Now that the seller has accepted your offer you have a contractually agreed upon timeline to remove your home inspection and other contingencies. The California Residential Purchase Agreement stipulates that the house you bought is sold in “AS IS” condition.
In other words you accept the house in its current condition at the time of purchase. The California Civil Code does require sellers install smoke detectors in each sleeping quarter. They may be battery operated. Confirm that the batteries are working. The newest law mandates all homeowners, whether or not you are selling, must install one carbon monoxide detector on each level of the house.
It is never a good idea to waive your right to a home inspection. The average cost of a home inspection is $300-$500 depending on the living square footage. The seller is not obligated to make any repairs recommended in the inspection report but many sellers will negotiate to do some or all repairs or issue monetary compensation through the close of escrow.
An inspector may recommend you contact a professional in a field for a particular repair such as the furnace or air conditioner. Think of it as your primary care physician referring you to a gastroenterologist specialist. Major issues of contention that could be deal breakers include structural damage, mold, excessive moisture, major roof damage or considerable soil expansion that might compromise the foundation.
Yesterday, I spoke with a woman whose home I will be putting on the market next month. She voiced concern about the possibility of the home inspection revealing some unknown issue. A seller may be wise to have a home inspection prior to listing her home for sale. It’s a proactive method to address any potential buyer objections.
Some of the minor items most often noted in the report are: no spark arrestor on the chimney, no C-clamp to keep the fireplace flute open, no GFCI (grounded electrical)
near water sources such as kitchen, baths, laundry sinks, exterior pool and spa equipment. Remove any extension cords used in place of hard wiring particularly in the garage.
An automatic reverse mode is required on all motorized garage doors so that if an obstacle was preventing the garage door from closing it would reverse to the open position. The door from the garage into the house should have an automatic closure. Check for moisture under the sinks. Do the sink and bath tub stoppers work properly? Does water drain effectively from the sinks, showers and bathtub? Are all the appliances operational? Do all the circuit breakers work? Are their tripping hazards in or outside the house? Does the roof have loose tiles or shingles?
Finally, sellers may want to consider a home warranty during the time the house is on the market. It will cover all unknown pre-existing conditions. The approximate cost is sixty cents per day. My friend, Patricia Vidal of Realty One Group has shared stories with me of a water heater exploding three days prior to close of escrow. Another time she was representing a seller on a tenant occupied property with a leak behind the shower wall.
The repairs would have cost several hundred dollars rather than the sixty dollar home warranty service fee. Buying or selling a home doesn’t have to be a nerve wracking experience if you have savvy professional representation.
It’s a mad, mad world in the Orange County real estate market right now, particularly if you are attempting to purchase a home. A lack of inventory has produced a spike in multiple offers. How can you possibly differentiate your offer from the other bids the seller will be considering? First, have your Realtor contact the listing agent to determine the seller’s most important considerations. If the seller’s sale is contingent on the successful purchase of their next home the closing timelines may be of primary importance.
I represented a family who was selling their home in the Pheasant Run tract, north of Ellis Avenue and west of Ward Street. They received three offers on their house. Each of the three buyers had accepted all the terms of the seller’s counter offer. Just as the sellers were on the brink of making a decision the door bell rang. Mom and dad buyer with two baby buyers expressed how much they loved the house. They said it was important for them to raise their children in that neighborhood on a cul de sac with excellent schools. The sellers had reared their five children in the house and felt a kinship with the family. They sold them the house. It’s often helpful for buyers to write a letter to the sellers stating what features they love about the house and why their house/neighborhood won out over other possibilities. Enclose a photo with the family pets. Many sellers want to ensure that their home will be loved and appreciated. A letter and photo humanizes your offer.
If you are in competition with other buyers, consider removing the appraisal contingency. Be advised that once you remove that contingency, if the home’s appraised value comes in lower than the purchase price, you will pay the difference. All indications are the bottom of the market is behind us. Prices will appreciate this year and historically low interest rates will remain in effect throughout 2013 and possibility through 2014. Are you willing to remove the inspection contingency in ten or twelve days rather than the contractually defined timeline of seventeen days? Most lenders require a minimum of twenty-five to thirty days to complete a purchase loan. Obtain full underwriting approval prior to submitting your offer to the seller. It may tip the scale in your favor.
Many buyers are offering twenty percent or more down payments, that fact makes it particularly difficult for FHA (with 3.5% down payment) or VA loans (sellers pay some costs) to get accepted, however it happens so don’t get discouraged. Don’t let the fact that the seller has cash bids on the table intimidate you. I’ve seen some sellers toss out the cash offers in favor of loans if the other terms are appealing.
Are you willing to waive the termite clearance? Put it in writing in the contract, that may save the seller anywhere from $1,000 to $5,000. Check with your lender as some require termite clearance prior to close of escrow. Instead of requesting that the seller pay for a one-year home warranty, pay for it yourself. It will cost approximately $365-$550 depending on whether or not you include pool, spa, refrigerator and/or washer and dryer. The seller may reject the offer outright, accept your offer or issue a counter offer. The counter offer may not contest the price but may address other terms of the contract.
If you find the house you want, do not complicate your offer by asking for extras such as the flat screen televisions, the refrigerator etc. You can negotiate those items with the seller during the escrow period. Remember when sellers paid all or some of the buyer’s closing costs? Those days are in the past.
