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Archive for September, 2010

writing an offer on southeast michigan homesUnless you’re a cash buyer, our standard purchase agreement contains a financing contingency. Even if you are pre-qualified you need this contingency to protect yourself. If your financial situation changes after writing the offer (such as job loss) you need the protection of the financing contingency. It also protects you if the house has problems with mortgaging, such as appraising too low, clouded title, etc. When it comes to rural properties, the property can present many issues when it comes to obtaining the mortgage. I won’t get into those specifics here, but the bottom line- a standard contingency in the offer to purchase is financing.

Once the seller accepts your offer, their house is off the market while you fulfill the contingencies in the offer, so it is muy important to submit a pre-approval letter with the offer. The pre-approval letter will state the down payment required from you, the type of mortgage you’re getting, how much of a mortgage you can afford, and needed seller’s concessions if any.

Actually, it’s important to get that letter before you even start looking at houses. I need to know what you can afford (or what you’re comfortable with- I bought much lower than the bank was willing to lend me) and the type of mortgage you will be getting. If you are getting a rural development loan, I will know not to look in Lake Orion for example, but 3 miles north into Oxford the houses would qualify- even in a sub. If you are going to go FHA, I would know not to show you fixers. Etc. So meeting with a good, honest, experienced loan officer, before you start looking, is also muy important. If you don’t already have a loan officer you like and trust, I can supply the contact information for one. More about that in a future post.

At the time we write the offer we also need to decide if you would like a home inspection, and what type of inspections you should get. Now some people think if they get an FHA loan that there is an automatic inspection built into that process. That is not correct. Your lender will send out an FHA approved APPRAISER who will look for repairs that FHA deems necessary, but that person IS NOT AN INSPECTOR.

If your offer is contingent upon the sale or closing of another property, we would include that in the offer. But beware- bank owned homes do not take offers subject to the sale of another property. If we make an offer subject to the closing of another property that you currently have an accepted offer on, we need to submit a copy of that offer with our offer to purchase. We want to submit as strong an offer as possible and to relieve the seller of any doubts of your ability to close. It’s much easier to negotiate from a position of power.

Other things included in the offer to purchase include “possession.” Or how long you are willing to let the seller live in the house once the sale is closed. They usually ask for a specific amount of time in the listing- 30 days or 60 days for example. After the closing the house is yours, and if there is possession, the current seller is now your tenant. They will typically pay you rent in the amount of your new house payment for any time they stay after closing, and that money is typically escrowed from their proceeds at closing. Possession is something we negotiate up front.

We also include time frames in the initial offer to purchase. We give them a certain amount of time to answer our offer. We give them a time frame in which you will make your formal mortgage application and a time frame for you to get a full mortgage commitment. We will include a time frame to close by.

For the most part, the above are the most popular contingencies included in an offer to purchase. Of course everybody’s situation is different, and sometimes there are contingencies that may be unique to your situation. I wrote an offer recently that was subject to the buyer finalizing their job transfer. But no matter what the contingency is, we must include time frames.

One other issue that is not covered above is the EMD or earnest money deposit also known as a good writing an offer on southeast michigan homesfaith deposit. It is usually a check I collect from you at the time we make the offer that shows your “good faith.” Hence the term good faith deposit. If there’s a problem on the inspection or financing, and the sale doesn’t close, you get that money back. If everything goes just fine, and we close on the property, that deposit is applied toward you closing costs/down payment. If everything goes just fine and all the contingencies are fulfilled satisfactorily, and you just change your mind and back out- then that deposit goes to the seller.

 

Hopefully this gives you a basic understanding of how the offer making process goes. If you have any questions or would like to see a copy of our purchase agreement, please don’t hesitate to call or email me. My direct line at the office is 1-800-401-1444. My cell number is 248-736-6407. And my email address is Jackie@JackieHawley.com 

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I got burned! I’ve heard it from more than one Oakland County buyer lately. They didn’t get the house they wanted. They wrote low and expected the seller to take it- even though the house was properly priced, even though it was a multiple offer situation, even though the buyer could afford to pay over asking price if need be.

One thing these Oakland County buyers had in common – they all blamed their agents. That’s how we ended up working with them.

