BuyersBuyingAHouse

Home Buying Articles and Advice
Don't Buy a Car - or Did You Already Buy One?
When Income Grows and You Want to Buy "Stuff"
Debt-to-Income Ratios and Car Payments
How Buying a Car Reduces Your Purchase Price
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Things Not To Do Before Buying a Home
No Major Purchases of Any Kind
Don't Move Money Around
Should You Change Jobs?
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Reasons to Delay Buying a Home
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What's More important - Buying a House? Or a Home?
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Why Buying a Home is a Good Idea
The Best Investment
Income Tax Savings
Stable Monthly Housing Costs
Forced Savings
Freedom and Individuality
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The Business Cycle and Buying a Home
Recession and Expansion
Supply and Demand
Should You Try to "Time the Market"?
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Buying a Home -- What’s Deductible?
What are Points?
Deducting Points when Buying a Home
Deducting Seller Paid Points
Deducting Points on Second Homes
If You Make Too Much Money…
Other Deductible Closing Costs
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Why Search for A Realtor?
Finding an Agent by "Accident"
Listing Agents vs. Selling (Buyer's) Agents
Agent's Advertising - Is the Purpose What You Think?
Call the Listing Agent or Get Your Own Agent?
Finding Your Own Realtor
Conduct A Thorough Search
How to Conduct the Search
Interviewing A Good Realtor
When the Agent Asks You for an Appointment
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Professional Designations of Real Estate Agents
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Looking Ahead - Buyer's Remorse
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Comparable Sales and Your Offer Price
Determining Your Offer Price
Comparable Sales in the Public Record
Comparable Sales in the Multiple Listing Service
Comparable Sales - Pending Transactions
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Factors Affecting Your Offer Price
How Property Condition Affects Your Offer
How Home Improvements Affect Your Offer
How Market Conditions Affect Your Offer
How Seller Motivation Affects Your Offer
The Final Decision on Your Offer Price
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Offering to Purchase Real Estate- the Basics
Introduction and Overview
Contingencies in a Purchase Offer
Earnest Money Deposit
The Closing Date
Transfer of Possession
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Writing an Offer - Safeguards Regarding the Property
Disclosures From the Seller
Condition of the Property Upon Transfer
Inspections You May Require
Final Walk-Through Inspection
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How Financing Details Affect Your Offer
Down Payment
Interest Rate
Closing Costs and Financing Incentives
Seller Financing
Cash Offers
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How FHA and VA Financing Affects Your Offer
Extra Costs for the Seller
More Detailed (and expensive) Appraisals
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You and the Seller Must Agree on Some Services
Settlement and Escrow
Title Insurance Companies
Termite and Pest Inspections
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Buying a Home With Resale Value - Location
Location, Location, Location?
Location - Local Community, Town or City
Economic Stability
Government Services
Schools
Property Taxes
Location - the Local Neighborhood
Location - the Residential Neighborhood
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Buying a Home With Resale Value - the House
A Home With a View?
Lot Choice and Landscaping
House Size
Bedrooms & Bathrooms
Closets, Garage & Laundry
Kitchen
Fireplaces
Swimming Pool?
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Buyer's Remorse- Did You Make a Huge Mistake?