The buyer and seller each pay their own escrow fees. The seller normally pays for the title policy which indicates whether there are liens, judgments or encumbrances on the property. These are referred to as “clouds on the title”. The transfer of property should never take place with clouds on the title.
The buyer normally pays for the appraisal, credit reports, lender fees and any home inspections. I have indicated the most common disbursements however there are areas on the purchase agreement where other terms can be stipulated. Your dream home does exist but it may take more give than take to make your purchase a reality in 2013.
Susan Saurastri is a Fountain Valley resident and a Realtor with Star Real Estate. Contact her at 714-317-0664 or SusanSellsOCHomes@gmail.com
As part of your offer, you may require a termite and pest inspection. This company not only inspects for termite damage and pest infestations, but also inspects for dry rot and water damage, among other things. The company that performs the inspection is important to you as a buyer, because you want to be sure they do a good job. It’s important to the seller because it’s customary that they pay for the inspection and some types of repairs that may be required.
You should determine which company you want to perform this inspection and make it a part of your offer. Otherwise the seller will choose. If you do not know which company to hire, I can make a recommendation.
Title insurance is important because, by providing you with an Owners Policy, they insure that you have clear title to the property. If there are any problems later, you can always go back to the title insurance company and have them clear it up. Since it is customary for the seller to pay for the owner’s policy, they have an interest in which company is used.
However, you are going to pay a fee to the title insurance company, too. This is for the Lender’s Policy. The lender’s policy insures your mortgage lender that there are no liens or judgments against the property and that the mortgage will be in first position. In other words, should you sell the property or refinance it, their mortgage gets paid first, before any other claims against the property.
The lender’s policy is less expensive than the owner’s policy.
For example, you are going to need an escrow or settlement company to act as an “independent third party” between you and the seller. Without having a third party involved, how do you know that when you fork over the money, you are going to get the deed? This is the type of service provided by escrow and settlement. They will hold your deposit and coordinate much of the activity that goes on during the escrow period.
Since this third party is very important to both you and the seller and both of you will pay fees to this company, it is important to agree on which service to use. Therefore, your choice should be part of the offer. Since you do not buy a home every other week or so, you are probably unfamiliar with companies that provide this service. Your agent will make a recommendation. You have the authority to accept this recommendation and include it in your offer, or make your own choice.
Keep in mind that the seller will also have a preference and this may be a point of negotiation in a counter-offer. It has become customary that one side will choose the escrow/settlement agent and one side chooses the title insurance company. Even so, everything in real estate is negotiable.
Buying a Fountain Valley home does not occur in a vacuum, involving only you and the seller. There are all kinds of people and services involved behind the scenes to make it happen. Since some of these services affect both you and the seller, there will have to be an agreement on which companies you will use for them. When you make your offer, you should request your favorites for these services. If you are unfamiliar with these service providers, I can give you recommendations.
Home appraisal inspections on FHA and VA loans are a little more detailed than on conventional loans (and more expensive). The appraisers are required to perform certain minimum inspections as well as evaluate the market value of the property. Although these inspections are not as detailed as a professional home inspection and should not be considered a substitute, sometimes repairs are required.
These are additional costs the seller would not be obligated to pay for someone obtaining conventional financing, so your offer should include a maximum figure for these repairs. Otherwise the seller is signing the equivalent of a blank check, and they do not want to do that.
At the same time, whatever figure you put in will most likely affect the seller’s willingness to negotiate on price. If you put $500 as an estimate, the seller may be $500 less negotiable on their price. If no repairs are required, you may have been able to get the house for $500 less than what you and the seller agreed on as the price. The solution is to add a clause to your offer that goes something like this. “If required repairs cost less than the maximum amount allowed, the excess will be credited toward buyer’s closing costs.”
Extra Costs to the Seller
If you are obtaining a VA or FHA loan in order to finance your purchase, you must include that information in your offer. This is because government loans place additional financial and performance obligations on the seller.
First, VA and FHA loans prohibit buyers from paying certain types of fees that are often charged by lenders, escrow companies, settlement agents, and title companies. They are called “non-allowable” fees. They still get charged anyway, but as the buyer, you are “not allowed” to pay them. The result is that the seller ends up paying them instead of you.
Most of these “non-allowable” fees come from your lender. By the time you are making an offer you should have already been pre-qualified by a loan officer, so you or your real estate agent can ask how much the lender’s non-allowable fees will be. Experienced agents should also have an idea of what non-allowable fees will be charged by the escrow or settlement agent and the title insurance company.
Since these are fees the seller would not pay on an offer with conventional financing, this information must be included in your offer. You should also realize that since the seller will be paying these additional fees, they may be a little less negotiable on the price.
Your offer should also contain information on whether you are obtaining a fixed rate or an adjustable rate mortgage. It should also state whether you are obtaining conventional financing or obtaining a VA or FHA loan.
If you are one of those rare individuals making a cash offer to buy a home, it makes sense to provide some documentation with your offer that shows you have the funds available. A bank statement would be fine. If you have to liquidate stock or some other asset, your offer should give a timetable on when you will provide proof you have converted the asset to cash.