Basorun Adebayo

BECAUSE EVERY MOVE MATTERS BUYERS AND SELLERS EDITION Real estate refers largely to property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water bodies and other immovable properties of this nature. It could also be in a business sense, the profession of buying, selling and renting buildings or housing. In recent years the real estate business has proven to be one of the most potentially viable investments. An article in Forbes magazine dated August 9, 2017 highlighted the immense benefits associated with making such an investment, i.e. becoming a landlord. Some of these are enumerated below 1. Income: Investment in real estate can generate significant income without having to sell of the investment and makes it possible to make high single to low double digit returns on your investment even with a mortgage. 2. Inflation Protection: Chief among the benefits of making such an investment is the fact that income generated actually keeps pace with inflation. Inflation can increase the value of real estate while also reducing the burden of mortgage debt over time. This makes it a great way to hedge against the possibility of rising inflation. 3. Leverage: Real estate stands out as an investment option as it creates the opportunity of purchasing with borrowed capital at relatively low interest rates. Hence, increasing marginal profits. However, real estate just like every other investment comes with its attendant risks such as: 1. The relative unpredictability of the real estate market: Although the real estate market has been on the rise in recent times, there is no assurance that this positive trend would be sustained over time as the market is extremely dependent on ever changing economic conditions. Therefore, making it virtually impossible to ascertain that a profit would be made upon the sale of an investment property. 2. Bad Locations: In real estate, asides from giving the investment time, location is a factor to be heavily considered before making any investment. This is because, firstly, location determines the supply and demand. It would seem common sensical to purchase property in a location with lower prices. However, these locations can sometimes have too many property investments available without having a proportionally increasing population or good market. This would eventually flood the market with a demand that exceeds the supply, causing a drop in the potential return on investment. 3. Vacancy Risks: It is not guaranteed that 100% occupancy and quick profits would be attained and since tenants are the source of income in rental estate investments, this is a huge risk for real estate investors who rely on this income to pay off their costs and other expenses. 4. Depreciation: It is generally expected that real estate investments increase in value over the years (i.e. they appreciate). However, not all properties are guaranteed to experience this expected growth. The above enumerated challenges are a few of the most common risks associated with investing in real estate which is an otherwise highly profitable investment. To avoid or reduce these risks, proper market and rental property analysis should be carried out as it would equip the potential investor with information on how to know when, where and for how much to buy or sell properties, ultimately helping to hedge against major losses. Investing in real estate can be a daunting task as a lot of research has to be done before a settlement on the location and acceptable price for the property in question is reached. Its usually a process involving two sides of a very similar coin, instead of these signs being heads or tails, they are buyers and sellers. With all the intricacies involved in the purchase or rental of property, both the buyer and seller have their own versions of events leading up to a successful and profitable investment. THE BUYERS EDITION The buyer contracts to acquire the property in return for some form of consideration. According To Adrian Goslett, CEO of RE/MAX of Southern Africa, they could come in a variety of forms including but not limited to 1. Retail buyers: This covers family buyers, young working couples, first time or retired buyers and represents the vast majority of home buyers in the market for a primary residence. They usually have access to finance to purchase a property for cash. They consider among other things, the proximity of the property to their place of work and amenities especially schools, medical centers and shopping centers. 2. Buy-to-let investors: They are mainly concerned with finding a property that will generate revenue while it appreciates in value over time. 3. Fix-and-flip investors: They usually try to get property selling substantially below the market value in specified areas such as buildings in need of renovation which they can restore and sell in a reasonably short time for a return on investment. Regardless of the type of buyer, there is a general theme in the stories they all tell. The following chapters in the book of every buyer in the real estate market highlight the step wise process of purchasing property. PRE-APPROVAL: This represents the beginning of this story and must not be confused with pre-qualification. With pre-qualification, the potential buyer provides an overview of his/her finances, incomes, debts to a mortgage lender who then gives an estimated loan amount. However, the lender does not pull up credit reports or verify any financial information provided. Accordingly, it is a helpful starting point to determine what the buyer can afford although it carries no actual weight when you make offers. On the other hand, pre-approval is more like carrying out a “physical examination” of your finances, with the lender doing a lot of snooping and prodding round