Real estate contract know-how

real estate contract
Do you know real estate? (infographic from househunt.com)

When I started selling homes almost sixteen years ago, a typical real estate contract (with addenda) may have been about twenty pages.  My mentor used to pine about the two-page contracts he used when he started in real estate.  I used to think he was exaggerating, but I found that he was actually telling the truth.  It is true that real estate contracts have evolved and become quite lengthy through the years. Today, our local Realtor contract with addenda can exceed sixty pages!  As much as it may sound like a chore, you should take the time to read and understand the real estate contract you are asked to sign.

In today’s world of convenience and digital everything, electronically signing your real estate contract may seem like a time saver.  Real estate apps make it all too easy for your agent to email you a boiler plate contract and ask you to click the mouse to sign it.  But do you really know what you’re signing?  More importantly, does your real estate agent know what they are asking you to sign?

A typical Realtor contract is a legally binding contract once it is ratified and delivered to all parties.  That means there are potential consequences for not doing what you agreed to do.  Don’t solely rely on your agent for an explanation of the contract, they may not fully understand it or its nuances.  As pedestrian as it sounds, read through the contract before you sign it.  Reading the contract will inform you of the terms and conditions to which you’re agreeing, which include your obligations and contingency timelines.  Reading the contract will also alert you to any errors and you need clarified.

The terms and conditions of your real estate contract are more than just the sale price and closing date.  Both the home buyer and seller have obligations in our local Realtor contract.  A few of the many obligations included in the terms are: settlement, obtaining financing, delivering a “clean” title, and providing access to the property.

Are there contingencies?  Typical real estate contract contingencies include financing, appraisal, and various inspections.  However, other contingencies may be included too, such as the buyer’s home sale, the seller finding a home, third party approval, or even reviewing the county or city master plan.  The contingencies you choose may vary depending on your situation.  Contingencies are time limited.  The contract describes how each contingency is met as well as timelines for completion and description of giving notice and responses.

Although the Realtor contract has become increasingly lengthy, it has become more standardized (at least in my area).  In the past, local agents needed to know or find out the contract and addenda requirements for multiple counties and cities, much of the time falling short.  Today, the Realtor contracts and addenda we use in Maryland are mostly consistent with each other, making it easier to put together and understand.

Make sure you are comfortable with the real estate contract you are signing.  You should ask your agent to take the time to sit with you and review the contract before you sign it.  If you’re a first-time home buyer or seller, getting the one-on-one review will allow you to ask questions about your obligations and the process.  Even if you have bought or sold a home in the past, reviewing the contract with your agent will make you realize how times have changed.  Since the contract is a devise, always consult with an attorney for legal advice.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Improving home buyer credit scores

home buyer credit scores
Credit scores (infographic from visual.ly)

There’s been a lot of anticipation about the new credit scoring model by VantageScore (vantagescore.com).  It’s supposed to increase the availability of credit to many consumers.  Launching this fall, VantageScore 4.0 is touted to be a more accurate scoring system that uses trending data instead of “snapshots.”  This credit scoring system is also supposed to help those with limited credit, and incorporates the improved credit reporting standards included in the National Consumer Assistance Plan.  This and other new scoring systems have a lot of promise, but will improving home buyer credit scores help the mortgage process?

Let’s take a step back to see how home buyer credit scores reporting has evolved in recent years.  The National Consumer Assistance Plan (nationalconsumerassistanceplan.com) was launched in 2015 as a result of an agreement between the credit reporting agencies (Equifax, Experian, and TransUnion) and New York Attorney General Eric Schneiderman.  The agreement stemmed from Schneiderman’s investigation into the credit reporting agencies’ practices including (but not limited to) the accuracy of collected data, the practices in handling consumer disputes, and the reporting of medical debt.

The National Consumer Assistance Plan’s focus is to improve the consumer’s experience as well as increase data quality and accuracy.  Consumers will have increased information related to credit report disputes, including instructions on what to do if they’re dissatisfied with the result of their dispute.   Additionally, there is an “enhanced dispute resolution process” for fraud victims.

Among the many changes made by the National Consumer Assistance Plan to increase accuracy and quality of data includes: issuing consistent standards for those who report data to the credit agencies; medical debt won’t be reported during a 180-day waiting period so as to allow for insurance payments to catch up with billing; and the elimination of reporting of debts that were not contractual (such as parking tickets).

From The National Consumer Assistance Plan:

Consumers visiting www.annualcreditreport.com, the website that allows consumers to obtain a free credit report once a year will see expanded educational material.

