market waiting for better offers while not giving earlier buyers the courtesy of a response. Be open to the properties which are owned by sellers who simply want to sell their homes in the normal manner.
Buying your home
Contents
- The Advantages of Home Ownership
- Determining Your Needs & Preferences
- What Can You Afford?
- Selecting an Agent
- New Homes vs. Existing Homes
- Searching for the Right Home
- Making an Offer
- Selecting a Lender
- Inspections, Appraisals, & Repairs
- Settlement & Closing Costs
1 The Advantages of Home Ownership
Owning a home is still considered by many Americans as the ultimate dream. Even without the many financial advantages, most people have an intense desire to own a home they can truly call their own. It's the one investment that provides a roof over your head and can be the source of strong pride from making improvements and changes to fit your personality. But, most of all, owning a home is like a gigantic piggy bank, with each mortgage payment acting like a deposit into a savings account. Unlike rent, you actually get money back some day. When real estate appreciates the home essentially pays you interest, sometimes huge amounts. It's important to understand how greatly a homeowner can profit from even a small amount of appreciation. For example, a 3 percent annual increase in home prices does not sound like much, but consider this: If you purchased a $100,000 house with 10 percent down, your actual investment was only $10,000. So the $3,000 gain is actually a 30 percent annual return on your money invested, a remarkable rate of return by any investment standards. And, if the annual appreciation rate is higher or your down payment lower, then the rate of return is greater still!
Since the appreciation of real estate normally occurs in inflationary times, this makes owning a home a strong hedge against runaway inflation. In fact, during the 1970's when inflation ran as high as 13.5 percent in a single year, existing home prices rose 142 percent during the decade, compared to an 87 percent jump in the consumer price index. Meanwhile, you receive a significant deduction on your income taxes. The interest you pay in the early years of a long-term mortgage is a large percentage of your total payment, with very little going towards principal. Provided certain conditions are met, one hundred percent of the interest can be deducted from your annual income when determining your federal tax liability.
Also, most homeowners can tap into their home equity for major needs, such as college tuition or home improvements. Appreciation often allows a homeowner to borrow far more money than he or she has initially invested.
Although the dramatic price increases of the 1970's were most likely an aberration, real estate continues to be a great potential investment. The only difference is that now a buyer must be more discerning.
2 Determining Your Needs and Preferences
Buying a home is a very personal decision. The choices are numerous, from high-rise condominiums to rural farm houses to subdivision homes. Each family must analyze its present situation as well as its future plans before deciding on a strategy. But, since it's unlikely that you will stay in a house for the remainder of your life, resale must also be considered. Personal choices which border on the extremes should be avoided.
Here are some of the basic questions you should ask yourself:
- How far am I willing to travel to and from work everyday?
- How far am I willing to travel for other destinations, such as shopping, culture, recreation, church, etc.?
- Is school proximity and district boundaries an issue?
- What type of neighborhood do I want to live in -- established or newer area... suburban, urban, or rural... etc.?
- Do I want a brand new home or an existing home?
- How large of a home does my family need at this time?
- Will there be changes in the size of my family or its lifestyle that will change the size of home that my family needs?
- How many bedrooms and baths, including for guests, do I need?
- Do I need a family room? A den? A formal dining room?
- How big of a kitchen do I need? How much cabinet and counter space will I require? Do I need a breakfast nook or eating area?
- What style of home do I prefer? Is the number of levels important?
- Is the floor plan important? Do I want an open design?
- How much closet and storage space do I need?
- How large of a garage will I need? Do I need room for a shop?
- Do I want a fireplace? Central air? Utility room? Storm windows?
- Do I want a large yard? Does it need to be fenced?
- Am I willing to do minor repairs? How about cosmetic changes?
- How long do I expect to live in the home that I purchase now?
- How much can I afford, and how much am I willing to pay?
- Do I need special terms (seller financing, assumption, etc.)?
