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1.1.1 Are condominiums risky to buy? While condos never had the kind of
appreciation experienced by single-family homes in the go-go 1980s,
most ultimately have not lost value, say some experts. And with high
prices in many urban markets and more single home buyers in the
market than ever before, the market for condos is strong. The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes. Other resources: 1.1.2 Are condos a good investment? Condominiums have held their value as an
investment despite economic downturns and problems with some
associations. In fact, condos have appreciated more in the past few
years than when they first came on the scene in the late 1970s and
early 1980s, experts say. Meanwhile, changing demographics are making condominiums more attractive investments for single home buyers, empty nesters and first-time buyers in expensive markets. 1.1.3 Are one-bedroom condominiums a good investment? One-bedroom condominiums historically have not been considered as good an investment as condos with two bedrooms or more. But in high-cost markets, such as Boston, Manhattan or the San Francisco Bay Area, one-bedroom condos have proven to be equally good investments. Helping that along are changing demographic trends. With more single home buyers in the market today than at any time in history, there is more demand for one-bedroom condos. 1.1.4 Do condos have to be made accessible to the disabled? The 1990 Americans with Disabilities Act does
not require strictly residential apartments and single-family homes
to be made accessible. But all new construction of public
accommodations or commercial projects (such as a government building
or a shopping mall) must be accessible. New multi-family
construction also falls into this category. Two educational brochures, "Housing Rights" and "Discrimination is Against the Law," are available through the Department of Fair Employment and Housing by calling (800) 884-1684. 1.1.5 How do I figure out the homeowners association? Learn everything you can about the homeowners
association before you buy into a development governed by one. The
association's financial, political and legal conditions are very
important to your investment and quality of life. Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the association’s covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you can get away with violating the rules or change them later because you may find yourself in turmoil with determined neighbors firmly in control of the association board. Find out all you can about the association's finances. Beyond reviewing the budget, talk to the association treasurer and find out if dues are expected to increase and if any special assessments are planned. Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike or special assessment later on. Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo complex for you. Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics. Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a good thing. Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real estate investments, the more you know the better off you are. 1.1.6 How do you choose between condos and single-family homes? Using appreciation as a measure, condominiums
in some areas have been as profitable an investment as single-family
homes in the past five years. And in some markets, condos
appreciated even more, according to some experts. Also, the condominium community has worked hard in the last few years to overcome image problems brought on by homeowners association and developer disputes as well as all too frequent construction-defect litigation. 1.1.7 Where do I get information on condo association laws? Resources: 1.1.8 Where do I get information on condos? The major interest group for condominium projects and other so-called common-interest developments is the nonprofit Community Associations Institute, 1630 Duke St., Alexandria, VA 22314; (703) 548-8600. Also, check the Internet where CAI operates an informative site as does CIDNetworks. 1.2.1 What about a buyer's agent? In many states, it's now common for an agent to represent the buyers exclusively in the transaction and be paid a commission by the sellers. More and more buyers are going a step further, hiring and paying for their own agent, referred to as buyers brokers. 1.2.2 Do you need an agent for a new home? Buyers concerned about costs should be aware
of the differences inherent in working with sales agents who are
employed by the developer, rather than traditional real estate
agents. Most developers hire a staff of sales agents to handle their
properties and will not pay an outside agent's commission. Experts say to beware of paying the average 6 percent commission an agent would charge someone buying a new home if all they are really doing is giving you a ride to meet the builder. People who need assistance in shopping for new homes may want to retain an attorney or hire a buyer's agent for a flat fee to review the paperwork and provide any necessary protection against overly aggressive sales agents, whom the developer has hired with one purpose in mind. Not using a real estate agent also can improve the buyer's chances when negotiating. Because the builder does not have to pay the commission, this affords the buyer an opportunity to request extra amenities -- up to what would have been paid for the agent -- when making the purchase. 1.2.3 How do I find a real estate agent? Getting a recommendation from a friend or work colleague is an excellent way to find a good agent, whether you are a buyer or a seller. Be sure to ask if they would use the agent again. You also can call the managers of reputable real estate firms and ask them for recommendations of agents who have worked in your neighborhood. A good agent typically works full-time and has several years of experience at minimum. If you are a buyer, you don't usually pay for your agent's services (in the form of a commission, or percentage of the sales price of the home). All agents in a transaction usually are paid by the seller from the sales proceeds. In many states, this means that your agent legally is acting as a subagent of the seller. But in some states, it's legal for an agent to represent the buyers exclusively in the transaction and be paid a commission by the sellers. You also can hire and pay for your own agent, known as buyer's brokers, whose legal obligation is exclusively to you. If you are a seller, you should interview at least three agents, all of whom should make a sales presentation including a comparative market analysis of local home prices in your area. The best choice isn't always the agent with the highest asking price for your home. Be sure to evaluate all aspects of the agent's marketing plan and how well you think you can work with the individual. 1.2.4 How much does my real estate agent need to know? Real estate agents would say that the more you
tell them, the better they can negotiate on your behalf. However,
the degree of trust you have with an agent may depend upon their
legal obligation. Some states require agents to disclose all
possible agency relationships before they enter into a residential
real estate transaction. Here is a summary of the three basic types: 1.3.1 Are fixers a good idea in bad areas? It depends. Distressed properties or
fixer-uppers can be found anywhere, even in wealthier neighborhoods.