your finances so as to ascertain your ability to repay the loan and would usually include the filling out of a mortgage application and providing your social security number so that a hard credit check can be carried out by the lender. It would also require of the buyer to list all bank account information, assets, debts, income, employment history, past addresses and other key details for a lender to verify. All these is done so the lender can be entirely sure that the potential buyer can repay the loan. It could be either of two things. Firstly, it could indicate that a lender feels a potential buyer/borrower is completely credit worthy enough for a certain credit product and approaches the potential customers with a guarantee that should they select that product, they would be guaranteed to get it. It requires the submission of financial details like social security number, paystubs, bank statements and tax returns. These documents are submitted to ascertain the income, debt and payment history of the potential buyer. Its importance cannot be overemphasized being that it shows to the home seller that the potential buyer is qualified and able to close on the proposed property purchase. Although to a regular customer, success in this stage might seem to guarantee passing the approval process and therefore a guarantee to be granted the loan, it literally means something entirely different, i.e. it only indicates the stage before approval. From a legal perspective, a pre-approval letter would be defined based on the circumstances surrounding the overall context of the offer, federal and state laws applied regarding individual customer claims and/or actions brought by consumer advocation agencies. Secondly, it could relate to mortgage lending, where the potential buyer approaches a lender who checks their credit history and verify their income, hence, providing assurances that they would be able to get a loan up to a certain amount. This would help the buyer find a home within their loan amount range. Real estate agents usually prefer working with buyers that have their letter of pre-approval as it indicates that they are qualified to receive financing and are actually serious about purchasing the property. A pre-approval is based on the documentation the borrower supplies at the time of application and any actual eligibility to receive the pre-approved loan is determined by the terms and conditions of the pre-approval and ability to secure the load before the pre-approval expires (pre-approval letters are usually valid for about 60-90 days). This expiration feature is included on pre-approval letters because in that time frame there is a high likelihood of there being a variation in the potential buyer’s finances and credit profile. Upon expiration of this letter, all relevant paperwork would have to be updated in order to get another one. It is therefore important to only apply for one when ready to actually make a purchase, about six months to a year in advance of a serious home search. In order to get pre-approval, as stated earlier, a mortgage application including vital information such as the type of mortgage and terms of loan, property information and purpose of loan, the borrower’s information, employment information, monthly income and combined housing expense information, assets and liabilities, details of transaction and declarations. With the application out of the way, the lender is required by law to provide the buyer with a document called a LOAN ESTIMATE within three days of receiving the completed mortgage application. This paperwork notes whether the mortgage has been pre-approved and outlines the loan amount, terms and type, interest rate, estimated interest and payments, estimated closing costs and any special loan features. It further specifies the maximum loan amount to help you narrow down your home-buying budget. After submitting your mortgage application, a few other documents would be required to further verify your information. Adequate preparation and organization would help expedite the process. The following documents need to be presented for pre-approval and to secure the final loan approval:      60 days of bank statements 30 days of paystubs W-2 tax returns from the previous two years Income tax returns Asset account statements    Driver’s license or U.S. passport Divorce papers (to use alimony or child support as qualifying income) Gift letter (if funding your down payment with a financial gift from a relative) However, self employed borrowers are required to provide additional documentation to show a steady stream of income as well as a work history of at least two years. These documents may include a profit/loss statement, a valid business license, an accountant’s signed statement, federal tax returns, balance sheets and a bank statement covering a period determined by the lender. In the event of a situation that makes it recalcitrant to obtain a typical mortgage, enumerated below are a number of specially geared mortgage options developed exclusively for self-employed borrowers. 1. Stated Income or Stated Asset Mortgage (SISA): It’s based on the income reported to the lender without formal verification. They are also called Low-Documentation loans because lenders will verify the sources of your income rather than the actual amount. You would further be required to provide a list of your recent clients and any other sources of cash flow. The bank may also request for an IRS Form 4506 or 8821. Form 4506 is used to request a copy of your tax returns directly from the Internal Revenue Service, to ensure the documents that get to them are accurate and unadulterated and costs $39 per return. Form 8821 authorizes your lender to go to any IRS office and review the forms you assigned for the years specified, free of charge. 