3 What Can You Afford?
Many potential home buyers do not have a clear picture of how much they can actually afford to spend. There have been so many changes in the home financing industry that even experienced buyers sometimes sell themselves short. For this reason, it's actually important to visit a loan officer and become pre-qualified before you even start shopping. Getting pre-qualified generally does not require any fees, and it does not obligate the buyer to use that lender. It does help save a great deal of time and frustration. And, it's common for thepre-approved buyer to have an edge when making an offer to purchase.
Talk to your lender about the amount of money you have saved for a down payment and closing costs to determine what type of loan you might need. Some buyers are mistaken that they need 10 or 20 percent down to buy a home, when FHA loans are available for as little as 3 percent down, and VA loans are made to some veterans with no down payment. And, there are even conventional loans made which require no more than 5 percent.
The amount the lender will actually loan you is dependent on a maximum monthly payment determined by your paying ability. The lender is concerned with your combined income, how much existing debt and on-going financial obligations you have, and your credit history. Lenders use specific ratios to calculate the amount of the loan they are willing to give a buyer. For example, a lending institution may use two separate ratios of 28% and 36%. The front-end ratio of 28% refers to the maximum percentage of your gross income that your total mortgage payment can be. In other words, the principal, interest, taxes, and insurance (PITI) payment can be no more than 28% of your monthly gross income. The back-end ratio of 36% refers to PITI payments and all existing debt. So, your car and boat payments, credit card debts, and other long-term obligations (usually of at least 10 months) would count against you in determining your maximum monthly mortgage payment.
Lenders will often authorize a loan with a higher debt-to-income ratio to someone who has a larger down payment, since a buyer is less likely to default when more of his or her own money is at stake. There are no stead-fast rules, so it's imperative to talk to your lender and your real estate agent about some of the many options you may have.
4 Selecting an Agent
One of the first and most important steps in buying a home is selecting a real estate agent to assist you. In most cases the agent you work with has a fiduciary relationship with the sellers of the homes you see. That's understandable, since it is the seller who pays the real estate commission. However, today, more and more buyers are selecting an agent to represent their interest in real estate tranactions. This usually does not cost the buyer anything because the seller has, most likely, already agreed to pay a commission for the sale of their house. When you have your own agent that agent then owes his/her fiduciary responsibility to you as the buyer.
A good agent will help to facilitate your home purchase by making your home search more efficient and productive by his or her current market knowledge. Also, a real estate professional's knowledge of the loan and escrow process will help to assure that your dream home closes on time and with a minimum of problems.
Here are some questions you might ask an agent you are considering:
- How knowledgeable are you with homes in this area?
- Does your firm belong to the local multiple listing service?
- Is real estate your full-time occupation?
- Are you familiar with a variety of financing options?
5 New Homes vs. Existing Homes
A basic question each prospective home buyer faces is whether to buy a brand new home or an existing home. Although prices can vary greatly from one location to another, generally new homes cost 10 to 20 percent more than comparable existing homes. New homes offer the benefits of modern designs and popular colors, near-perfect condition, and new appliances. In addition, builders often offer attractive financing and assistance that is superior to current market rates. And, new homes usually appreciate more rapidly during the first five years than existing homes over the same period.
Existing homes are more attractive to many buyers because they tend to be in more established neighborhoods, closer to shopping, schools, and other conveniences. Also, the neighborhoods are often more visually appealing, since trees and shrubs have fully matured. And, the character of an existing home is sometimes an issue, in comparison with the newer subdivision houses. The financial advantage can be important, since the prices are not only lower, but so are the immediate after-sale costs, such as fencing, lawns, shrubbery, drapes and blinds, etc. However, a new home is much less likely to incur any unexpected costs from things wearing out, such as the furnace, air-conditioning, water heater, appliances, carpeting, and the roof. So, it's very important to consider the results from any inspections and to understand any warranties offered on either type of home purchase, but especially when buying an existing home.