Why Buying a Home is a Good Idea
The Best Investment
As a fairly general rule, homes appreciate about five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.
Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could earn over six percent with the safest investment of all, treasury bonds (as of April 2000).
But take a second look…
Presumably, if you bought a $200,000 house, you did not pay cash for the home. You got a mortgage, too. Suppose you put as much as twenty percent down – that would be an investment of $40,000.
At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be a whopping twenty-five percent.
Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.
Your rate of return when buying a home is higher than most any other investment you could make.
Income Tax Savings
Because of income tax deductions, the government is basically subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.
For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less – due to the IRS interest rate deduction.
Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.
Stable Monthly Housing Costs
When you rent a place to live, you can certainly expect your rent to increase each year – or even more often. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage – and interest rates aren’t as volatile now as they were in the late seventies and early eighties.
Imagine how much rent might be ten, fifteen, or even thirty years from now? Which makes more sense?
Forced Savings
Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.
Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate.. Over time, history has shown that owning a home is one of the very best financial investments.
Freedom & Individualism
When you rent, you are normally limited on what you can do to improve your home. You have to get permission to make certain types of improvements. Nor does it make sense to spend thousand of dollars painting, putting in carpet, tile or window coverings when the main person who benefits is the landlord and not you.
Since your landlord wants to keep his expenses to a minimum, he or she will probably not be spending much to improve the place, either.
When you own a home, however, you can do pretty much whatever you want. You get the benefits of any improvements you make, plus you get to live in an environment you have created, not some faceless landlord.
More Space
Both indoors and outdoors, you will probably have more space if you own your own home. Even moving to a condominium from an apartment, you are likely to find you have much more room available – your own laundry and storage area, and bigger rooms. Apartment complexes are more interested in creating the maximum number of income-producing units than they are in creating space for each of the tenants.
If you are moving to a home for the first time, you are going to be very pleased with all the new space you have available. You may have to even buy more "stuff."
Copyright 2000 by Terry Light and RealEstate ABC

The Business Cycle and Buying a Home
There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend money. People eat out more, buy new cars, and….
…They buy houses.
Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession.
During such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell. Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of a layoff in the family.
Supply and Demand
When the supply of available houses is greater than the supply of buyers, appreciation may slow and prices may even fall, as happened in the early eighties and the early to mid-nineties.
If you are lucky enough to purchase a home during a slow period, you can be reasonably certain the economy will begin to show strength again. At times, real estate values may even surge drastically. In many regions of the country, this is precisely what occurred in the late eighties and nineties.
Market Timing is Difficult
One problem with attempting to time your purchase to the business cycle is that no one can accurately predict the future. Another challenge is that interest rates are generally higher during a depressed market and income may not be keeping up. For that reason, fewer people can qualify for a home purchase than in more prosperous times.
Why You Should Not Wait
Plus, this strategy generally works best for first-time buyers. People who already have a home usually need to sell it in order to buy their next one. If a "move-up" buyer wants to buy a home during a depressed market, that means they usually have to sell one during the slow market, too. If a seller wants to sell his home to take advantage of a "hot" market when prices are fairly high, they generally have to buy their next home during that same hot market.
It tends to equal out.
Finally, the business cycle can change over time. Since 1983, we have had two fairly long expansions with only a slight recession in between each. You would not want to wait nine years to buy a home, would you? You could miss out on a substantial amount of appreciation by waiting, and end up paying much higher prices.
copyright 2000 by Terry Light and RealEstate ABC

Things Not to Do Before Buying a Home
No Major Purchase of Any Kind
Review the article titled, "Don’t Buy a Car," and apply it to any major purchase that would create debt of any kind. This includes furniture, appliances, electronic equipment, jewelry, vacations, expensive weddings…
…and automobiles, of course.
Don’t Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.
If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.
The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.
Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document.
So leave your money where it is until you talk to a loan officer.
Oh…don’t change banks, either.
Should You Change Jobs?
For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application.
copyright 2000 by Terry Light and RealEstate ABC


   The Effects of Changing Jobs on Buying a Home


Why You Should Not Buy a Car
When an individual’s income starts growing and they manage to set aside some savings, they commonly experience what may be considered an innate instinct of modern civilized mankind.
The desire to spend money.
Since North Americans have a special love affair with the automobile, this becomes a high priority item on the shopping list. Later, other things will be added and one of those will probably be a house.
However, by the time home ownership has become more than a distant and hopeful dream, you may have already bought the car.
It happens all the time, sometimes just before you contact a lender to get pre-qualified for a mortgage.
As part of the interview, you may tell the loan officer your price target. He will ask about your income, your savings and your debts, then give you his opinion. "If only you didn’t have this car payment," he might begin, "you would certainly qualify for a home loan to buy that house."
"However…"
Debt-to-Income Ratios and Car Payments
You see, when determining your ability to qualify for a mortgage, a lender looks at what is called your "debt-to-income" ratio. A debt-to-income ratio is the percentage of your gross monthly income (before taxes) that you spend on debt. This will include your monthly housing costs, including principal, interest, taxes, insurance, and homeowner’s association fees, if any. It will also include your monthly consumer debt, including credit cards, student loans, installment debt, and….
…car payments.
How a New Car Payment Reduces Your Purchase Price
For example, suppose you earn $5000 a month and you have a car payment of $400. At current interest rates (approximately 8% on a thirty-year fixed rate loan), you would qualify for approximately $55,000 less than if you did not have the car payment.
Even if you feel you can afford the car payment, mortgage companies approve your mortgage based on their guidelines, not yours. Do not get discourage, however. You should still take the time to get pre-qualified by a lender.
However, if you have not already bought a car, remember one thing. Whenever the thought of buying a car enters your mind, think ahead. Think about buying a home first. Buying a home is a much more important purchase when considering your future financial well being.
Do not buy a car.
copyright 2000 by Terry Light and RealEstate ABC