Such properties are poorly maintained and have a lower market value
than other houses in the neighborhood. 1.3.2 Where are fixer-uppers found? You can find distressed properties or
fixer-uppers in most communities, even wealthier neighborhoods. A
distressed property is one that has been poorly maintained and has a
lower market value than other houses in the immediate area. Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it. The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's rehab budget. 1.4.1 Are foreclosures an option? A foreclosure property is a home that has been
repossessed by the lender because the owners failed to pay the
mortgage. Thousands of homes end up in foreclosure every year.
Economic conditions affect the number of foreclosures, too. Many
people lose their homes due to job loss, credit problems or
unexpected expenses. 1.4.2 What types of foreclosure are there? Judicial foreclosure action is a proceeding in
which a mortgagee, a trustee or another lien holder on property
requests a court-supervised sale of the property to cover the unpaid
balance of a delinquent debt. 1.4.3 How do you determine the value of a troubled property? Buyers considering a foreclosure property
should obtain as much information as possible from the lender,
including the range of bids expected. It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through Internet sites specializing in property records. 1.4.4 How do you get financing for a foreclosure? One reason there are few bidders at foreclosure sales is that it is next to impossible to get financing for such a property. You generally need to show up with cash and lots of it, or a line of credit with your bank upon which you can draw cashier's checks. 1.4.5 How does a home go into foreclosure? When does foreclosure begin? Lenders will initiate foreclosure proceedings when homeowners become delinquent in their mortgage obligations, usually after three payments are missed. The lender will then notify the buyer in writing that he or she is in default. The lender can request a trustee's sale or a judicial foreclosure, in which the property is sold at public auction. A borrower can cure the default by paying the overdue amount and the pending payment after the notice of default is recorded, usually no later than a few days before the property's sale. Unless the debt is satisfied, the lender will foreclose on the mortgage and usually proceed to set up a trustee sale. Some sales allow the successful bidder to take possession immediately. If the former owner refuses to vacate the premises, the court can issue an unlawful detainer that allows the sheriff to come out and evict them. Borrowers should do everything they can to avoid foreclosure, which is one of the most damaging events that can occur in an individual's credit history. 1.4.6 What about buying a foreclosure "as is"? Buying a foreclosure property can be risky, especially for the novice. Usually, you buy a foreclosure property as is, which means there is no warranty implied for the condition of the property (in other words, you can't go back to the seller for repairs). The condition of foreclosure properties is usually not known because an inspection of the interior of the house is not possible before the sale. In addition, there may be problems with the title, though that is something you can check out before the purchase. 1.4.7 What are problems buying foreclosures? Buying directly at a legal foreclosure sale is
risky and dangerous. It is strictly caveat emptor ("Let the
buyer beware"). In addition, only estate (probate) and foreclosure sales are exempt from some states’ disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it. 1.4.8 What happens at a trustee sale? Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice. In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed. 1.4.9 Where can you find foreclosures? In most states, a foreclosure notice must be
published in the legal notices section of a local newspaper where
the property is located or in the nearest city. Also, foreclosure
notices are usually posted on the property itself and somewhere in
the city where the sale is to take place. Despite these seemingly straightforward rules, buying foreclosures is not easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition. Resources: 1.5.1 Are low-ball offers advisable? A low-ball offer is a term used to describe an
offer on a house that is substantially less than the asking price. You should always do your homework about comparable prices in the neighborhood before making any offer. It also pays to know something about the seller's motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons. 1.5.2 Can you buy homes below market? While a typical buyer may look at five to 10
homes before making an offer, an investor who makes bargain buys
usually goes through many more. Most experts agree it takes a lot of
determination to find a real "bargain." There are a number
of ways to buy a bargain property: 1.5.3 Can you negotiate the price on new homes? It can be difficult to negotiate the sales
price with a developer because they may claim their prices are based
on fixed construction costs. But it doesn't hurt to try. If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a developer will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example. 1.5.4 Is a low offer a good idea? While your low offer in a normal market might
be rejected immediately, in a buyer's market a motivated seller will
either accept or make a counteroffer. 1.5.5 Is there a secret to good negotiating? What are some tips on negotiation? The more you know about a seller's motivation,
the stronger a negotiating position you are in. For example, seller
who must move quickly due to a job transfer may be amenable to a
lower price with a speedy escrow. Other so-called "motivated
sellers" include people going through a divorce or who have
