Q: What should I look for in a good realtor?
A: There are so many realtors out there. How do you choose? Some of us do this part time. Others do it full time. A full time agent is the best way to go. You need an agent who understands the real estate market in your area, someone who is outgoing, friendly and knowledgeable and a good negotiator. You should chat and hopefully meet your agent before you ever head out to see homes. Do not sign anything that commits you to any particular agent up front! Good agents go right to work for you, trusting that you both will develop a productive relationship based on mutual trust and shared goals. This is a big transaction and teamwork is essential to success.
Q: How much home can I afford?
A: Lenders provide loans based on several factors. In short, it's all about your credit score and your debt to income ratio. A bank really doesn't care about the purchase price. What matters is your ability to service your mortgage and your other bills month to month. There are basic ratios they look for based on precedent to help them determine the maximum amount of monthly payment you can afford. Don't be afraid of the bank! They really do want to do business with you. A great lender will provide some friendly help to get you through the pre-qualification process.
Don't make the common mistake of thinking you don't have enough money saved or your credit score is too low. The smartest thing to do is contact a great lender and just ask! You'll be surprised how easy it is to qualify for the purchase of a nice home. Check out our PITI and mortgage calculators.
Q: What are the costs involved in buying and selling?
A: Here's a stunning fact. Our services as a buyer's agent are completely free to you. Really! When a seller lists a home, a sales commission, paid by the seller, that covers both the buying and selling side of the transaction.
With so many websites out there these days that allow you to shop from home, some buyers feel emboldened to shop alone. Why would you do that when you have access to a professional free of charge who has done this hundreds of times, been in thousands of homes, and negotiated so many successful deals?
As a buyer, you will incur closing costs to complete the deal. In our area, these generally run about 2-3% of the purchase price of the home. There are two ways to deal with closing costs. One way is to just pay them out of pocket at the closing table. The other is to 'roll them into the mortgage' by getting closing cost help form the seller. This requires some further discussion. Sometimes we advise bringing cash to the table. Other times, rolling these costs into the loan is a far better way to go. Ask us to explain this further.
As a seller, you will pay a real estate commission on the deal, generally 6% of the contract price of the home. Half of that goes to your listing brokerage and your agent. The other half goes to the buying brokerage and their agent. Also, at the closing table, your portion of closing costs will generally run about 0.5% to 1.0% of the contract price. Ask us to discuss this further.
Q: What is the difference between a buyer's and seller's market?
A: Like all goods, a buyer's or seller's market in real estate is all about supply and demand. In a seller's market, the supply of homes is small, but the demand for homes is high. When several people want your home, they'll pay more for it, sometimes even more than you were asking. This is how we get appreciation! That's a great thing once you own. It's not so great when you're still shopping. In a strongly recovering market like we're enjoying here in our area these last two years, homes are appreciating well and getting more expensive for buyers. Now is the time to buy. It's like buying a stock a month or two after it hit its 52-week low and is on the rise. In a buyer's market, the supply of homes is greater and there are fewer buyers. This means that there are a large number of homes on the market so the negotiating power falls in the hands of the seller because they have multiple homes to choose from, so they can offer lower prices.
Q: Why should I buy instead of rent?
A: Different markets are different around the country. In the Washington/Baltimore area, buying is usually a far wiser use of your monthly housing budget. Why? In general, you're spending about the same on a mortgage as you would spend on monthly rent. As an owner, you get the opportunity to realize the appreciation the property enjoys in our blossoming market. Further, you get to write off the interest paid on your loan each year which can save you thousands off you annual tax bill.
Add that we are enjoying the lowest mortgage rates in over 50 years (rates have not been at 3.5% since 1956), your buying dollar goes a very long way these days. A quick anecdote: we recently had a client buy a renovated row house in Capitol Hill in March, 2012 and in just one year his home value has increased from $625,000 to $720,000. Hot properties there are bringing multiple offers for well over asking price. Our market is on the upturn and now is definitely the time to buy.
Check out some math at http://www.nytimes.com/interactive/business/buy-rent-calculator.html
Q: What expenses can I expect to face during the purchase process?