   Things You Should Not Do Before Buying a Home



Things you Need to Apply for a Mortgage
Income Items
 W2 forms for the last two years
 Paystubs covering a 30 day period
 Federal tax returns (1040’s) for the last two years, if:
 you are self-employed
 earn more than 25% of your income from commissions or bonuses
 own rental property
 or are in a career where you are likely to take non-reimbursed business expenses).
 Year-to-Date Profit and Loss Statement (for self employed)
 Corporate or Partnership tax returns (if applicable)
 Pension Award letter (for retired individuals)
 Social Security Award letters (for those on Social Security)
Asset Items
 Bank statements for previous two months (sometimes three) on all accounts. All pages.
 Statements for two months on all stocks, mutual funds, bonds, etcetera
 Copy of latest 401K statement (or other retirement assets)
 Explanations for any large deposits and source of those funds
 Copy of HUD1 Settlement Statement on recent sales of homes
 Copy of Estimated HUD1 Settlement Statement if a previous home is for sale, but not yet closed
 Gift letter (if some of the funds come as a gift from a family member)
 Gifts can also require:
 Verification of donor’s ability to make the gift (bank statement)
 Copy of the check used to make the gift
 Copy of the deposit receipt showing the funds deposited into bank account or escrow

Credit Items
 Landlord’s name, address, and phone number (for verification of rental)
 Explanations for any of the following items which may appear on your credit report:
 Late payments
 Credit inquiries in the last 90 days
 Charge-offs
 Collections
 Judgments
 Liens
 Copy of bankruptcy papers if you have filed bankruptcy within the last seven years
Other
 Copy of purchase agreement (if you have already made an offer)
 To document receipt of child support (if you desire to show it as income)
 Copy of Divorce Settlement (to show the amount)
 Copies of twelve months canceled checks to document actual receipt of funds
FHA Loans
 Copy of Social Security Card (or other documentation of social security number)
 Copy of Driver’s license
VA Loans
 Copy of DD214
Refinances
 Copy of Note on existing loan
 Copy of HUD1 Settlement Statement on existing loan
 Name, address, phone number, loan number of existing loan/lender

Are You Buying a House or a Home?
As you read and study about buying real estate, you will often find the words "house" and "home" used interchangeably. There is a huge difference between a house and a home.
A house can be a place to eat, sleep, park your car, and put all your "stuff" (including other family members). It is a material possession and an investment. A home is where you feel comfortable, warm, safe, and protected. It is where you live.
A house is something you buy logically. A home is an emotional purchase. When buying real estate you have to balance your emotional wants and your logical needs because there will almost certainly be a time when the two conflict.
Example
For example, you may want a house with a view, but the payment is higher than you feel comfortable with on a thirty-year fixed rate mortgage. What do you do? Purchase it anyway and budget more carefully for the next few years? Buy the same house without the view and get it cheaper? Make a larger down payment by borrowing from your 401K or family members, so you get a lower payment? Get an adjustable rate mortgage with a smaller payment instead of a fixed rate loan? Or buy a smaller house and still get the view?
When viewing the house, most people look at it emotionally and envision it as a safe, happy, comfortable home. Later, when making the offer or filling out a mortgage application, your logic may begin to kick in, instead.
Balancing Act
The trick in buying real estate is to view all decisions with both a logical perspective and an emotional perspective. If a situation presents itself that requires a trade-off, decide on whether there is a huge conflict or a small one. Logic should win the big conflicts, but emotion should always be a factor, even winning the small ones.
You will find yourself owning a warm, happy, safe home – and an investment for the future at a price you are willing to pay.
copyright 2000 by Terry Light and RealEstate ABC