Unit sales in Oakland County Michigan are up significantly; there is no shortage of buyers to work with. So we have nothing to lose by being blunt. These buyers burned themselves by not writing a serious offer. Maybe their previous agent didn’t educate them? Maybe they didn’t listen to their agent.

Guidelines to making an offer:

1.) Listen to your agent! You hired me to represent you. Listen to my advise. When you find a house you want to buy I will pull comparable sales and go over them in detail with you. I want you to get a good deal; I don’t want you to lose something you have your heart set on because we’re writing ridiculous offers.

2.) Have a STRONG pre-approval letter

3.) Put up a hefty good faith deposit

4.) You’re buying a house- not appliances, furniture, lawn mowers, etc. Don’t muddy up the offer with crap

5.) Make a fair offer. The definition of fair depends on the individual situation. If you are in a multiple offer situation our strategy will be different than if you are the only offer. Short sale offers will be different than bank owned listings or “regular” sales

6.) Did I mention- LISTEN TO YOUR AGENT!!!

Search the MLS for Oakland and Lapeer County Michigan Homes for Sale

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Pre Closing Walk Through- What is it? And Why You Should Do It

The majority (if not all) of the purchase agreements used in Oakland and Lapeer County Michigan have a clause allowing the buyer to walk through the house up to 48 hours prior to closing. I typically like to recommend to my buyers that we walk through on the way to the closing. What follows are 2 examples of why you (the buyer) should take advantage of this clause.

The pre-closing walk through is just to make sure the house is in the same condition as when we made the offer.

Story #1 is a true story about a closing this past January. It was a short sale, vacant house and immediate possession. We showed up to do the walk through the morning of the closing. The alarm was going off (the neighbor said it had been going off all night), and when we walked into the house it was how I would imagine a rain forest. Condensation dripping from the ceiling and drooling down the walls. It was a one story lake front home with a walk out basement. The entire first floor with the exception of the living room were soaked. Almost like it was raining. And the basement was pretty flooded.

Somehow the furnace had been accidently turned off and the hot water line for the bath tub split. When we got there it was spewing hot water and evidently had been for quite a while. Needless to say we didn’t close that day. The seller called his insurance company, took care of the problem and we closed the next week- with new plumbing, floors and a few other things that had been destroyed.

Story #2 is a true story that took place several years ago. This time it was my listing. The seller had strategically placed furniture, throw rugs, ect. over dog pee stains. Bad dog pee stains that had gone through the carpet and into the wood flooring below.

The buyer and seller went to arbitration and the seller won. One of the reasons given was that the seller was giving immediate occupancy and if the buyer had done his walk through, he would have seen the stains and would have had the option to either renegotiate or back out at that time. Even though the seller had obviously gone to great pains to hide the defects.

Would the outcome have been the same with different arbitrators? Hard to say, but in this instant the buyer was SOL.

Above are two very good reasons to exercise your right to walk though prior to closing. I surely don’t mind taking my time to meet you at the house and walk through. It’s for your protection, not mine.

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“Highest” and “Best” Are Not Synonyms

True story:

A friend of mine, who is also a Realtor, wrote an offer on a house for herself. The house is a short sale, and my friend made a fair offer. The listing agent called to tell my friend that there were other offers, and hers wasn’t the highest, and did my friend want to increase her offer.

My friend (did I mention she is an EXCELLENT agent) pointed out that her offer was within 10% of asking price, that the comps bore it out, and it still had to appraise in 3-6 months in a declining market. That she was willing to look at a reasonable counter offer if the lien holders needed a higher pay off. AND that she was willing to buy the appliances or lawn tractor- up to $10,000. She pointed out that this particular lien holder wasn’t receptive to releasing the seller from their responsibility for the deficiency (waive their right to sue the seller in the future) without a note or cash payoff for a portion at close. If the sellers know in advance that they have a buyer for up to $10K of their stuff, it can change the playing field a bit when it comes to negotiating the short sale.

The listing agent came back after meeting with her seller with an accepted offer. They were all in agreement- my friend’s offer wasn’t the highest offer, but it was the best.

