Want to Buy Real Estate Online? (I have a bridge to sell you!)

by Dan Krell

Technology is great, isn’t it? You can do almost anything online these days; you can buy anything online, including real estate. Technological advances in the real estate industry have exploded in the last ten years to make it easier to for home buyers and real estate agents to complete transactions. Present technology allows you to almost complete an entire transaction from your desk. Now you can even bid on homes, from mansions to foreclosed homes, on various internet auction websites.

Sure, buying a home online might save you time, at least initially. But if there are problems with the home, you can bet you will spend lots of time and money to fix it. Nothing (at this present time) fully replaces physically viewing homes to get the full experience of the home and its surrounding neighborhood. Problems commonly encountered with real estate sold by internet auctions may include poor property condition, title issues, and location problems.

Would you buy a home from an online auction…without ever seeing the home in person? The term “buyer beware” may have more significance in this scenario as purchasing a home via internet auction may limit you on your ability to inspect the home.

Regardless of whether you are purchasing a home the traditional way or online, it is a good idea to have a home inspection. According to the American Society of Home Inspectors (ASHI), a home inspection will assist in your decision to purchase the home by revealing any major deficiencies and issues that need immediate attention. Additionally, the home inspection could provide information on regular maintenance as well.

Another problem that arises from internet real estate auctions is that you may be unaware if the property is land locked. Some believe it is safer to buy a vacant lot online than a home because there is no structure to worry about. Unfortunately, a property may physically sit behind other lots or homes with no access to the road. Without access, you would have to park your car and walk through your neighbor’s property to get yours.

If you are buying a lot online with the intention to build a home, having restricted or no access to the lot will pose a challenge. Without road access to the property, delivering materials and equipment necessary to build the home is almost impossible. Additionally, getting utilities to the home may also be a challenge as well, as there may not be a utility right of way or utilities may not be available at all.

Finally, buying a home through an internet auction may also restrict your ability to conduct a thorough title search. Hiring a title attorney to conduct a search and examination of the property’s title, will allow you to know if there are title issues (such as foreclosure, liens, or broken chain of title). It is important to make certain that you are being given a clear and marketable title.

Moreover, some question if internet real estate auctions are considered a binding purchase.

Perusing home listings on internet websites may be easy and tempting, however it is important to do your homework. No matter how you intend to buy a home, it is always a good idea to consult competent real estate professionals.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 25, 2008. Copyright © 2008 Dan Krell.

Checking Up on Your Buyer Agent

by Dan Krell

Is your buyer agent showing you all the homes that match your search criteria? Let’s face it, there are presently thousands of homes listed for sale. You can’t realistically visit all the homes for sale, so how are you going to limit the homes you actually visit? If you rely solely on your buyer agent to show you homes that match your search criteria, you may be missing out on seeing other attractive and desirable homes. As most buyer agents act within their duties to their clients, some place their needs before their clients’; some buyer agents steer their clients for financial incentives and just plain convenience.

As some home sellers are offering financial incentives to home buyers, some are offering financial incentives to buyer agents in the form of bonuses and/or higher commissions. Additionally, some real estate brokerages offer financial incentives to their agents for selling intra-office listings in the form of bonuses. It’s easy to see that a buyer agent stands to make more money when they steer their clients to listings that either pay the highest commission and/or offer bonuses. If you ask your buyer agent, they will give you every detail of a home-except how much commission is paid and if there is a selling bonus offered (most agents do the right thing by disclosing selling bonuses to their clients when they submit an offer).

Additionally, some buyer agents look to show homes where the home seller can settle without delay. If there is any indication that it may be a prolonged settlement, the listing is excluded from the list provided to the home buyer. Typical reasons a home seller may need a prolonged settlement include finding a home of choice or requiring third party approval (which include short sale, probate, or bankruptcy sales). Some of these sales can take more than two months.

A small number of buyer agents are just plain lazy; they will only show you the homes that are convenient for them to show. Rather than making appointments and scheduling their time around their clients, some agents will only show vacant homes or homes that do not require any advanced notice. As many listed homes are occupied, some do require appointments or notice to show because of tenants, pets or infants.