   Why Buying a Home is a Good Idea


Buying Bank Owned Properties (REO) by Walt Harvey Walt and Arla Harvey are Realtors in San Diego, California
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So you’d like to buy a bank owned property?
You’ve watched the late-night infomercials and you’re ready to do the bank “a favor” and take a problem off their hands. Plus, you expect to make "a killing" in the process. Sounds great and it might just happen, but first you should take a look at some facts and get prepared.
REO vs. Foreclosure
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.
Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property. There may also be other liens against the property.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.
REO Properties For Sale
The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.
A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s an old myth that “foreclosures” are a bargain.
How Banks Sell REO's
Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in "dumping" real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory.
Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.
Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."
Property Condition
Banks always want to sell a property in "as is" condition. Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.
Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.
Even though you agreed to “as is," always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take it for granted.
Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller’s Transfer Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements.
Most banks will not provide financing on their REOs but it doesn’t hurt to ask. Especially if the property has extensive damage and you are purchasing it "as is."
Making an Offer
Before making an offer, have your agent contact the the listing agent and ask the following:
 Are there anyinspection reports?
 What work has the bank agreed to?
 Is there a special "as is" form?
 How long does it take the bank to accept an offer?
 How does your agent deliver the offer?
Offers are usually FAXED to the bank. The listing agent needs your originals. There is no formal presentation. Keep in mind: nothing happens evenings and weekends (banks are closed).
Since there is no face-to-face presentation to the bank, provide the listing agent with a pre-qualification or better yet, a pre-approval letter and buyer biography. Make your offer easy to accept.
Hopefully these tips will manage your expectations. Remember that REO's sell at pretty close to full market value and are not the deals presented on late night television.
Copyright 2000 Walt Harvey, real estate broker, CRS, GRI

Determining Your Offer Price
When you prepare an offer to purchase a home, you already know the seller’s asking price. But what price are you going to offer and how do you come up with that figure?
Determining your offer price is a three-step process. First, you look at recent sales of similar properties to come up with a price range. Then, you analyze additional data, such as the condition of the home, improvements made to the property, current market conditions, and the circumstances of the seller. This will help you settle on a price you think would be fair to pay for the home. Finally, depending on your negotiating style, you adjust your "fair" price and come up with what you want to put in your offer.
Comparable Sales
The first step in determining the price you are willing to offer is to look at the recent sales of similar homes. These are called "comparable sales." Comparable sales are recent sales of homes that compare closely to the one you are looking to purchase. Specifically, you want to compare prices of homes that are similar in square footage, number of bedrooms and bathrooms, garage space, lot size, and type of construction.
If the home you are interested in is part of a tract of homes, then you will most likely find some exact model matches to compare against one another.
There are three main sources of information on comparable sales, all of which are easily accessed by a real estate agent. It is somewhat more difficult for the general public to access this data, and in some cases impossible. Two of the most obvious information sources are the public record and the Multiple Listing Service.
Comparable Sales in the Public Record
The most accessible source of information on comparable sales is the public record. When someone buys a home the property is deeded from the seller to the buyer. In most circumstances, this deed is recorded at the local county recorder’s office. They combine sales data with information already known about the property so they can assess property taxes correctly.
Provided there have been no additions to the property, the information available from the public record is usually correct regarding sales price, square footage, and numbers of rooms. This makes it easy to use the public record as a source of data for comparable sale information.
Accessing the data is another matter, at least for the general public. Realtors can generally look up this information through title insurance companies. The title companies either compile the data directly from the county recorder’s office or purchase if from other companies.
One problem with the public record is that it tends to run at least six to eight weeks behind. Add another four to six weeks for the typical escrow period and you can see the data is not current. The most current information is the most valuable.
Comparable Sales in the Multiple Listing Service
Most of the public is aware that the Multiple Listing Service is a private resource where Realtors list properties available for sale. Recently, the public has been able to access some of that information on such sites as Realtor.com, MSN HomeAdvisor, and others.
Once a property is sold and the transaction has closed, the selling price is posted to the listing in the Multiple Listing Service. Over time, it has become a huge database on past sales, containing much more information on individual homes than can be gleaned from the public record. This information is only available to real estate agents who are members of the local Multiple Listing Service.
Your agent will provide you with this data to help determine your offer price.
Comparable Sales – Pending Transactions
The most valuable information would be the most current, of course. A sale last week has more validity in helping you determine a purchase price than a sale from six months ago. The problem is that there is no actual record of the sales price until the transaction is completed. The information is not available in the public record because no deed has yet been recorded.
Neither is the information available in the Multiple Listing Service. Once a property is sold, it becomes a "pending sale" and all pricing information is removed from the listing. Prices are not posted until it becomes a "closed sale." This protects the seller in case the transaction falls apart and the property is placed back on the market. It would give an unfair advantage to future potential buyers if they already knew what price the seller had been willing to accept in the past.
However, if a Realtor has a reason to know the sales price, they can usually find out through professional courtesy. Also, some real estate brokerages post sales information on a transaction board in their office.
Other Factors Influencing Your Offer Price
Gathering and analyzing information from comparable sales helps to establish the range of prices you should consider when making an offer to buy a home. More weight should be given to the most recent sales, but even so, you need to do a bit more analysis before setting upon the price you will offer. That is because you also need to consider the condition of the property, improvements, the current market, and the circumstances behind the seller’s decision to sell.
copyright 2000 by Terry Light and RealEstate ABC