Consumers who obtain their free annual credit report and dispute information resulting in modification of the disputed item will be able to obtain another free annual report without waiting a year.

Consumers who dispute items on their credit reports will receive additional information from the credit reporting agencies along with the results of their dispute, including a description of what they can do if they are not satisfied with the outcome of their dispute.

The credit reporting agencies (CRAs) are focusing on an enhanced dispute resolution process for victims of identity theft and fraud, as well as those who may have credit information belonging to another consumer on their file, commonly called a “mixed file.”

Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.

Consistent standards will be reinforced by the credit bureaus to lenders and others that submit data for inclusion in a credit report (data furnishers).

Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.

The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.

A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.

Recent credit reporting changes are sure to make an impact for home buyer credit scores.  But, you may still have impaired credit that would make it difficult for you to buy a home.  So how can you improve your home buying process?  Be proactive!

A credit report contains a lot of information about you.  It reveals your personal information, including where you’ve lived and worked.  It indicates the credit cards and other loans you have, and how you pay on them.  It may also include any collection activity against you, as well as bankruptcies, liens or judgements.  Know what’s being reported about you by obtaining your free annual credit report (annualcreditreport.com) and dispute discrepancies.  Successful disputes should improve your credit score.

However, if your home buyer credit scores are impaired as the result of poor habits, don’t despair.  You can improve your credit report and score on your own by creating “good” credit habits.  First: make sure you pay your bills on time.  Planning specific times each month to pay bills will make it hard to miss a payment.  Second: reducing credit card balances may improve your credit score.  And third: be mindful of how many credit cards you maintain.  Having too many credit cards could lower your credit score.  Also, be careful to not apply for too much credit at any given time, as these “inquiries” could lower your score as well.

To learn more how a credit report functions, affects you, and how improve your home buyer credit scores, visit the Consumer Financial Protection Bureau (consumerfinance.gov), the Federal Trade Commission (ftc.gov), and the Federal Deposit Insurance Corporation (FDIC.gov).

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

How to find your affordable home

affordable home
The affordable home (infographic from nvaha.org)

The latest headline for the Case-Shiller Home Price Index boasts, “hits all-time high for sixth consecutive month” (us.spindices.com). The data for May’s S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index revealed a 5.6 percent year-over-year increase for the US Census divisions.  However, the month-over-month Case Shiller composite indices decreased about 0.1 percent.  Seattle, Portland, and Denver continue to lead in home price growth with double digit gains.  The Washington DC region posted a 1.0 percent gain in May and a modest annual increase of 3.6 percent year-over-year.  The bottom line is that homes are becoming more expensive. And as a home buyer, you want to know how to buy an affordable home.

David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, provided analysis of this week’s release suggesting that the continued climb of home prices is a manifestation of the housing market, and not necessarily reflective of the economy.  He stated:

“Home prices continue to climb and outpace both inflation and wages…Housing is not repeating the bubble period of 2000-2006: price increases vary across the country unlike the earlier period when rising prices were almost universal; the number of homes sold annually is 20% less today than in the earlier period and the months’ supply is declining, not surging. The small supply of homes for sale, at only about four months’ worth, is one cause of rising prices. New home construction, higher than during the recession but still low, is another factor in rising prices.”

Rising home prices are impacting the housing market and making it difficult to find an affordable home. The latest National Association of Realtors Housing Affordability Index (nar.realtor) indicates that buying a home is less affordable compared to the same time last year, which decreased from 161.2 to 158.8.  Additionally, the median sales price for a single family home jumped 4.6 percent.

Even though home prices continue to climb, the good news for home buyers is that mortgage rates are still relatively low.  According to last week’s Freddie Mac Mortgage Rate Survey (freddiemac.com), the 30-year fixed rate mortgage dropped from 4.03 percent to 3.96 percent.  Although slightly higher from the same time last year (3.45 percent), historically low interest rates help make a home purchase affordable.

Although wages are not increasing on the same pace as home prices, home buyers are benefiting from low mortgage rates.  However, a concern that is echoed throughout the industry is the continued low inventory of homes for sale.  The low inventory of homes, specifically turn-key homes, is a factor in increasing home prices and making it harder to find an affordable home.

If you’re a home buyer and are frustrated with the competition, think outside of the box.  It’s true the best looking and well priced homes are receiving multiple offers and sell quickly.  The competitive atmosphere is pushing home prices higher.  However, keeping an open mind could help you to not only cope with the current market, but also help you find your next home.