A: As a buyer you may have some other expenses as part of the purchase process. Closing costs generally run 2-3% of the purchase price, depending on a number of factors. It is sometimes possible and desirable to roll closing costs into the deal so you do not need the cash up front and it becomes a part of your mortgage. You may be bringing some cash to the deal in the form of a down payment. You’ll need to write an earnest money check of at least 1% of the purchase price at the time of your offer. Once under contract, you will pre-pay with your lender a few hundred bucks for the appraisal ($500 or so), credit check ($25 or so), and inspection fees (like $350 - $500 or so for a general home inspection). Some buyers elect to pay directly for the first year’s home hazard insurance. Some prefer to roll it into closing costs and pay at settlement. Once we’ve identified your desired property, we’ll have a more specific discussion about what funds you’ll need and when.
Q: How much money do I really need to buy a home?
A: The short answer here is either 20%, 3.5%, or 0%...
There are many mortgage options out there for you. While, in a perfect world, banks would love for everyone to bring 20% cash or more to the table, that’s not realistic for many of us. We’ll go into loan types more thoroughly in the financing section of our website, so let’s keep it simple here. You have basically three options.
You can put 20% down and finance 80% which gets you the cheapest mortgage rate, best terms, and lowest monthly payment.
You can also get the same rate with an FHA loan, requiring that you only bring 3.5% to the table at closing. For those of us that aren’t swimming in cash, it’s the best way to go. There are two expenses with this loan option. One is called private mortgage insurance (PMI) which is an insurance policy you buy up front and then pay for monthly that protects the bank, usually for the first five years of your mortgage and until you reach a 20% equity stake in your property. FHA also charges a one time ‘funding fee’ of 1.75% of the loan amount. There is a price cap on these types of mortgages. In our metro area, that cap is a loan amount no larger than $729,750.
The third option is for military active personnel and veterans. A VA loan can be for 100% of the purchase price with no up front cash from you. You will have both mortgage insurance and a one time VA ‘lending fee’ added to the principle balance due that makes this a little more expensive option than the loans above. This fee is 2.15% the first time you use your VA option. It’s 3.3% any subsequent time you use it. Both of these fees are if you are putting 0% down and financing 100% of your purchase. If we manage to roll even your closing costs into the loan, you really can buy a house with virtually no up front money at all.
Q: Do schools have an affect on home value?
A: Good school districts directly correlate with home values. Good schools make an area more desirable and that raises prices nearby. Lower performing school districts work the same way. Many times, we've had clients come to us with very specific educational requirements for their kids. In part, we use a school rating system (link below) to help buyers select a school zone that fits their needs.
Look into school ratings here.
Q: How do I make an offer on a home?
A: Once we've identified you favorite home, we'll analyze the home, the neighborhood, and compare with other active listings, homes under contract, and recently sold homes to devise a winning strategy to get you the house.
Check out the buying process here.
Q: What is earnest money and how does it work?
A: Buyers often confuse earnest money with down payment money. Let us explain. When you make an offer on a house, sellers are looking for a confident well funded buyer. The earnest money check is just a statement by you of how serious you are about buying the seller’s home. In our area, a minimum of 1% is expected. For larger purchase prices, more is expected. We suggest anywhere from 1% to 5% of the amount offered.
The earnest money check will be deposited into the escrow account at our real estate firm and then applied towards your closing costs at the settlement table. If at any time during the inspections and contingency phases of the deal, you back out of the deal over something, your earnest money comes right back to you in full. Another way to look at it is, your earnest money is just you paying a few weeks ahead of time money you were going to bring to the table anyway at closing. It is simply part of the purchase price.
Your money is only at risk if you back out of the deal for no reason given after all other contingencies have expired. Let’s say that the day before closing, you had a change of heart and don’t want the house anymore. You’ll lose your earnest money deposit. You took the sellers home off the market, kept him from selling to someone else, and then you didn’t go through with the purchase.
Earnest money is a very valuable negotiating tool when we first present our offer. The more we put up front, the more the seller sees us as serious, and the lower the price we might get. A weak offer usually makes sellers nervous and they don’t come down in price as much as they might with a strong offer. It’s a complex psychological process that we have years of experience navigating.