   Other Conditions That Affect Your Offer Price



Factors Affecting Your Offer Price
How Property Condition Affects Your Offer
Since you have toured the property you are interested in, you should know how it compares to the general neighborhood. All you have to do is put the home in one of three categories - average, above average, or below average.
When evaluating a home’s condition, there are a number of things you should consider. Structural condition is most important - items such as walls, ceilings, floors, doors and windows. Then paint, carpets, and floor coverings. Pay special attention to bathrooms and bedrooms and whether the plumbing and electricity work efficiently. Look at the fixtures, such as light switches, doorknobs, and drawer handles. The front and back yards should be in reasonably good shape.
The missing ingredient will be information on the condition of the homes from your comparable sales list. Provided you chose the right agent to represent you, they will have actually visited most of those homes and be able to provide key insights.
How Home Improvements Affect Your Offer Price
Even when comparing exact model matches within a tract of homes, you should note whether the previous owners have made any substantial improvements. Cosmetic changes should be largely ignored, but major improvements should be taken into account. Most important would be room additions, especially bedrooms and bathrooms. Other items, like expensive floor tile or swimming pools should be taken into account, too, but should be discounted. A pool that costs $20,000 to install does not normally add $20,000 in value to the home. Rely on your agent to give you guidance in this area.
How Market Conditions Affect Your Offer Price
A hot market is a "seller’s market." During a seller’s market, properties can sell within a few days of being listed and there are often multiple offers. Sometimes homes even sell above the asking price. Though most buyer’s want to get a "deal" on a home, reducing your offer by even a few thousand dollars could mean that someone else will get the home you desire.
A slow market is a "buyer’s market. During a buyer’s market properties may languish on the market for some time and offers may be few and far between. Prices may even decline temporarily. Such a market would allow you to be more flexible in offering a lower price for the home. Even if your offered price is too low, the seller is likely to make some sort of counter-offer and you can begin negotiations in earnest.
More often than not, the market is simply "steady," or in transition. When a market is steady, no real rules apply on whether you should make an offer on the high end of your range or the low end. You could find yourself in a situation with multiple offers on your desired house, or where no one has made an offer in weeks.
Transition markets are more difficult to define. If the economy slows unexpectedly, as it did in the early nineties, people who buy on the high end of a seller’s market (like the late eighties) could find their home loses value for several years. So far, no one has proven reliable in predicting when markets change or how good or bad the real estate market will become.
How Seller Motivation Affects Your Offer Price
Truthfully, it is rather rare that a seller’s motivation will dramatically affect the price of a home, but it is often possible to save a few thousand dollars. The most common "motivated seller" is someone who has already bought his or her next home or is relocating to a new area. They will be under the gun to sell the home quickly or face the prospect of making two mortgage payments at the same time. Since that can drain a bank account quickly, most sellers want to avoid such a situation and may be willing to give up a few thousand dollars to avoid the possibility.
There are also family crises that can motivate a seller to make a quick deal. However, when you see a real estate ad that mentions "divorce," "motivated seller," "relocation," or something to that affect, beware. Although the facts may be true, that does not necessarily mean the seller is motivated to make a quick and costly sale. Most likely, the ad is more designed to generate phone calls and leads rather than sell the home.
However, there are times when a seller is truly distressed, willing to make a quick sale and sacrifice thousands of dollars. With the seller’s permission, the listing agent will post this information along with the listing in the Multiple Listing Service. They may also inform other agents during office and association marketing sessions or by flyers sent to other real estate offices. Provided this information has been made generally available to Realtors, your agent should know when a seller is truly motivated and when it is just "puff" designed to illicit interest in a property.
The exception is when an agent is selling a home they have listed themselves or selling a home that was listed by another agent from their own company. In such a situation, the agent may be acting as an agent for the seller, or as a "dual agent," representing both you and the seller. In such a situation, they cannot legally provide you with information that would give you an advantage over the seller (for more information on agency, click here).
The Final Decision on Your Offer Price
Comparable sales information helps you to determine a base price range for a particular home. Adding in the various factors like property condition, improvements, market conditions, and seller motivation help determine whether a "fair" price would be at the upper limit of that range or the lower limit. Perhaps you will feel a fair price is outside of that price range.
The "fair" price should be approximately what you are willing to agree on at the end of negotiations with the seller. The price you put in your offer to begin negotiations is totally up to you and depends on your negotiating style. Most buyers start off somewhat lower than the price they eventually want to pay.
Although your agent may provide advice and guidance, you are the one who makes the decision. The price you put in the offer is totally up to you.
copyright 2000 by Terry Light and RealEstate ABC