already purchased another home. Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all. There are several cardinal rules to negotiating effectively. One is do your homework, and learn as much about the seller or the buyer as you can. Another is to play your cards close to your vest and not reveal too much information to the other party or their agent. Don't let yourself get rushed into any decision, no matter how tempting it may be. Finally, if you have doubts about your negotiating skill, hire someone to help. 1.5.6 Should I include an inspection contingency in my offer? An "inspection contingency" protects
you as a buyer in a purchase offer by allowing you to cancel closing
on the deal if an inspector finds problems with the property. You usually will have the right to choose the inspector (and be responsible for paying for the inspections). In addition to an overall inspection for structural soundness, you can request a satisfactory pest control inspection report, roof inspection report or contingency for no potential environmental hazards such as asbestos or radon gas. Contingency clauses should satisfy the concerns of both the buyer and seller. Buyers also can protect themselves by inserting additional necessary contingencies. Indicate which items like curtains and appliances are to remain with the house. Then stipulate you have the right to personally inspect the home 24 hours before closing to make sure all is in order. 1.5.7 What about an all-cash offer? Although most home buyers could never buy a
property with all cash, anyone considering such a move (or who has
bought a lottery ticket lately) may be wondering how to approach
such a deal. At the same time, all-cash buyers should consider potential pitfalls of the transaction. Buyers who want to use the home as their primary residence lose out on many of the tax advantages available to homeowners with conventional loans, since the IRS allows home owners to deduct all mortgage interest on loans up to $1 million. If you can afford to pay cash but are concerned about price appreciation, you may be better off obtaining some financing. Also, look at other which investments are paying off and determine if spending cash on a home is worthwhile. 1.5.8 What are the standard contingencies? Most purchase offers include two standard
contingencies: a financing contingency, which makes the sale
dependent on the buyers' ability to obtain a loan commitment from a
lender, and an inspection contingency, which allows buyers to have
professionals inspect the property to their satisfaction. The purchase contract must include the seller’s responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property. 1.5.9 Who gets the furnishings when a home is sold? It depends. Fixtures, any kind of personal property that is permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace) automatically stay with the house unless specified otherwise in the sales contract. But anything that is not nailed down is negotiable. This most often involves appliances that are not built in (washer, dryer, refrigerator, for example), although some sellers will be interested in negotiating for other items, such as a piano. One word of warning should go here. Some sellers may not realize that simple things they added to the house themselves are now part of the house and should go with a sale. They may think they are entitles to them and take them. Such things include lighting fixtures, curtain hanging hardware, special doorknobs. If there may be any question about what stays with the house, put it in the purchase and sales agreement. 1.6.1 What's a home inspection? A home inspection is when a paid professional inspector -- often a contractor or an engineer -- inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and or paid by the buyer. The inspection usually takes place after a purchase contract between buyer and seller has been signed. 1.6.2 Do I need a home inspection? For most people Yes. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix. A brand new home is another matter. You may want to sweeten up your offer on a newer home by not having a home inspection. 1.6.3 How do I find a home inspector? CLICK HERE FOR A LIST IN MASSACHUSETTS Your realty agent is one source. But keeping them independent from the agent may be a good idea. Inspectors are listed in the yellow pages. You can ask for referrals from friends. Ask for their credentials, such as contractor's license or engineering certificate. Also, check out their references. 1.6.4 Should I hire a home inspector for a new home? Most experts recommend having a home
inspected, new or old. For new home, ask the builder to provide
copies of any inspection reports on the property, architectural
plans, surveys and pertinent construction documents for your
inspector to review. Your inspector should either be a professional
home inspector, an engineer, an architect or a contractor. Rates for the service vary greatly. Many inspectors charge about $300, but costs go up with the scope of the inspection. 1.7.1 Do I need an attorney when I buy a house? In some states, you do need an attorney to
complete a real estate transaction, but in others you do not. If you have any questions at all, it may be advisable to consult an attorney to avoid future legal hassles. In looking for an attorney, ask friends for recommendations or ask your real estate agent to recommend several. Call to inquire about fees and to check on their experience. In general, more experienced attorneys will cost more, but real estate fees as a rule are small relative to the cost of the property you are buying. 1.7.2 Do states offer help to first time home buyers? Most states have a housing finance agency, usually located in the state capital, which offers help for first-time home buyers. 1.7.3 Do we dig deep and buy a dream home or settle for a starter home? Choosing between a smaller house in an
affluent neighborhood, an older, bigger house in a more
working-class community or a brand-new home is not easy. If you're
in this situation, start by examining your priorities and asking the
following questions: As for the return on your investment, home-price appreciation is hard to predict. In the late 1980s, the more expensive move-up housing appreciated wildly. But during the recession that followed, smaller homes tended to hold their value better than more expensive ones. 1.7.4 How do I get the real scoop on homes I am looking at? Home inspections, seller disclosure