Q: What are closing costs?
A: At the closing table, several fees need to be paid that amount to about 2-3% of the selling price of the home. If you are using a mortgage to purchase the home, you may pay loan origination fees, loan discounts, appraisal fees, credit report fees, mortgage insurance application fees and mortgage broker fees. You may also need to pay in advance for mortgage insurance, flood insurance and home insurance. To close on the deal, there may be settlement and closing fees, abstract of title fees, notary fees, attorney fees and title insurance. Your inspection and survey fees may also be rolled into the deal at closing. Ask us for a more detailed explanation of closing costs and how they work.
Sometimes, it's a good idea to roll these costs into the loan so you don't have to bring this extra cash to the table. Other times, if you have the cash and plan to remain in the home for a number of years, paying the closing costs out of pocket at closing is the smarter way to go. We'll explain how to make that decision once we're further along in the buying process.
Q: How do escalation clauses work? When and why should I use one?
A: If you spend a lot of time watching the doom and gloom on cable and national news, it’s hard to imagine that people are actually paying full price or even higher to buy homes these days. That is exactly what’s happening in the more active areas of our region. We use something called an escalation clause to win the day.
It’s a document we include with our offer that says we will beat any other offer by a certain increment up to a cap of a certain price. The beauty of using this method is that we are in control of how high we end up going to get a house and we get to see proof of the offer that sent us there.
We’ve developed some highly successful strategies over years of doing this that allow us to use the escalation clause to maximum advantage which keeps you, our buyer, in the driver’s seat when going up against multiple offers.
Q: What are HOAs and Condo Associations? How are they different and what should I be aware of?
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Q: What are the pros and cons of buying a new home?
A: It is sometimes hard to resist that ‘new home smell.’ It’s like buying a new car only better. It’s awesome to have some control over finishes, colors, upgrades and amenities. We’re happy to help you navigate the new home buying process. Many people fail to realize how tricky this is. Walking into a new home developer’s sales office is like a chicken strolling into a fox’s den. That ‘homes starting from such and such a price’ sign out at the front of the development is the first piece of fiction you need to grasp for exactly what it is. Did you know that state law only requires that price to have been accurate way back when the development was first begun? Second, whatever the starting price is now, you really can’t buy a home for anywhere close to that in most developments in our area. The standard features included in that base price are so undesirable, you’re likely to add anywhere from 5% to 30% to the price, sometimes more. The glossy sexiness of the new home models we’ll go through have EVERY option they could possibly squeeze between the walls. We’ll be there to pull your head out of the clouds.
Builder incentives and closing cost help, while very appealing, can be very tricky to decipher as well. Sometimes things are marked up to be marked back down. Closing costs are a prime candidate for that. Developers almost always shove most of the closing costs onto your side of the deal. They tie their incentives to using their lenders and title companies, sometimes completely negating any purported savings they’re offering.
As your representative, we’ll help you get through the process from your very first visit all the way through closing. We’ll help you understand all the developer’s contract documents before you sign them. We’ll help you make smart, value enhancing upgrades to finishes and accessories. We’ll also put the stops on your going overboard a the design center even though that’s REALLY hard to do (by the developer’s design, believe us). We’ll accompany you to the pre-construction meetings with the construction manager. We’ll be there at the rough-in inspection and again at the final inspection just before closing. We’ll also advise you to get a professional home inspection, just as if you were buying a previously owned home. My background in architecture and custom home building will be an invaluable tool for us as we work through from contract to closing.
Buying a new home can still be awesome. We’ll help you every step of the way.
Q: How do contingencies in a contract work?
A: Contingencies in a contract provide the negotiating parties with a series of ways to get out of the deal over a number of issues. They tend to be geared more towards buyers but they protect sellers too. Some of the more typical contingencies include home inspection, other inspections like chimney, well or radon, HOA, appraisal and loan approval. Buyers can use these contingencies to either negotiate corrections or kill a deal. We’ll advise you carefully of all the nuances of contingencies as we work towards finding a great home for you. As a seller, we’ll provide the counter view on what contingencies you should accept as part of a contract to purchase and which you should avoid.