6 Searching for the Right Home
The home search can at times be very frustrating, but with the right real estate agent it can be pleasant and productive. A good agent will listen carefully to your needs and preferences and be able to narrow down the possibilities with great efficiency. At first, there may be dozens of homes which match your requirements, so it may take several house-hunting trips to pare down the list. This early phase also allows you to get an excellent grasp of values, so it's important to make mental notes of each home and its price, even when you know that some of them are not under consideration. After seeing several homes, it's common for buyers to adjust their expectations of what they can actually afford.
Usually, you'll find several homes that feel right, having most of the features you desire and appealing to you emotionally. Once you've narrowed your choices down to a final list of 3 to 10 homes, it's time to evaluate the specifics of each. It's important not to get too caught up in the emotional factors which cause you to like or dislike a certain house. Too many buyers let emotions play a big part in their decisions, such as seeing a perfect sunset from a home's balcony. A sunset that beautiful might only occur two or three times a year, hardly a reason to pay $5,000 over market value. Or perhaps you've found your dream home, except for a slight pet odor. You might decide not to buy for that reason, even though it would have cost less than a hundred dollars to have the carpet cleaned and the odor removed. And, unless you plan on living in the home forever, it's always important to be thinking in terms of resale value. Also, don't be fooled into thinking you have to see every home on the market in your price range. Seeing too many homes could even make your decision more confusing. An agent doing his or her job correctly will focus in on the homes that match your desires first. The agent will show you those homes on the first appointment, and later showings will normally feature homes which are less likely to meet your requirements. It's not at all out of the ordinary to find the right home after only two or three showings.
Use common sense and the knowledge and experience of your real estate agent. Keep your emotions at bay. And, analyze the features and amenities of each home to determine whether the home fits your needs and lifestyle.
7 Making An Offer
Once you have selected a home to make an offer on, there are many issues other than the offering price that you must consider. You must also be alert to the fact that your real estate agent is likely representing the seller, so it's important not to discuss your negotiating strategy.
A buyer should make a reasonable offer, based on market conditions, home condition, and urgency. Remember, it's common for sellers to receive multiple offers, so it sometimes becomes counterproductive to offer too low a price on the home you really want. And, try to resist your bull-headed instincts. Sometimes a seller's price really is firm, and really is a good value. You should remember, too, that every thousand dollars of purchase price amortized over 30 years at 8 percent is actually less than a quarter per day. Just think, if a couple both get a ten cents an hour raise at work, that more than pays for $6,000 in price. Often, a stubborn buyer loses his dream house for, literally, pennies.
Another issue within the purchase contract is the amount of earnest money you are willing to offer. A larger amount of earnest money shows that you are to be taken seriously, and can help your offer get accepted. The contract should specifically state the terms upon which the deposit might be forfeited to either the seller or broker.
Another issue is how much of a down payment you will make. A larger down payment is usually more assuring to a seller. The type of financing should be specified, including the amount of loan. You should insist upon a financing contingency clause, which states that you are not obligated to complete the purchase or lose your earnest money if you do not get the loan. Most offers also allow for the buyer to have the property inspected at the buyer's cost. Make sure you understand any escape clause that permits you to back out of the sale if you are not satisfied with the inspection results.
There are numerous items which should be addressed in any purchase contract, such as repairs, possession date, pro-ration, and settlement. It's important that your attorney review all documents pertaining to your home purchase and that you understand the implications of everything you are signing.
8 Selecting a Lender
Home buyers have plenty of options when searching for a loan, including savings & loan associations, banks, mortgage bankers, mortgage brokers, credit unions, and other financial institutions.
Savings & loan companies and banks are the most common mortgage source, but more and more buyers are now using mortgage bankers and brokers. A mortgage banker provides financing using its own funds rather than simply bringing together lender and borrower, as does a mortgage broker. Although the mortgage banker uses its own funds, these funds are usually borrowed, and the mortgages are sold to various investors, such as Fannie Mae, on the secondary mortgage market.