requirements and the agent's experience will help. Disclosure laws
vary by state, but in some states, the law requires the seller to
complete a real estate transfer disclosure statement. Here is a
summary of the things you could expect to see in a disclosure form: Sellers also are required to indicate any significant defects or malfunctions existing in the home's major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems. The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachments or easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property. Also look for, or ask about, settling, sliding or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, floods or landslides. People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions. It's important to note that the simple idea of disclosing defects has broadened significantly in recent years. Many jurisdictions have their own mandated disclosure forms as do many brokers and agents. Also, the home inspection and home warranty industries have grown significantly to accommodate increased demand from cautious buyers. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you. 1.7.5 How do you choose between buying and renting? Home ownership offers tax benefits as well as
the freedom to make decisions about your home. An advantage of
renting is not worrying about maintenance and other financial
obligations associated with owning property. Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation. "For some people, owning a home is a great feeling," writes Mitchell A. Levy in his book, "Home Ownership: The American Myth," Myth Breakers Press, Cupertino, Calif.; 1993. "It does, however, have a price. Besides the maintenance headache, the amount of after-tax money paid to the lender is usually greater than the amount of money otherwise paid in rent," Levy concludes. As for evaluating the risk associated with home ownership, David T. Schumacher and Erik Page Bucy write in their book "The Buy & Hold Real Estate Strategy," John Wiley & Sons, New York; 1992, that "good property located in growth areas should be regarded as an investment as opposed to a speculation or gamble." The authors recommend that prospective buyers spend a few months investigating a community. Many people make the mistake of buying in the wrong area. "Just because certain properties are high-priced doesn't necessarily mean they have some inherent advantage," the authors write. "One property may cost more than another today, but will it still be worth more down the line?" 1.7.6 How do you qualify as a first-time buyer? In general, lenders define a first-time home buyer as someone who has not owned any real estate -- whether a personal residence, vacation home or investment property -- during the past three years. Lenders verify an applicant's status by examining their income tax returns, checking to see that the individual did not take any deductions for mortgage interest or property taxes. 1.7.7 What about new versus previously owned? Although new homes typically have a higher
sales price than comparable existing homes, buyers are willing to
spend more up front with an understanding that part of what they are
paying for is assured low maintenance costs. A builder's warranty,
along with brand-new roof, appliances, furnace and other operating
systems that make major repairs unnecessary, work together to
counteract possible slower appreciation initially. Utility costs are the largest component of operating costs. Energy consumption per square foot depends on size of the home, insulation, window quality, air leakage and efficiency of the furnace. Operating costs also include expenditures for both routine maintenance and major repairs. 1.7.8 What are considerations to buying a new home? Builders may have a target market in mind for
their new-home projects. Some may tout communities as glamorous to
upscale urban professionals seeking amenities such as a golf course,
hot tubs and tennis courts. Yet a playground and swimming pool might
be central to a project geared toward families while the next one
offers seniors a walking trail and an easy-to-care-for yard. Marketing experts try to appeal to buyer's tastes by their promoting images for their developments. Don't buy into it. Form your own opinions and only buy a home where you feel comfortable. After all, you're going to have to live there. 1.7.9 What are some new-home cautions? When you buy a resale home, you can find out a lot more about the property and the neighborhood before you buy than when you buy a new home. Land to support new-home developments usually is located on the outskirts of town. Potential buyers should ask the developer about future access to public transit, entertainment activities, shopping centers, churches and schools. Find out how far it is to the nearest library, for example. Local zoning ordinances also should be reviewed. A rather remote area can turn into a fast-food-chain haven within a couple of years. Try to ensure that the neighborhood, if not strictly residential, will not begin sprawling out of control. 1.7.10 What do you think of get-rich-quick real estate schemes? Most real estate experts say there is no such
thing as getting rich quick in real estate. But there are no end of
get-rich-quick programs presented to the public as alternative
methods of buying real estate. Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly. Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are. 1.7.11 When is the best time to buy? Because many buyers prefer to move in the spring or summer, the market starts to heat up as early as February. Families with children are eager to buy so they can move during summer vacation, before the new school year begins. The market slows down in late summer before picking up again briefly in the fall. November and December have traditionally been slow months, although some astute buyers look for bargains during this period. 1.7.12 What is the return on new versus previously owned homes? Buying into a new-home community may seem
riskier than purchasing a house in an established neighborhood, but
any increase in home value depends upon the same factors: quality of