As the real estate industry strives to be at the cutting edge of technology, information (albeit sometimes too much information) is available to everyone on the internet. To be certain you see all the homes that interest you, compare a search that you conducted to your agent’s search. One of the best ways to search for homes online is to go directly to the local MLS. HomesDataBase.com is the consumer website offered by Metropolitan Regional Information Systems, Inc. (the local MLS). This site provides up to date information as listings are updated daily. You can search for homes based on your criteria as well as email your buyer agent for additional information.

Vigilance may be too strong of a word, but your home purchase is one of the largest purchases you will make in your life. You must be aware and attentive to all aspects of the home buying process.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 18, 2008. Copyright © 2008 Dan Krell.

Know Your Home Warranty Coverage

by Dan Krell
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The most expensive purchase you may make in your life may be a home. After spending so much money on a home, the last thing you would want to think about is, “what if the appliances or systems break down?”

If the home that you purchased is newly built, your home has a number of manufacturer and builder warranties that cover various structure components, systems, and appliances. If you are unaware of your warranties, you should contact the builder, builder representative, or your real estate agent to determine what items are warranted as well as the length of those warranties.

However, if the home you purchased is not newly built, then chances are that all or most of the original manufacturer and or builder warranties have expired. The good news is that a home warranty can be purchased at settlement. Home sellers sometimes offer home warranties as an incentive for home buyers, while some real estate agents buy a home warranty for their clients as a closing gift. Home owners sometimes purchase a home warranty plan years after they move in to their home.

A common misconception is that a home warranty will unconditionally cover any problem and replace non-working systems and appliances without cost to the home owner. The truth is that home warranties have limitations to the scope of their coverage and services as well as conditions under which a home owner may make a claim. A home warranty is a service contract and in some cases the warranty acts like an insurance policy; home warranty plans vary depending on the company offering the plan and level of coverage. If you are deciding on a home warranty company, compare companies by reviewing differences in coverage, deductibles and service fees. Typical plans last a year and are renewable, however some companies offer multi year plans. Typical coverage may include appliances such as dishwashers, clothes washer and dryer. Some companies may offer coverage for furnaces, air conditioning, plumbing fixtures (such as hot water heater), and some electrical fixtures. Expanded coverage may cover hot tubs and pools (at an expanded price of course).

Home warranty companies want you to call them when you need service, so they can send an affiliated service provider. If you call someone other than the home warranty company to repair the broken item, the warranty may not cover the expense of repairs. If the home warranty company’s service technician can repair the broken item, then there is usually no further cost other than to pay for the service call. However, if the item is not repairable then the home warranty company may replace it. The home warranty company may deny the claim to replace an appliance or system for various reasons (such as, improper instillation, improper maintenance, unusual usage, and code violations). Additionally, if the appliance or system is beyond the average life expectancy, the home warranty company may pro-rate the replacement cost to the item’s age.

If you have a home warranty or anticipate receiving a plan at settlement, you should become familiar with the plan coverage. If you are confused about your coverage, you can call the home warranty company to get an explanation of your plan.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of January 28, 2008. Copyright © 2008 Dan Krell.

Mortgage Guidelines Get Tougher

by Dan Krell
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Like bears awakening from their hibernation, home buyers are slowly emerging from the holiday season and begin to look for a home to purchase. Many home buyers will find that that the challenge of buying a home this year will be more than finding the perfect home, but finding financing. Many home buyers expecting the mortgage process to be quick and painless may find that it is neither quick nor painless; others, expecting to be approved with a sub-prime mortgage, will be turned down. In the recent past, most home buyers found a way to obtain financing; this year may be different as the mortgage crisis fallout has changed the way lenders underwrite their programs.

Ask anyone in the mortgage industry and they will tell you that the entire mortgage landscape has changed. Some popular mortgage programs are no longer available, while other programs have been significantly changed. It may be a challenge for home buyers to locate a lender that offers a reduced documentation mortgage. These programs still exist, but have more restrictive guidelines; reduced documentation mortgages are requiring more verifications, higher credit scores and larger down payments.

Self employed home buyers will find that the popular “No Doc” is no longer available. The “No Doc” loan required no documentation or verifications from the borrower, hence the name. Although the program typically required a higher credit score, the “No Doc” loan was popular with self employed borrowers because employment, income, or asset verifications were not required.