Writing an Offer to Purchase Real Estate
Once you find the home you want to buy, the next step is to write an offer – which is not as easy as it sounds. Your offer is the first step toward negotiating a sales contract with the seller. Since this is just the beginning of negotiations, you should put yourself in the seller’s shoes and imagine his or her reaction to everything you include. Your goal is to get what you want, and imagining the seller’s reactions will help you attain that goal.
The offer is much more complicated than simply coming up with a price and saying, "This is what I’ll pay." Because of the huge dollar amounts involved, especially in today’s litigious society, both you and the seller want to build in protections and contingencies to protect your investment and limit your risk.
In an offer to purchase real estate, you include not only the price you are willing to pay, but other details of the purchase as well. This includes how you intend to finance the home, your down payment, who pays what closing costs, what inspections are performed, timetables, whether personal property is included in the purchase, terms of cancellation, any repairs you want performed, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur.
It is certainly more involved than buying a car. And more important.
Buying a home is a major event for both the buyer and seller. It will affect your finances more than any other previous purchase or investment. The seller makes plans based on your offer that affect his finances, too. However, it is more important than just money. In the half-hour it takes to write an offer you are making decisions that affect how you live for the next several years, if not the rest of your life. The seller is going to review your offer carefully, because it also affects how he or she lives the rest of their life.
That sounds dramatic. It sounds like a cliché. Every real estate book or article you read says the same thing.
They all say it because it is true.
copyright 2000 by Terry Light and RealEstate ABC