the neighborhood, growth in the local housing market and the state
of the overall economy. Here are some frequently cited reasons for
buying a house: 1.7.14 Where can I get a list of architects? If you need an architect, contact a local chapter of the American Institute of Architects or the national organization itself at 1735 New York Avenue, N.W.; Washington, DC 20006; (202) 626-7300. Also contact friends or colleagues who have recently worked with an architect for referrals. Take the time to interview several before choosing an architect. 1.7.15 Where can I get a list of home builders? For a list of home builders, contact the National Association of Home Builders at 201 15th St., N.W., Washington, DC 20005; (202) 822-0200, or your local Building Industry Association office. 1.7.17 Where do I get information about finding a real estate attorney? To find a real estate attorney, contact your local bar association, which may offer local referral services. You may also ask friends or your real estate agent for their recommendations. When you have several names, call each to find out about fees and their level of experience. 1.7.18 Where do I get information about housing discrimination? For information about housing discrimination,
call the U.S. Department of Justice at (202) 514-2000, 950
Pennsylvania Ave., NW DC 20530 or your local U.S. Department of
Housing and Urban Development office. 1.7.19 Where do I get information on filing consumer complaints? For information about filing consumer
complaints, look to these sources: 1.7.20 Where do I get information on home market stats and trends? A real estate agent is a good source for
finding out the status of the local housing market. So is your
statewide association of Realtors, most of which are continuously
compiling such statistics from local real estate boards. 1.7.21 Where do I get information on homes with historic value? For information about homes with historic value, contact the National Trust for Historic Preservation, Washington, D.C. at (202) 673-4000. 1.7.22 Where do I get information on manufactured housing? For information on manufactured housing,
request information from: 1.7.23 Where do I get information on REITs (Real Estate Investment Trusts)? Ask for information on real estate investment trusts, or REITs, from the National Association of Real Estate Investment Trusts, 1129 20th St., N.W., Washington, DC 20036; (202) 785-8717. 1.7.24 Why do I need a title report? As much as you as a buyer may want to believe
that the home you have found is perfect, a clear title report
ensures there are no liens placed against the prior owners or any
documents that will restrict your use of the property. When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is "fee simple" or "fee," which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report. You also may have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase. A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning. 1.8 HUD U.S. Department of Housing and Urban Development 1.8.1 Can I get a HUD home for as little as $100 down? If you are strapped for cash and looking for a
bargain, you may be able to buy a foreclosure property acquired by
the U.S. Department of Housing and Urban Development for as little
as $100 down. Each offer must be accompanied by an "earnest money" deposit equal to 5 percent of the bid price, not to exceed $2,000 but not less than $500. The U.S. Department of Veterans Affairs also offers foreclosure properties which can be purchased directly from the VA often well below market value and with a down payment amount as low as 2 percent for owner-occupants. Investors may be required to pay up to 10 percent of the purchase price as a down payment. This is because the VA guarantees home loans and often ends up owning the property if the veteran defaults. If you are interested in purchasing a VA foreclosure, call 1-800-827-1000 to request a current listing. About 100 new properties are listed every two weeks. You should be aware that foreclosure properties are sold "as is," meaning limited repairs have been made but no structural or mechanical warranties are implied. 1.8.2 Do you have to buy HUD homes through a realty agent? You can only purchase a U.S. Department of Housing and Urban Development property through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price. 1.8.3 How do you find government-repossessed homes? Where can you find foreclosed HUD homes? The U.S. Department of Housing and Urban
Development acquires properties from lenders who foreclose on
mortgages insured by HUD. These properties are available for sale to
both homeowner-occupants and investors. Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market's 5 to 20 percent. When the property is FHA-insured, the down payment can go much lower. Each accepted offer must be accompanied by an "earnest money" deposit equal to 5 percent of the bid price not to exceed $2,000, but not less than $500. One caution. HUD homes are sold "as is," meaning limited repairs have been made made but no structural or mechanical warranties are implied. 1.8.4 Where do I learn about HUD foreclosures? One good source is their Web page http://www.hud.gov. 1.9.1 How do I project rents on a rental? If you are buying a rental income property and
applying for a loan to do so, the lender will require an area rent
survey by a certified appraiser. The amount a landlord can expect to
receive in monthly rent largely depends on what the property has
rented for in the past, the condition of the building, its location
and the current housing market. 1.9.2 How do lease options work and what are the benefits? A lease option is an arrangement with you and
a seller to exercise the option to buy a house after you have rented
it for a specific period. A portion of your rent would applied
toward the purchase if the option is exercised. This is referred to
as rent credit, which most institutional lenders will accept as part
of the down payment if rental payments exceed the market rent and if
a valid lease-purchase agreement is in effect, a copy of which must