Home buyers who need a low or no doc loan will have to look hard for alternatives. Most “liar loans” are no longer offered, or are offered with some type of verification. If you come across a stated income mortgage program, be prepared to sign an IRS form 4506 that will allow the mortgage company to verify the stated income. You should also expect a higher down payment and a higher than average interest rate.

As a way to assist home buyers with less than perfect credit, Fannie Mae and Freddie Mac created their expanded criteria programs in the mid to late 1990’s. These programs offered these home buyers a mortgage with minimal down payment and a reasonable interest rate; however the interest rate varied on the borrower’s credit score. However, like other mortgage programs, these expanded programs have also changed their requirements which include, among other items, increasing credit score requirements.

As the sub-prime mortgage industry has all but dried up, the FHA mortgage (HUD.gov) has picked up the pace. But even the venerable FHA loan is changing; FHA approved lenders are also tightening up their lending guidelines (in anticipation of new FHA guidelines). Some of the changes include credit score driven approvals as well as variable loan pricing (the interest rate will vary based on the borrower’s credit score).

For home buyers considering purchasing a home this spring (or any other time), talking to a lender should be their first priority. The mortgage crisis has changed the way mortgage lenders operate, including how lenders view borrowers. Home buyers should be prepared to provide more documentation and information to their lenders, as well as a possible higher down payment.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of January 14, 2008. Copyright © 2008 Dan Krell.

New legislation affects home owners and home buyers

by Dan Krell

As the end of the year is a time of reflection, let’s reflect on the new legislation that directly affects home owners and home buyers. Although this is not a complete list of new laws, here are a select few that concern taxation, eminent domain, and privacy.

Buying a home in Montgomery County will cost a bit more next year as recordation tax rates will increase effective March 1, 2008. Current recordation tax rate is $3.45 per $500 (or more commonly described as $6.90 per $1,000); the first $50,000 of the purchase price is exempt from this tax if the purchaser will live in the home. The new recordation tax rate will add an additional $1.55 per $500 (a total of $5.00 per $500) for any amount over $500,000.

Confusion about property taxes and new tax assessments will hopefully be a thing of the past as the property tax disclosure requirement will go into effect April 1, 2008. The law requires any home seller to disclose present and estimated future property taxes for the property for sale. The tax amount must contain the current state, county, and municipality tax as well as any special services tax imposed. The estimated future tax must represent an accurate portrayal of any future tax increase. Estimating future property tax increases may sound tough, but don’t worry – the Montgomery County Department of Consumer Protection is required to assist home sellers and real estate agents with the tax estimations.

Additional property tax legislation includes the Homestead Tax Credit. The credit caps any property tax increase due when the home is reassessed. For homes purchased after December 31, 2007, the law requires home owners to file the one-time application within 180 days of the purchase. All other home owners have until December 31, 2012 to file the application.

Eminent domain has been a recent hot topic. Four changes to eminent domain in Maryland went into effect July 1, 2007. The first is the requirement to file for condemnation within four years of the decision to acquire the property. Subsequent changes increased the cap on mandatory payments to the displaced: the cap to displaced property owners increased to $45,000; the cap to displaced tenants of rental property increased to $10, 500; and the cap for moving and relocation expenses increased to $60,000.

Privacy protection is always a concern. However, effective January 1, 2008, all businesses including real estate brokers are required to take “reasonable steps” to ensure that personal information is protected when client records are destroyed. Additionally, businesses are required to notify their clients as well as the Maryland Attorney General’s office if there is a security breach of electronic files containing client information.

Also becoming effective January 1, 2008 is the ability for a consumer to place a security freeze on their credit report. Without the freeze, anyone with basic information can request a credit report. If the freeze is requested, the information can not be accessed without express prior authorization of the consumer.

For more information on the new legislation, you can go to the Maryland General Assembly website (http://mlis.state.md.us) or the homepage for the County Council of Montgomery County (www.montgomerycountymd.gov/csltmpl.asp?url=/content/council/index.asp).

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 31, 2007. Copyright © 2007 Dan Krell.