2. No-Documentation Loan: Here the lender will not seek any verification of your income information. This would be a good option if your tax returns show a loss or very low profit. It is however riskier for the bank to lend money to someone with unverified income so expect your mortgage interest rate to be considerably higher than with a full-documentation loan. Low and No documentation loans are called Alt-A Mortgages and fall between prime and sub-prime loans in terms of interest rates. 3. Down Payment Gifts: Many loan products allow borrowers use a financial gift from a relative toward the down payment for a property. It would be required of you by the lender to complete a standard gift letter in which you and the gift donor assert that the gift isn’t a third-party loan with any expectation of a repayment. Otherwise this would have a negative impact on your debt-to-income ratio which further affects your final loan approval. Getting a pre-approval letter doesn’t limit you from borrowing from a particular lender nor does it guarantee that a lender will approve a mortgage. This is particularly common when there has been a change in your financial, employment or income status. You are allowed to choose a lender that offers the best rate and terms for your specific needs. Lenders would usually evaluate the following factors in your financial profile. Having this information and ensuring these factors have positive values would increase your chances of getting a good mortgage deal.    Debt-to-income ratio (DTI) Loan-to-value ratio (LTV) Credit history and FICO score  Income and employment history Debt-to-Income Ratio: The DTI ratio evaluates your monthly debts relative to your monthly income. Debts such as auto loans, student loans, revolving charge accounts and other lines of credit are added up by the lenders plus the new mortgage payment and then divide the sum by your gross income to get a percentage. Depending on the loan type, borrowers are advised to maintain a DTI ratio at or below 43% of their gross monthly income to qualify for a mortgage. The higher this ratio, the more risk you will pose to your lenders because you could be more likely to toil to repay the loan on top debt payments. Having a lower DTI can qualify you for a more competitive interest rate. It is advisable to try and clear as much debt as you have before attempting to purchase a property as it would help lower your DTI ratio and also show lenders that you can manage debt responsibly and pay bills on time. Loan-to-value Ratio: This is another important metric used by lenders to evaluate you for a mortgage. It is calculated by dividing the loan amount by the home’s value. A property assessment establishes the property’s value, which might be lower or higher than the seller’s asking price. The loan-to-value ratio is heavily influenced by your down payment (i.e.an initial payment made when something is bought on credit). The higher the down payment, the lower the loan amount and in turn, the lower your LTV ratio. Credit History and FICO score: Lenders would look through your payment history and affirm whether or not you pay your bills on time, the number and types of credit lines you have open and the duration for which you have had those accounts. As well as a positive payment history, your credit utilization which should be at or below 30% in order to boost your credit score would be analyzed by lenders. This would show a responsible and consistent pattern of paying bills and managing debt wisely. Income and Employment History: Lenders would go to great extents to ensure you earn a solid income and have been consistently and stably employed upon the receipt of your mortgage application. They essentially want to be assured that you can accommodate the extra financial burden of a new mortgage. For self-employed person, the lenders might request for bank statements from the past 60 days or more to show that there is enough cash in hand for a down payment and closing costs. CHOOSING A REALTOR: Whether its your first real estate transaction or your hundredth (hypothetically speaking of course) the importance of selecting the appropriate realtor cannot be over-estimated. But with such a wide variety of realtors scouring the country for potential customers, how then do you select the one that’s a perfect or at least right fit for you? It is important to try and get referrals from family, friends and trusted associates in your target area. Ask questions about their experiences, contrast and compare this information and select one that best suits your preferences and from this considerably smaller pool, proceed with interviewing the prospective realtors. Try and look out for a realtor who actually listens, conducts him/herself ethically and knows the market. Now while there is no fool proof method for getting a “perfect” realtor, there are a few things you can look out for to try and ensure you get the best value for your buck. 1. Try and find out how long the realtor has been in the business: This goes beyond just gauging the realtor based on experience which is in itself very valuable, as an experienced realtor would not be easily rattled by the many different situations that might come up, but also because the real estate market pays realtors on a commission basis. It would be extremely difficult for a realtor who has been consistently providing terrible services to stay too long in the business. 2. Try and establish contact with the realtor’s previous clients and the ask questions like what the asking price was and the eventual sales price among others 3. Ascertain the suitability of the realtor to handle your situation: Find out if he/she is a long -term investor, first-time home buyer, house flipper or selling an estate. These are a few unique situations you might find yourself in and you would not want to be caught up in any of them with an agent that has little or no experience in those situations. 