The moral of this story:

Everybody has a bottom line, but as long as you meet that bottom line – or come close enough to lower that line- there are other factors important to today’s sellers in Southeast Michigan.

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Land Contracts- Southeast Michigan Real Estate

Over the past couple years I’ve been getting quite a few calls asking about Land Contracts and Lease/Option properties. Many of these callers have recently lost their homes to foreclosure or recently sold via short sale and need a place to live. It is understandable- these people are used to being homeowners and the thought of renting is not an attractive thought.

The other day I wrote a post about Lease/Option purchases and why it won’t work for many of the callers who have been contacting me. This post is an attempt to explain exactly what a land contract is and why that option will not work for most people either.

What is a Land Contract? Basically it’s seller financing. The seller is your bank.

Does this mean I can get in with zero money? You can– but it’s not likely. If you are too high risk for a bank to loan you money, you are high risk for a land contract seller, too. Usually a seller will require at least enough down payment to cover the commission. If the seller is represented by a good agent, the seller will want to see a credit report, proof if income, a reason for your poor credit (otherwise you would probably be getting a mortgage), and then after review the seller may approve you. If the seller does agree to take the risk, he will then determine the amount of down payment required and the interest rate which is usually a bit higher than you would get from a bank. The worse your credit the higher your down payment and/or interest rate will be.

Other things to consider:

If there is a mortgage on the property there is probably a due on sale clause that requires the owner to pay off the mortgage prior to selling.

Typically a land contract is for less than 30 years and there will be a balloon payment at the end of the term. Are you going to be able to get a mortgage for the balance at the end of the Land Contract term?

When you look only for homes offering Land Contract terms you are severly limiting your choices. Is it so bad to rent for a few years, repair your credit, save some money and buy at that time? Your choices will be much broader.

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You Are One of Multiple Offers! Is the Other Agent Lying?

I believe it would be a pretty accurate statement that the general consensus is that the housing market in Southeast Michigan is still in the crapper. That’s not to say it’s a “bad” market- that’s all relative. Unit sales are up and prices in some areas look like they may be stabilizing, but still a lot of homeowners out there who are upside down on their mortgages. I don’t think we’ve seen the end of foreclosuresshort sale listings are on the rise, unemployment is still high and one number I can’t find is the underemployment rate.

Crapper! So with all this horrible housing market combined with this crappy economy, with the media blasting to the world that sellers are desperate and bank owned homes are being given away- how can there be multiple offers on a house? Is the other agent lying? How often has a buyer’s agent heard that question? And how can we blame our buyers for asking?

Dear Mr./Ms. Buyer,

Most of the agents in the Oakland and Lapeer County areas are REALTORS, which means they belong to the National Association of Realtors, aka the NAR. The NAR has a code of ethics that prohibits agents from southeast michigan real estate southeast michigan homeslying about pertinent facts and we’re supposed to treat everybody honestly. There might be an occasional agent who would lie in an attempt to squeeze more out of you, but if I ever caught one lying to me about multiple offers, I would take them up on ethics charges in a heartbeat. I promise.

The fact is that our inventory is low and much of what is for sale is overpriced. So the few, properly priced homes are receiving competing bids and often selling at or over asking price.

So unlike the skit on an old Cheech and Chong 8 track (that I can’t play- no working 8 track player) this is one instance of even though is looks like crap, smells like crap and tastes like crap– it really isn’t crap.

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I’m not really calling you a dummy. This is my attempt at a very simplified explanation of what seller concessions are.

Example: You want to buy the house you just looked at and want to make an offer of $200,000. You need $5000 in seller concessions (seller paying all or part of your closing costs). Your offer will be $205,000 asking the seller to pay $5000 in concessions. If you offer $200K and ask for $5K in concessions, your offer is really $195,000.

The seller isn’t really paying your closing costs- you are mortgaging them.

Sellers- you really aren’t paying those closing costs. The buyer is mortgaging them.

Buyers- sellers have a bottom line. They don’t tend to come down to that bottom line AND pay concessions. The concessions are rolled into the purchase price.

Sellers– don’t question the amount of the concessions. If the buyer’s loan officer is over charging them that is their business. You only need to be concerned about your bottom line.

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