One way home buyers are finding their affordable home is by renovating a distressed home.  Homes that languish on the market and are in need of repair or renovation may be a “diamond in the rough.”  Renovation loans, such as the FHA 203k or Fannie Mae’s HomeSyle loan can make the process easier and affordable. Renovation loans are designed to help buy and renovate a home. There are a various renovation loan programs, so having a long conversation with a qualified renovation loan specialist can help you decide which program is best for you.

Be prepared and line up your licensed contractors. Renovation loans require documentation and plans from your licensed contractor. Most of these programs will provide funding in stages. However, there are a few renovation loan programs that are “streamlined” and designed for less expensive renovations. Check with your lender for qualifications, loan limits and requirements.

Additionally, you don;t have to look in the MLS to find your affordable home. Work with an experienced agent who has the savvy to find homes for sale that are not currently listed for sale. These may include (but not limited to) for sale by owners, expired listings, and auctions.

Home owners who did not have luck selling their homes earlier in the year may be open to selling to you. Your agent can find and contact home owners who have recently taken their homes off of the MLS.

Look for homes that are “For Sale by Owner.” It used to be hard to find the FSBO, and you would have to drive through neighborhoods to look for the “For Sale by Owner” signs. But of course the internet has made it easier to find the FSBO. They are listed in the MLS by listing placement services.  They are also posted online on “for-sale-by-owner” sites, as well as Zillow, Trulia, or Craigslist.

Neighborhood listservs and internet groups are a great way to fnon-MLS homes for find FSBO’s.  But you have to be a resident of the neighborhood, or know someone who is a resident to get access to the listserv.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

First time home buyer assistance

home for sale

Are you a first time home buyer worried, overwhelmed, or intimidated by the process? You’re not alone.  First time home buyers have had the most difficulty getting back into the real estate market after the Great Recession.  Many would-be first time home buyers lack the financial resources, while others worry about the long term value.  However, there is probably no better time than now to buy your first home.

This is a first time home buyer market

first time home buyer
First time home buyer assistance (infographic from mgic.com)

You may be one of the many would-be first time home buyers who opted to continue to rent or live with their parents until the timing was right.  Many would-be home buyers did the same, as a 2106 Pew Research Center report pointed out the millennial housing trend that may be associated with the decline in the homeownership rate since the Great Recession (For First Time in Modern Era, Living With Parents Edges Out Other Living Arrangements for 18- to 34-Year-Olds; pewsocialtrends.org; May 24, 2016).  However, economic factors have significantly improved, and the housing market has stabilized.  So what’s holding you back?

Are you overwhelmed or intimidated by the home buying process?

First time home buyer
First time home buyer (infographic from keepingcurrentmatters.com)

Buying a home can seem intimidating, and overwhelming.  But it doesn’t have to be. On the Holmes and Rahe Stress Scale (Holmes & Rahe 1967), having a mortgage over $10,000 rates 31 (just above being foreclosed upon) and moving is rated as 20. This commonly used stress scale is cumulative, so the rating for buying a home is at least 51. However, being prepared can help you anticipate and deal with most circumstances that may arise.

Finding a professional and competent Realtor who will “be” with you throughout the process is highly important.  Of course, finding an agent whom you trust can be a process too.  It’s important to know your agent will be there for you, not only to answer questions and resolve your concerns, but to also represent your best interests.

What are your expectations?  Your home buying expectations are influenced by your experiences.  However you are also influenced by a combination of the media, relatives, friends, and co-workers.  Having very high and unrealistic expectations can not only increase your stress, but can but a wrench in the transaction before it starts. Discussing your expectations with your Realtor will determine if they are realistic or not.

Choosing your Realtor

Before deciding on the realtor you want to work with, informally talk to several about how they help first time home buyers.  Unfortunately, home buyer surveys (such as the annual National Association of Realtors Profile of Home Buyers and Sellers (nar.realtor)) suggest that the majority of home buyers and sellers typically hire the agent they first encountered.

Besides assisting in home searching and negotiating sales contracts, your agent should be by your side throughout the transaction.  Your agent should be available to you to help you maneuver the bumps and surprises that can derail your home purchase.

Even though you may not place an agent’s experience high in your list of agent characteristics,  a research study by Bennie Waller and Ali Jubran (“The Impact of Agent Experience on the Real Estate Transaction.” Journal of Housing Research 21, no. 1 (2012): 67-82) suggests otherwise.  They concluded that an experienced real estate agent can yield a better result than an agent with little or no experience.