be attached to the loan application. Read any lease-option arrangement carefully for details on transferring the option and other important concerns. For more information, get a copy of "How Lease- Options Benefit Realty Buyers, Sellers, Agents and Investors," available for $4 from Tribune Media Services, 64 E. Concord St., Orlando, FL 32801 When a renter signs a lease with an option to
purchase a property for a specific price within a certain time
frame, that is called a lease option. In most lease-option
situations, a portion of the rent is applied to a future down
payment. 1.9.4 Where can I get information on writing leases? Landlords can turn to several good books for
legal and management advice. Some contain sample forms for the
tenant's move-in condition checklist, owner's notice of intent to
enter an occupied unit and warning notices, for example. 1.9.5 Where do I get information about being a landlord? If you are a landlord and have questions,
contact: 1.9.6 Where do I get information on lease options? Contact your real estate agent (some even
specialize in such transactions) or read up on lease options at the
public library. If you have a real estate attorney, ask if he or she
has any prepared information you can review. Most bookstores have a
fairly hefty real estate book section these days. Many current real
estate books have at least a section on lease options. 1.10 Vacation and Second Homes 1.10.1 Should I buy a vacation home? Today a vacation home can be purchased for
investment purposes as well as enjoyment. And yes, there are tax
benefits. Resources: 1.10.2 What do you think of a vacation home as an investment? You can buy a vacation home today for
investment purposes as well as enjoyment. And yes, there are tax
benefits. Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house less than 14 days a year. You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture. 1.11.1 What is guaranteed replacement cost insurance? Guaranteed replacement insurance is a more comprehensive policy. It tends to cost more, but it promises to cover the complete costs -- less deductible -- of replacing a destroyed house. With these sorts of policies, limits on the policies are not as common, because complete coverage is more explicit. 1.11.2 What kind of home insurance should I get? A standard homeowners policy protects against
fire, lightning, wind, storms, hail, explosions, riots, aircraft
wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass,
falling objects, weight of snow or sleet, collapsing buildings,
freezing of plumbing fixtures, electrical damage and water damage
from plumbing, heating or air conditioning systems, according to the
Insurance Information Institute, a Washington, D.C.-based nonprofit
group for the insurance industry. A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business. Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home,for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000. For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property. Some experts recommend an inflation rider, which increases coverage as the home increases in value. 1.12.1 Where do I get information on co-ops? For information on co-operative housing, contact the National Association of Housing Cooperatives, 1614 King St., Alexandria, VA 22314; (703) 549-5201.
2.1.1 Are commissions negotiable? By law, real estate commissions are negotiable. The pricing of real estate service varies by level of service and consumer needs. Most agents charge between between 4 and 6 percent for full service and not all offer the option of paying a fee for an individual service. 2.1.2 How do I find a real estate agent? Getting a recommendation from a friend or work colleague is an excellent way to find a good agent, whether you are a buyer or a seller. Be sure to ask if they would use the agent again. You also can call the managers of reputable real estate firms and ask them for recommendations of agents who have worked in your neighborhood. A good agent typically works full-time and has several years of experience at minimum. If you are a buyer, you don't usually pay for your agent's services (in the form of a commission, or percentage of the sales price of the home). All agents in a transaction usually are paid by the seller from the sales proceeds. In many states, this means that your agent legally is acting as a subagent of the seller. But in some states, it's legal for an agent to represent the buyers exclusively in the transaction and be paid a commission by the sellers. You also can hire and pay for your own agent, known as buyer's brokers, whose legal obligation is exclusively to you. If you are a seller, you should interview at least three agents, all of whom should make a sales presentation including a comparative market analysis of local home prices in your area. The best choice isn't always the agent with the highest asking price for your home. Be sure to evaluate all aspects of the agent's marketing plan and how well you think you can work with the individual. 2.1.3 How many people sell their homes themselves? Most home sellers -- about 4 in 5 -- use real estate agents to list and sell their homes. Of the other 20 percent, some sell FSBO, also known as For Sale By Owner. Other owners, however, sell without marketing their homes. Property transfers between family members account for some of the direct home sales. Also, tenants are often offered the opportunity to buy the property they are renting before the landlord lists it for sale. 2.1.4 How much does my real estate agent need to know? Real estate agents would say that the more you
tell them, the better they can negotiate on your behalf. However,
the degree of trust you have with an agent may depend upon their
legal obligation. Some states require agents to disclose all
possible agency relationships before they enter into a residential
real estate transaction. Here is a summary of the three basic types: 2.2.1 Can a home seller sell a home for less than its mortgage? Yes, in some case you can sell your home for
less than what you still owe on the mortgage. But it is complicated
and depends on the lender. This situation is known as a "short
sale." Sometimes a lender will be willing to split the
difference between the sale price and loan amount, which still must