4. Attend open houses: This would offer you a great opportunity to meet with realtors in a non-threatening work environment and interact with them. It also affords you the chance to compare and contrast from a wide range of options 5. Check for licensing and compliance with disciplinary measures: The state would usually discipline realtors. Check with your state’s regulatory board to know whether a realtor you’re considering is licensed and or has any disciplinary actions or complaints. 6. Gauge the realtor’s knowledge of your target location: A good realtor should have sufficient knowledge of other properties available in your target area. Test his knowledge by asking about any house in the area that has been recently sold or is on sale. If he/she is able to give a few relevant details about said building, he could be a good fit 7. Select a realtor with the right credentials” Realtors like doctors have specialties, many of whom have additional training in particular areas. Some of these designations/specializations include:  CRS (Certified Residential Specialist): Would be a good fit for handling residential property  ABR (Accredited Buyer’s Representative): He has completed additional training in representing buyers in transactions  SRES (Seniors Real Estate Specialist): Has been specially trained to help buyers or sellers older than 50 years old. FINDING A HOME After all the ground work has been done in ensuring you can afford to pay off the mortgage selected and also getting a realtor that suits you and would be the most beneficial in your house hunt, it is time to actually find a home to buy or rent. Before you buy or rent, get a good idea of the land layout and “stalk” the neighborhood to see how much of a good fit it is for you. Find out the house’s proximity to the closest grocery store or social service (hospital, school etc.). It is essential to know your needs or desires for your home and infuse this knowledge into your search. Questions like whether you would prefer a new or existing home, a ranch or multi-story home should be answered. List out all the features you that are of utmost importance to you and categorize them as necessity and extras. It’s OK to be picky about the home or neighborhood you want, but it is equally important to remain open-minded, realistic and ready to overlook minor imperfections. On the other hand, do not get carried away by a particular feature that you then disregard other issues. When looking for a home, the following tips should be considered 1. Go for the long haul: When looking for a home search for one that you can see yourself living in for several years, at least 5-7 years would be ideal. Buying and moving to a new home takes a lot of time and effort and can add up significantly high closing and moving costs. Staying in a place longer could help you cut down on those costs and this extra time spent in a place can help you ride out a downturn in the real estate market. Staying in a home for a longer period comes with its resultant social benefits such as friendships with neighbors, community involvement and consistent educational opportunities for children if any. Aside the financial implications of moving house regularly, there could be emotional ties to a home that have been developed. Yanking these ties constantly could lead to instability especially when there are growing children involved. This however doesn’t apply when you know you wont be staying for long or your plans are uncertain. 2. Leave room to grow: When purchasing or renting property, you must consider your current and future lifestyles and put into consideration family planning. Consider the extent to which your family might be expanding and how often you would be hosting overnight guests among others. Aim for a home that can adapt to your needs as your life changes say you have a new baby. It would not only be easier but it would be by far cheaper to add a few square feet to your home than to buy or rent a new home that is slightly bigger than the current one. 3. Be flexible: Even with a detailed checklist of your exact requirements for your home, you will need to realize there is simply no such thing as a “perfect house” unless you have the funds to design and construct one from the ground up. Learn to compromise on the minor requirements while standing firm on the major ones. Prioritize your wants and determine which features you can live without. It would be advisable to purchase a place with rooms that could comfortably perform multiple functions so the home remains highly functional for you through the years. For example, an open floor plan style home is very adaptable, a kitchen that overlooks the family room is helpful when one’s children are young allowing you to cook while watching the kids, such a kitchen is also useful for entertaining guests when the children leave the nest. 4. Go for your type: Think about what type of home fits you best, a house, condominium, town home etc. You need to realize that its never a one size fits all scenario. For example, a single-family home, which seats on its own lawn and must be maintained by the home owner may be great for a person seeking privacy but not so wonderful for a person who doesn’t want to be bothered with mowing the lawn, fixing the plumbing etc. Meanwhile a condominium may be perfect for someone who wants a lock and leave lifestyle but not for someone who doesn’t like to share a wall with his neighbors. 