Contingencies in an Offer to Purchase Real Estate
In most purchase transactions there may be a slight challenge or two, but most things will go quite smoothly. However, you want to anticipate potential problems so that if something does go wrong, you can cancel the contract without penalty. These are called "contingencies" and you must be sure to include them when you offer to buy a home.
For example, some "move-up" buyers often agree to purchase a home before selling their previous home. Even if the home is already sold, it is probably a "pending sale" and has not closed. Therefore, you should make closing your own sale a condition of your offer. If you do not include this as a contingency, you may find yourself making two mortgage payments instead of one.
There are other common contingencies you should include in your offer. Since you probably need a mortgage to buy the home, a condition of your offer should be that you successfully obtain suitable financing. Another condition should be that the property appraises for at least what you agreed to pay for it. During the escrow period you are likely to require certain inspections, and another contingency should be that it pass those inspections.
Basically, contingencies protect you in case you cannot perform or choose not to perform on a promise to buy a home. If you cancel a contract without having built-in conditions and contingencies, you could find yourself forfeiting your earnest money deposit.
Or worse.

Earnest Money Deposit in an Offer to Purchase Real Estate
After you have come up with an offer price, the next step is to determine how large a deposit you want to make with your offer. You want the "earnest money deposit" to be large enough to show the seller you are serious, but not so large you are placing significant funds at risk.
One recommendation is to make sure your deposit is less than two percent of your offered price. The reason for this is that if your deposit is larger than that, the lender will pay particular attention to how you came up with the funds. You might have to provide a copy of a canceled check along with a bank statement showing you had the money to begin with. Normally, this is not a problem, but if you have a short escrow period or are barely coming up with your down payment, it could pose an inconvenience.
Another reason to limit your deposit is "just in case." Although significant problems are the exception and not the rule, they do occur. "Just in case" there is a nasty or prolonged dispute between you and the seller, the less money you have tied up in a deposit, the fewer funds you have placed at risk.
As with practically everything in real estate, there are exceptions to this rule, too. During a hot market there may be multiple offers on the property that interests you. A large deposit may impress a seller enough so they will accept your offer instead of someone else’s, even when your unknown competitor is offering the same price or slightly higher.
Since large deposits do impress sellers, you may also find that by making a large deposit you can convince the seller to accept a lower offer. More money up front may save you money later.
copyright 2000 by Terry Light and RealEstate ABC

Thinking Ahead About "Buyer’s Remorse"
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by Terry Light for RealEstate ABC and Inman News
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If you are thinking of buying your first home, you should take out a pen and paper right now and draw a line down the center of the paper. Calmly and logically, think of all possible advantages to buying a home and write them down on one side of the page. Afterwards, you should list all the disadvantages.
Then save the list in a place you will be certain to remember.
Sound silly?
Of course it sounds silly. Who needs to write down their reasons for buying a home? After all, home ownership is the central theme to living the "American Dream."
Naturally, while in hot pursuit of this dream you are going to be excited about the future -- researching neighborhoods, searching MLS sites on the internet, viewing homebuyer’s magazines full of appealing homes that are just "minutes from the beach" with "fantastic views" and "cozy family rooms."
Next comes the really good stuff – looking at houses. Full of imagination and optimism for the future, you wander about each home envisioning a happy and contented life for you and your family. The first house may be "too big," and another may be "too small," but you are certain to find one that seems "just right." So you make an offer and wait anxiously and excitedly for the counter-offer. Finally, you and the seller agree on terms and you have bought yourself a brand new home!
Congratulations! Break out the champagne and celebrate!
However…
Later that night or perhaps the next day, you start to worry about whether you made the right decision. Doubtful thoughts will intrude. Can you afford it? Is it the right time? Should you have waited? What if you lose your job? What if this happens? What if that happens? Anxiety and stress set in. Sleep may be hours in coming.
This is a normal response to buying a home and is called "Buyer’s Remorse." You have just made the single biggest purchase you have ever made in your life and it can be downright scary. Logic deserts you. Worry takes over.
Remember your list?
Back when you were thinking semi-logically, you were fairly rational about home ownership. You catalogued the good and the bad, weighed them against each other, and decided that buying a home was the smart thing to do. Reviewing the list will help resolve your buyer’s remorse.
You will not be totally stress-free, but it will help.
Of course, in spite of this advice you will probably not take the time to make that list now – before you buy a home. Hardly anyone ever does.
So when buyer’s remorse sets in and you remember reading this column, here is what you do -- get a piece of paper and draw a line down the center. Then…
You know the rest.
copyright 2000 by Terry Light and RealEstate ABC