be paid. If the loan was a low-down-payment mortgage with private mortgage insurance, then the lender also must involve the mortgage insurance company that insured the low-down loan. 2.2.2 Can I find out the value of my home through the Internet? You can get some idea of your home's value by
searching the Internet. A number of Web sites and services crunch
the numbers from historic public records of home sales to produce
the statistics. Some services offer an actual estimate of value
based on acceptable software appraisal standards. They also depend
on historic home sales records to calculate the estimate. A home ultimately is worth what someone will
pay for it. Everything else is an estimate of value. To determine a
property's value, most people turn to either an appraisal or a
comparative market analysis. A comparative market analysis is a real estate broker's or agent's informal estimate of a home's market value, based on sales of comparable homes in a neighborhood. Most agents will give you a comparative market analysis for free in the hopes of winning your business. If all agents agree on a price range for your home, go with the consensus. Watch out for an agent whose opinion of value is considerably higher than the others. You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder or assessor offices, through private real estate information companies or on the Internet. 2.2.4 How can I improve the value of my property? The biggest factor outside of a homeowner’s
control is market conditions. But other issues -- including the
condition of the property, specific home improvements and
neighborhood stability and safety -- can influence property values. Specific home improvements can increase the value above the cost of the improvements. According to Remodeling magazine, which publishes an annual "Cost vs. Value" remodeling report, a remodeled bathroom returns 81 percent to the owner, a bathroom addition, 89 percent and a master bedroom suite, 82 percent. Remember, quality pays. Well-planned and well-executed remodeling jobs are a good investment while bad work seldom enhances value or livability. The safety and security of a neighborhood can affect property values, too. If you live in a high-crime area, an organized community watch program not only will lower the crime rate but give home values a boost, too. 2.2.5 How do I prepare the house for sale? First and foremost, put it in the best
condition possible, especially if you are in a market with few
buyers and lots of homes for sale. That means taking care of any
major repairs that could deter a buyer (such as replacing any broken
windows or replacing a leaky roof) if you can afford it. Next, work
on your home's curb appeal. Make sure your landscape is pristine.
Mow the grass, clean up any debris and weed the garden beds. Plant a
few annual flowers near the entrance or in pots to be placed by the
door. Other quick fixes that don't cost a lot of money but can help
you get top dollar for your home: 2.2.6 How does someone sell a slow mover? Even in a down market, real estate experts say
that price and condition are the two most important factors in
selling a home. Secondly, you need to make sure that the home is getting the exposure it deserves through open houses, broker open houses, advertising, good signage, and listings on the local multiple listing service (MLS) and on the Internet. Another option is to pull your house off the market and wait for the market to improve. Finally, if you who have no equity in the house, and are forced to sell because of a divorce or financial considerations, you could discuss a short sale or a deed-in-lieu-of- foreclosure with your lender. A short sale is when the seller finds a buyer for a price that is below the mortgage amount and negotiates the difference with the lender. In a deed-in-lieu-of-foreclosure situation, the lender agrees to take the house back without instituting foreclosure proceedings. The latter are radical options. Your simplest, and in many cases most effective, option is to lower the price. 2.2.7 What are the standard ways of finding out how much a home is worth? A comparative market analysis and an appraisal
are the standard methods for determining a home's value. An appraisal, which generally costs $200 to $300 to perform, is a certified appraiser's opinion of the value of a home at any given time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality. 2.2.8 What are the two most important factors when selling a home? Price and condition are the two most important
factors in selling a home, even in a down market. The first step is
to price your home correctly. Use comparative sales information from
your agent, or pay for a professional appraiser (usually $200 to
$300), to objectively evaluate your home's worth. Second, go through
the house and repair any obvious cosmetic defects that could deter a
buyer. If this isn't happening, take it up with your agent or agent's broker. If you are still not satisfied you are getting the service you need, you may have to switch agents. 2.2.9 What is the difference between list price, sales price, appraised value and assessed value? The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area. The sales price is the amount of money you as a buyer would pay for a property. The sales price is the amount a property actually sells for. It may be the same as the listing price, or higher or lower, depending on how accurately the property was originally priced and on market conditions. If you are a seller, you may need to adjust the listing price if there have been no offers within the first few months of the property's listing period. The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors. Assessed value is number the city or town comes up with to figure how much in taxes to charge a property owner. It has nothing at all to do with the actual or market value of the property. Towns use wildly varying forumlae to come up with the figure. 2.2.10 What is the difference between market value and appraised value? The appraised value of a house is a certified
appraiser's opinion of the worth of a home at a given point in time.