5. Check the surroundings: When purchasing or renting a home, you not only get a home but you also buy into its surrounding. Think about whether that neighborhood may suit you. Sure, you may like the house itself, but would the loud neighbors and school across the street become to burdensome for you? Also, do you like the feel of the neighborhood and can it offer you everything you need? It would be best to pick a home in a neighborhood you’ll feel most comfortable in. 6. Buy what you can afford: It’s easy to shoot for the sky and overspend when buying your home. You understandably want to get the best your money can buy. However, it is important to sufficiently examine your finances, keeping in mind immediate and future expenses and do not exceed your means. It is much smarter to purchase or rent a home you can easily afford than one you will have to stretch your finances to move into. Stay down to earth and you will be better prepared in case unplanned financial commitments come up later down the road. 7. Think Home first: When buying a home, do not imagine the income you might generate when you sell it. Live with the knowledge that a home is what it is, not an investment. Go for a place that would be great to live in first and think about its resale value second. Predicting real estate cycles and home appreciation is tough enough for the experts and much more for the average home buyer. While home renovations tend to add value to a residence, they rarely recoup more than what was spent on them. 8. Look at both old and new: Its always nice to move into a place that’s brand new, but new isn’t always better. Consider both old and new. While you might not like a previous home owner’s decorating decision, you might like the way he has installed upgrades like a finished basement and a backyard deck that a new home might not have. 9. Location, Location, Location: You might have heard this several times, but the location of a home does matter. A house located on a busy noisy street may be less enjoyable to you as a home owner than one situated on a quiet secluded cul-de-sac. Additionally, a homeowner’s cul-de-sac may be worth more than a poorly located one when it comes time to resell. So, consider a home’s location before you’re smitten by a spectacular interior. 10. When it comes time to sell: While you would want to look at your place as a home first rather than an investment, it doesn’t make sense to purchase one considerably inelegant. You should at least give it some thought to how easy or difficult it would be to resell the home one day. If the home is so unlike other nearby homes in terms of style, size, price etc. you might want to skip it and search elsewhere as it might become burdensome if you want to someday move on. MAKING AN OFFER You have been pre-approved for the mortgage loan you need to make the purchase, you have selected a suitable realtor with suitable working experience to get you the home you desire and going through his catalogue you have picked out a house that you feel would be a good fit for you, that would satisfy your housing needs and fits into your plan. It is time to get down to business and make an offer for the house that would be reasonable and fair to the seller. This offer should highlight the fair value of the home, be compelling and must above all protect your money. You would need to consider the degree of repairs and upgrades that may be needed on the house and how soon the seller wants to close the deal among others. Making a low ball might be a great way to start negotiations but it would not be sensible to make an offer that is so low it does not properly reflect the market value of the home as this might put off the seller and might eventually make you lose out to other buyers. Whatever amount you decide to eventually offer, ensure it is as a result of a proper market research on sale prices of similar homes in that area. When a buyer decides to purchase a property from a seller, both parties enter a contracting specifying the final sale price of the property and the down payment. This contract does not compel the buyer to purchase the property as results from the evaluation and inspection may later divulge issues with the property. The contract does, however, guarantee that the seller takes the property off the market while inspection and evaluation are ongoing. This down payment is also referred to as earnest money, to indicate the buyer’s good faith in an arrangement. Upon finalization of the transaction i.e. after inspection and evaluation and the deal falls through, the earnest money can either be refunded or not, depending on how the contract was phrased. If the contract specified that the buyer must complete inspection by a given date and the buyer fails to do so, he will probably not be refunded his earnest money. If he decides not to go ahead with the purchase for reasons not agreed upon in the contract, he would most likely lose his deposit. This deposit is retained by the seller to protect him from any financial loss resulting from the breach of contract and to keep the settlement of damages out of court. With this little technicality out of the way, you can proceed to take the following steps in making a suitable offer for the property 1. Do your market research: The real estate market is highly competitive, therefore having indepth knowledge of the options available to you is integral in purchasing a suitable property at a reasonable price. Carrying out your market research before making an offer would help increase your price utility and understand the factors that affect your bid. It would be common place to hire a professional to help with this analysis as you look through comparable prices. Cross referencing their asking price with the final sales price. Also consider the period for which the property has been on the market. The longer it stays on the market, the more bidding power you have as a buyer. 