Check your agent’s license.  Make sure your agent is a full time agent (meaning that the only job they have is selling real estate).  Don’t be shy about asking and calling your agent’s references.

First time home buyer down payment and closing cost assistance

If affordability, down payment and closing costs are a concern, apply for a first time home buyer assistance and/or grant program.  There are many programs available offered through local and state organizations. Your lender can help you find and apply to the programs for which you qualify.  Regular communication with your loan officer is important because the funding is limited annually and can quickly run out.

Locally, one of the mainstays for first time home buyer assistance is the Maryland Mortgage Program (mmp.maryland.gov).  The MMP is provided through the Maryland Department of Housing and Community Development, and funded by the Community Development Administration.  It is described as “…providing home loans and down payment assistance to Maryland’s working families to encourage responsible homeownership and build strong communities, working through a network of Maryland Mortgage Program lender organizations.”

MMP loans are just like other mortgages, except that they offer competitive rates and offer additional assistance in the form of Down Payment Assistance and Partner Match Programs (up to $8,500 from the Department and possibly more from partner organizations).  Some Partner Match programs offer homebuyer grants.  However, other Assistance programs are generally in the form of deferred, no-interest loans.

Combining Down Payment Assistance with a Partner Match program can significantly reduce the amount you need to buy your first home!  The Down Payment Assistance program is a loan of up to $5,000.  The loan is a zero-percent deferred loan, which is repaid when you pay off the main Maryland Mortgage Program mortgage when you refinance, or sell the home.

Department of Housing and Community Development has partnered with many organizations and employers that can provide you with additional assistance.  Your current employer may be a participant with the Partner Match program (check the Partner list at mmp.maryland.gov).  Local organizations also offer home buyer assistance (including the Moderately Priced Dwelling Unit Program) as well, such as the Housing Opportunities Commission (hocmc.org) and The City of Gaithersburg (gaithersburgmd.gov).

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Buyers and sellers – Mentally prepare to be in real estate market

from stress.org

Realtors® are guilty of romanticizing, if not glorifying, the idea of buying and selling a home.  And it’s probably true for many, that initial thoughts of buying or selling a home (and everything that goes along with it) are sanguine.  And yet, shortly after they are faced with details of the move, many are hit with the reality that the process is full of potential pitfalls and setbacks.  Buying and selling a home can be a confusing endeavor, that can become overwhelming if you’re not mentally prepared.

Getting through the process of buying and selling requires organization and planning to seek the best outcome.  As a home buyer you organize before viewing homes by having a mortgage approval in hand, as well as determining a price range and area in which you are looking.  As a home seller you have a plan in place before the home is on the market; which includes a pricing and marketing plan, as well as having your home in its best possible condition so as to give the best impression.

Even though the process of buying or selling a home is straightforward (after all it’s not rocket science), being prepared for various stages can help you through potential issues.  If you’re a first time buyer or seller, having a checklist helps you be aware of where you are in the process.  Even if you’ve bought or sold a home before, you should be aware of changes to the process that have been made in the last eight years.

You should also be aware that every transaction is different; each transaction has a different set of personalities, conditions, and issues.  You no doubt have heard your relatives’, friends’ or coworkers’ account of their buying or selling experience.  But chances are that they may not remember the snags they endured.  Reactions among buyers and sellers, as well as their real estate agents, vary depending on their personalities and life circumstances.  So, your experience may be similar to others’; however, be prepared that it could also be very different.

Additionally, many never realize how many individuals are involved in getting their transaction to settlement.  Besides the buyer, seller and real estate agents, there is a lender, a title company, and a home inspector, (among others); each increasing the number by a factor of their employees, and increasing the opportunity for Murphy’s Law to interrupt your smooth settlement.

Although the process of buying or selling a home appears to be task oriented, there is also an emotional component.  Did you know that having a major change in living conditions and taking on a mortgage are rated in the Holmes and Rahe Stress Inventory?  This acknowledges that buying and selling a home is an emotional investment that could impact your emotional wellbeing (positively and negatively).  Chances are that at some point you may feel the added pressure of your sale/purchase.

Mental preparation for your home purchase or sale may include moderating expectations and anticipating how you may cope with various circumstances that may arise.  Mental preparation can help maintain a feeling of control over your transaction.  It can be helpful to work with an agent who can address your worries and fears about the transaction through listening and empathy.  Most of all, hire an experienced real estate agent, who not only has the ability to problem solve and work through problems, but will help you organize and prepare.

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