Increasingly, non-banking companies are entering the banking business. Credit unions, insurance companies, and large companies like General Motors Acceptance Corporation are arranging mortgages.
Shop around and ask your real estate agent for information. Although mortgage loan rates do not vary greatly in any specific area, lenders offer such a wide variety of programs that you might come out ahead by making a few phone calls.
9 Inspections, Appraisals, & Repairs
Although it is required that sellers disclose any known defects to buyers, you should always protect yourself with an inspection clause within the sales agreement. It should state that you have the right to hire a qualified person to inspect the home, and that you may terminate the agreement within a specified period of time if the inspection report is not satisfactory.
You should expect a thorough inspection, a written report within one or two days, and a willingness of the inspector to explain those items which are not fully understood. If possible, you should plan on attending the inspection, so that specific problems can be directly pointed out to you. Depending on the size of the property and the complexity of the report, you should expect to pay between $300 and $500.
An inspection is not intended to be a warranty of a property's condition, and probably will include a written disclaimer saying so. It normally covers those areas which are readily accessible or visible to the inspector, so any latent defects that are not easily apparent will probably not be reported. It is especially important for a buyer to pay close attention to those items which can be costly to repair, such as the roof, furnace, air conditioning, foundation & structural elements, electrical system, plumbing system, and any dry rot or pest infestation. Minor problems which can be easily repaired and cosmetic problems should take a back seat to those items listed above.
Usually, any allowances in the sales agreement for repairs refers to lender-required repairs. The lender will probably request a copy of the inspection report, though, and may request certain repairs based on that report. Many times, though, the lender will request repairs based only on the appraiser's recommendations. Although the appraiser does not tend to inspect the condition of the property with the same thoroughness of most inspectors, there are specific things most appraisers look for to meet the underwriting guidelines of the lender or government loan programs, such as FHA and VA. Some of the most common things most appraisers look for are adequate access to the attic and crawl space, water in the crawl space, plastic sheeting in crawl space, dry rot, wood-to-soil contact, proper roof and floor ventilation, peeling or blistered exterior paint, shower and tub surrounds, bathroom fans or windows, ceiling insulation, smoke detectors, good gutters and down-spouts, minimum standard electrical service, pop-off valve on the water heater, and certifiable 3-year roof life. The appraiser can suggest repairs or corrections of any of these items, as well as any others he deems necessary. It is up to the underwriter to determine if the repairs will be required as a condition of the loan. The appraiser's primary purpose, though, is to estimate the market value of the property. Since the buyer pledges or hypothecates the title of the property as security for the mortgage loan, the lender has a vested interest in loaning no more than a percentage of the property's value. Each loan program has a maximum loan-to-value ratio, where the buyer is required to make a minimum down payment based on the appraised value. For example, if the property costs $100,000 and the maximum loan-to-value ratio is 90%, then the lender will loan $90,000 and the buyer must put $10,000 down. However, if the appraised value falls short and is only $98,000, the lender will only loan $88,200. So, in this case the buyer must make an $11,800 down payment, unless the seller is willing to lower the previously agreed upon price.
10 Settlement & Closing Costs
Closing costs are often negotiated between buyers and sellers, and these costs may vary depending on the lender, the type of loan, the escrow company, and state and county requirements. Generally, however, the costs are fairly standard. However, you should always check with your escrow agent before closing to get a firm idea of what you are expected to pay.
Pro-rations, although not truly a closing cost, are also figured at closing. Pro-ration is a method of making an equitable adjustment between the buyer and seller on any items which have been prepaid by one of the parties. The seller is normally credited for prepaid insurance premiums and prepaid interest, but normally must pay the buyer at closing for property taxes. Also, the buyer may be required to deposit funds into impound accounts to take care of property taxes and hazard insurance.
Useful links
Pearl-District-Lofts.com
PortlandCondos.com