Lenders require appraisals as part of the loan application process;
fees range from $200 to $300. 2.2.11 What repairs should the seller make? If you want to get top dollar for your
property, you probably need to make all minor repairs and selected
major repairs before going on the market. Nearly all purchase
contracts include an inspection clause, a buyer contingency that
allows a buyer to back out if numerous defects are found or
negotiate their repair. 2.2.12 What standards do appraisers use to estimate value? Appraisers use several factors when estimating a home's value, including the home's size and square footage, the condition of the home and neighborhood, comparable local sales, any pertinent historical information, sales performance and indices that forecast future value. For detailed information on appraisal standards, contact the Appraisal Institute at 875 N. Michigan Ave., Suite 2400, Chicago, IL 60611-1980; (312) 335-4458. 2.2.13 Will a neighbor problem reduce the value of my property? While it may not reduce the actual value, a
cluttered landscape next door can detract from the positive aspects
of your home. Review your local laws, which should be on file at the
public library, county law library or City Hall. It also may be worthwhile to check into local zoning ordinances. An operator of a home-based business usually is required to obtain a variance or permanent zoning change in residential areas. In addition, if a neighbor's repair work produces loud noises, he may be breaking local noise-control ordinances, which are enforced by the police department. Before bringing in the authorities, you may want to make a copy of the pertinent ordinance and give it to your neighbor to give them a chance to correct the problem. Resources: 2.3.1 Do I have to consider contingencies? If you are a seller in a seller's market, in which there is more demand than supply, you probably won't have to entertain too many contingencies. But if you are selling in a buyer's market, when buyers are few, prepare to be very flexible. Granting contingencies also depends upon what kind of price you want to get and on the condition of your property, most experts agree. Remember, contingencies are written into the contract and are negotiable during the negotiation phase only. 2.3.2 Do sellers have to disclose the terms of other offers? Sellers are not legally obligated to disclose the terms of other offers to prospective buyers. 2.3.3 Is there a secret to good negotiating? There are several cardinal rules to negotiating effectively. One is do your homework, and learn as much about the seller or the buyer as you can. Another is to play your cards close to your vest and not reveal too much information to the other party or their agent. Don't let yourself get rushed into any decision, no matter how tempting it may be. Finally, if you have doubts about your negotiating skill, hire someone to help. 2.3.4 What contingencies should be put in an offer? Most offers include two standard
contingencies: a financing contingency, which makes the sale
dependent on the buyers' ability to obtain a loan commitment from a
lender, and an inspection contingency, which allows buyers to have
professionals inspect the property to their satisfaction. The purchase contract must include the seller’s responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property. 2.4.1 What is the best time to sell your house? There is no "best" time to sell per
se. Selling a house depends on supply, demand and other economic
factors. But the time of year in which you choose to sell can make a
difference both in the amount of time it takes to sell your home and
in the ultimate selling price. With the onset of summer, the market slows. July is often the slowest month for real estate sales due to a strong spring market putting possible upward pressure on interest rates. Also, many prospective home buyers and their agents take vacations during mid-summer. Following the summer slowdown, real estate sales activity tends to pick up for a second, although less vigorous, fall market, which usually lasts into November when the market slows again as buyers and sellers turn their attention to the holidays. If this makes you wonder if you should take your home off the market for the holidays, consider the advice of veteran agents: You are always more likely to sell your house if it is available to show to prospective buyers continuously. 2.4.2 Whose obligation is it to disclose pertinent information about a property? In most states, it is the seller, but
obligations to disclose information about a property vary. This might include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property; and any restrictions on the use of the property, such as zoning ordinances or association rules. It is wise to check your state's disclosure rules prior to a home purchase.
If you are a buyer, and you or the seller pays points, they are deductible for the year in which they are paid only. You also can deduct any points you pay when you refinance your home, but you must do so ratably over the life of the loan. Consult your tax or financial advisor. 3.1.2 Are property taxes deductible? Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes. 3.1.3 Are seller-paid points deductible? As of Jan. 1, 1991, homeowners have been able to deduct points paid by the seller. This deduction previously was reserved only for points actually paid by the buyer. 3.1.4 Are taxes on second homes deductible? Mortgage interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics. 3.1.5 Are the costs of a natural disaster deductible? Damage, destruction or loss of property from
fires, floods, earthquakes and other disasters are deductible from
both state and federal income taxes. In such a case, the IRS only
allows a deduction less than or equal to the fair-market value of
the property before the disaster. 3.1.6 Are there any special tax breaks for historic rehab? Qualified rehabilitated buildings and
certified historic structures currently enjoy a 20 percent
investment tax credit for qualified rehabilitation expenses. A
historic structure is one listed in the National Register of
Historic Places or so designated by an appropriate state or local
historic district also certified by the government. Resources: 3.1.7 Are there tax credits for first-time home buyers? Many city and county governments offer
Mortgage Credit Certificate programs, which allow first-time home
buyers to take advantage of a special federal income tax write-off,
which makes qualifying for a mortgage loan easier. Here is a list of four general requirements to
keep in mind: 3.1.8 Can I deduct the loss I suffered when I sold my home? The Internal Revenue Service currently does not allow deductions for losses on the sale of your own home. In fact there's no way to use a loss on the sale of your principal residence to your advantage on your income tax return. 3.1.9 Can you deduct the cost of home improvements? What you spend on permanent home improvements, such as new windows, can be added into |