Q: What home improvements are a smart way to enhance my home's value and fetch me a higher selling price?
A: First impressions are everything when it comes to a shopper finding their dream home. With so many homes available for sale in the DC metro area, you need to make sure that your home is memorable (in a good way!). Curb appeal is very important. If your home does not ‘pop’ for prospective buyers when they walk up to the front door, you’ve set a bad precedent for everything that lies beyond. Improving your landscaping and making small updates to your exterior can really help your home sell fast (for some detailed tips click here). Interior paint colors and fresh paint can also be a major selling point. If you have bold colors or dingy walls, it’s a smart move to update rooms to a neutral color with some fresh paint. Lighting is also a major factor that really influences a buyer’s impression of your home. We realtors HATE compact fluorescent bulbs! We’re in a home so briefly with buyers, by the time those bulbs have warmed up from their pale glow, we’ve already flipped off the lights and left! Bathrooms, decks, kitchens, bathrooms, and finished basements, if done smartly, will fully return your investment through a higher priced and much quicker sale.
We have learned a vast number of tricks to help your home grab a buyer’s attention every moment they’re on the premises. We’ve taken over poorly presented listings from for-sale-by-owner clients who have been on the market unsuccessfully for six months, made a few very minor improvements, then turned around and sold their place for (a higher) full price in three days! Our years of experience are an invaluable tool for you to use.
Q: Does it make sense to furnish a vacant home before putting it up for sale?
A: There are two sides to this argument. Some home buyers walk into a furnished home and cannot see past the current owners furniture to picture their own items in the space. Other home shoppers can’t imagine envision their things in a vacant home. So what do you do? Here is the key…Does your furniture make your home look like a showroom or does it cramp the space? It is important that your things enhance the living space. For example, if you have an over-sized bed and dresser in a small bedroom, the furniture makes the room feel even more cramped.
Q: Should I do a home inspection as a seller/buyer?
A:
If you are a buyer....
YES. YES. YES. A professional home inspector not only gives you a sense of security buying a used or new home, they are able to help find possible problems that could really influence the value of the home and catch potentially problematic issues.
If you are a seller...
It may be a good idea. Doing a home inspection as a seller can help save you some money further down the negotiation road. When a buyer goes under contract for a home, they almost always get a professional home inspector to review the home and verify that all systems are in working order. The inspector will make a list of items in the home that need to be fixed immediately (leaking roof or dryer exhaust fan blowing hot air into a closed off space in the attic), things that are in need of repair soon (old hoses or unhealthy appliances), and wear and tear items (loose floor boards in a wood floor). A buyer’s offer is usually contingent on how the house goes through survey. If the buyer finds that there discrepancies in the home inspection, they can request an adjusted sales price or repairs to fix items on the inspectors list. A seller can help come into the process more prepared or fix some of these items before they become a negotiation issue by hiring their own professional home inspection before they list the property. Not only is it appealing to sellers that the home was just inspected, but it can help you notice red flag items that need repair before they cost you more at the closing table.
Q: How do I make my home show well?
A: What helps make Ikea such a successful furniture store? They set up nice clean displays that enhance the space in their showrooms. A shopper should get the same warm fuzzy feelings when they see your home as when they walk into a showroom at a furniture store. You want your home to look uncluttered, clean, well organized and well lit without barking dogs, or pet odors. You want your home to look as much like a showroom as possible and you also want people to be able to picture their own things in the home. We like to call this a buyer’s “vision.” By having a messy kitchen or dark rooms, a buyer can loose that vision of seeing themselves in the space. One of the biggest turn-offs for many buyers is paint color. We like to recommend to sellers that if their home has bright or bold wall colors that they should re-paint them with more neutral tones. Many home buyers cannot look past the bright green kitchen or the pink and green wallpapered children’s room upstairs. Many home buyers are already pushing their budget and can’t afford to repaint rooms in a house so for the simple reason of paint colors, buyers can walk away.
Q: What is involved in buying a short sale/foreclosure/REO property?
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Q: Is a home warranty worth it and what does it cover?
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