Buying a Home -- What’s Deductible?
Realtors are quick to point out that home ownership allows a lot of tax advantages not available to someone who merely pays rent. A homeowner can deduct points used to obtain a mortgage when buying a home, mortgage interest paid during the year, and property taxes.
Those are the basics.
There are rules and guidelines to these deductions, however. Even though Realtors and lenders have the best intentions, sometimes they are a little "fuzzy" about exactly what is deductible.
What are Points?
When most people buy a home, they generally obtain a mortgage. Mortgages have costs and one of those costs is the "loan origination fee." The loan origination fee is usually a percentage of the loan amount, generally expressed as "points."
For example, one "point" on a $150,000 loan would be $1500. One and a half points on the same loan amount would be $2250.
On VA and FHA loans, points are often broken down into two categories: loan origination fee (which is usually one point) and discount points (which are also a percentage of the loan balance). Both are deductible.
The loan origination fee must be expressed as points in order for it to be tax deductible.
Deducting Points when Buying a Home
When buying a home, points are deductible in the year they are paid, providing they meet certain conditions. The main conditions are that the mortgage is secured by the home you live in most of the time and that you used this mortgage to either purchase or build your home.
However, there are other conditions.
Your lender cannot inflate the points to include other items you would normally be charged. When buying a home, there are normally other charges such as appraisal fee, title insurance fee, property taxes, settlement fees, and so on. If by some miracle you are not charged these fees but your "points" are higher than normal…
In that case you can’t deduct the points. Sorry.
The cash you put into the deal must also exceed the amount charged in points. In other words, if your points were $3000, but you only had to put in $2000 to close, the IRS knows something is up. Your lender is inflating your loan amount to cover your points. Although a lender can technically do this, you wouldn’t be allowed to deduct the points.
The only other major condition is that the points must be clearly stated on the HUD1 Settlement Statement. This is a document you receive after closing that clearly lays out all the costs involved in buying the home. The seller also receives a HUD1.
Deducting Seller Paid Points
When purchasing a home, sometimes the buyer negotiates for the seller to pay some closing costs, including the points. Since the seller pays them and not the buyer, one would assume they could not be deductible, right?
Wrong.
If the seller pays the buyer’s points, the Internal Revenue Service allows the buyer to deduct this as an expense on their federal tax returns. However, the seller cannot deduct them, too. Paying the buyer’s closing costs, including points, merely reduces the net gain on the home for purposes in calculating capital gains taxes (which are usually deferred).
Deducting Points on Second Homes
Points paid to finance the purchase of a second home must be deducted over the life of the loan, not in the year in which they are paid.
If You Make Too Much Money…
If you make too much money, there are limits on what you can deduct, and for that you should see a Certified Public Accountant. In the year 2000, if your "adjusted gross income" was over $128,950 there is a limit placed on what can be deducted. For married couples filing separately, the figure is half that.
Other Deductible Closing Costs
With two exceptions, other closing costs are not deductible. Those exceptions are pre-paid interest and pro-rated property taxes.
When you buy a home, you may close on any day of the month. However, most lenders want their mortgage payment due on the first of each month. So if you close on the 20th, for example, you "pre-pay" ten days of interest as part of your closing costs. The ten days of interest pays you up to the end of the month. Your first mortgage payment will not be on the first of the following month, but the month after that. Unlike renting, where you pay in advance, mortgages are paid in arrears.
Since interest is a deductible expense, prepaid interest is also deductible.
A similar thing happens with property taxes. The seller’s last property tax payment may have covered part of the time where you will actually be the owner of the home. The settlement agent will calculate how much of that last bill you should pay and charge it to you as a closing cost called "pro-rated property taxes." This is also deductible.
Certified Public Accountants
Whenever you reach a point where you begin itemizing deductions, it is best to have your tax returns prepared by a Certified Public Accountant. Internal Revenue Service rules and regulations can quickly become…confusing.
copyright 2000 by Terry Light and RealEstate ABC