2. Draft your Offer Letter: Drafting an offer letter would usually require consultation with a real estate attorney as you will need to go over the laws for your jurisdiction. Remember that every state has different laws that regulate purchase offers. Your jurisdiction might have a form local real estate agents use i.e. a purchase form, get one and fill it out. A valid purchase offer would identify you and include some basic information such as the address of the property and legal description. Without this, the contract might be deemed invalid. The purchase offer would also detail what you will pay and how you will go about paying it. Do not forget to include contingencies that apply to you as they will offer legal protection in the eventuality of the contract being breached. Although in highly competitive markets, contingencies might be overlooked to boost your chances of getting the property. Include contingencies that refer to issues such as financing (indicating that you might not be able to buy if you do not get financing), getting the property properly inspected (and that you can rescind your offer if you find things you consider unsatisfactory with the property), appraisal (The appraised value of the property must exceed the agreed purchase price, if the appraisal reveals otherwise, you would be allowed to pull out of the deal without having any financial damage ensued to you) and that you would need to sell your current home in order to purchase, and in the likelihood that this is not achieved you would not be compelled to go forward with the purchase. Be aware that contingencies have deadlines so try and ensure you avoid defaulting. An offer isn’t good forever and you need to decide how long it is good for. Discuss with your agent what is typical and be smart about setting a duration for the offer because in hot markets, a shorter deadline is best as it would prevent another buyer from sneaking in and making a more competitive offer. 3. Negotiate: The property purchase process does not end when the seller receives your offer letter and is extremely rare for a sale to go through without at least one round of negotiation. When making your first offer it should not be your absolute best offer to allow for renegotiation if and when the seller comes up with a counter-offer. This counter offer may be for more money or for amendment of the contingencies stated in your original offer. It’s a common tactic among sellers to try and start bidding wars among multiple potential buyers and sometimes exaggerate the level of interest from other potential buyers so as to try to push your hand to make or settle with the counter offer proposed. 4. Perform a proper home inspection: It is commonplace for the buyer to negotiate with the seller to make sure that he bears the cost of the inspection. However, for obvious reasons it would be best to take this expense up and hire a home inspector who would be working in your best interests. When the inspection is going on, it would be great if you can be on ground or at least have your agent present to take notes. If the inspection reports show any major problems you were not aware of, it can be used to renegotiate the price or get the seller to cover the repair cost for those issues. However, depending on the extent of the damage, you might decide to walk away from the deal entirely. 5. Seal the Deal: Once a settlement has been reached on what will and won’t be repaired and who will pay for what, you can submit your mortgage application. Gather your financial documentation and wait. Remember that purchasing a home is not a day’s job. In the meantime, it would be wise to stay away from credit card purchases so there won’t be anything major when the lender pulls your credit report. Do not forget to get an insurance package that covers home insurance, flood insurance and mortgage insurance if necessary. HOME INSPECTION: After weeks and months of searching for a suitable property that serves your desires and making all necessary financial obligations to be ready for purchase of the property in mind, it becomes imperative to carry out a limited, non-invasive examination of the property’s condition. According to a survey by the American Society of Home Inspectors (ASHI), seventytwo percent (72%) of Americans believed that their home inspection before the purchase of their home helped them avoid potential issues with their home. The law mandates the inclusion of the pre-inspection agreement and the inspection report. The findings from this report can help the purchaser make a knowledgeable decision about the purchase of the home. During the preliminary home tour, you should mark down specific areas of the house that you want to examine more closely. Run through the external and internal features of the home to gauge any potential red flags that would require urgent attention. The checklist below gives a guideline to inspecting your home during the initial home tour External Features:    Roof/Attic: o Are there shingles missing o Is there flashing and trim installed o Are there any signs of leakage? o When will the roof need to be replaced Foundation: o Are there visible cracks on the outside walls? o Are there any trees near the foundation? Yard o Does the drainage slope away from the house? o Are there any soggy areas you can identify? o Are the walkways and driveway in good condition? Internal Features:    Appliances and Fittings (If included) o Do the appliances appear to be well maintained? o What are the ages of the refrigerator, dishwasher and oven? o Are there any leaks under the sinks (bathroom and kitchen)? Structural Elements o Has there previously been a fire in the home? o Do the walls have visible vertical or horizontal cracks? o Are there any stains on the floors, walls or ceilings? Ventilation and Sub-Systems: o Does the house smell? Can you identify the source? o Do the AC and heating systems appear to be working? o Does the water heater produce enough hot water? o Is there a working exhaust fan in the kitchen? Miscellaneous:  Electrical: o Do all the switches work? o Is each outlet properly grounded? o Do the ceiling fans work? o Has the electrical panel been recalled?  Plumbing: o Are there any unusual noises? o Do the faucets and other fixtures have enough pressure? Garage: Check all the following elements for signs of damage or wear: o Slabs o Walls o Ceiling o Vents o Garage door o Lights o Openers o Windows o Roof These are only the preliminary checks required for the inspection. There are some issues that would not be revealed with these checks. Therefore, there is a need for deeper inspection of the property to ensure that it is among other things safe for human habitation. Most of these advanced checks would require the services of a professional home inspector and they would be checking for any of the following 1. Mold: Although homes commonly have some accumulation of mold in somewhere, home owners are generally freaked by it. Anywhere moisture manages to penetrate is an optimal breeding ground for mold. However, not all mold problems are the same, with some that can cause health problems while others are benign. It is therefore important not to freak out unless the home inspector gives you reason to because of the type and severity of mold found. 2. Radon: Radon is a radioactive material which is strangely common and distributed in the soil and surrounding a home. If the concentration is high enough, it can pose a serious health risk to the home’s in habitants. Radon exposure happens over an extended period of time of living in the home. Upon inspection, if the levels are of concern, some things can be done to remediate the home to safe levels. Radon remediation from air is relatively easy to do by installing a radon mitigation system. However, removing Radon from water is considerably more difficult and expensive. 3. Pests and Insects: In an older home it is commonplace to run into a few mice or the occasional ant in the sugar. This is a far cry from a full-blown pest or insect infestation. Special care should be given to checking for termites especially in homes with a lot of wooden finishing. 4. Lead Paint: Although lead paints are generally a feature in mostly older homes while posing no real danger unless ingested, the current owner is obligated to let you know of the paint. This would be especially important if there are plans to have children in that home. Lead paint is the only federally mandated item that all sellers must disclose to the buyer. 5. Source of Water: If the source of water to the property is from the public water supply system, there would be little or no need to look at the state of the water as the public water system maintains a very high standard in terms of purity. It is however possible that the house is supplied with water from a well. If this is the case, the home inspector would need to take a closer look at the state of the well and the quality of the water produced as well as the flow rate. 6. Septic System: Managing a septic system properly is essential for the proper handling of the waste produced from the home. It is necessary to inspect the system properly because fixing or replacing such a system is very expensive. The buyers should check the bedroom capacity the system was designed for. For example, the system could be rated for three bedrooms, and if that is the case, the building should not be advertised as a four bedroom even if it is a four-bedroom property. 7. Smoke/Carbon Monoxide Detectors: The requirements for smoke and Carbon Monoxide detectors varies depending on the location you are buying. An inspection would include a thorough examination of the existing detectors and their functionality and would highlight the need for new ones based on the current regulations. The seller is usually required to provide a certificate granted by the local fire service to indicate that the existing detectors are properly functioning. Once you own the home it will be your responsibility to keep them working properly. The potential for the presence of other toxic materials especially asbestos, a common material used in home construction for decades as an insulator in older homes should be checked for as the fibers when disturbed can be inhaled and stick to the lungs and may become carcinogenic in the future should be inspected for. Most homeowners may choose to leave asbestos as it is because it is only a risk factor when disturbed and also because it is expensive to replace. However, they are bound by law to inform any potential buyer of its presence. Understanding the current state of your home at purchase is important. Even if you feel confident that there aren’t any major problems with the building, a home inspection is a great opportunity to familiarize oneself with the intricate details of the property. APPRAISAL: A home appraisal is an unbiased professional estimate of the fair market value of a home’s worth. It is used to determine whether the home’s price is appropriate to the home’s condition, location and features. It helps to ensure the lenders are not giving buyers more money than they need for the property purchase because the home serves as collateral for the mortgage and in the event that the borrower defaults, they won’t be able to recoup their resources. The appraisal process primarily protects the lenders interest, so more often than not, the lender either initiates or orders the process. Federal regulations require the appraiser to be licensed in all 50 states and not have any direct or indirect interest in the transaction. A property’s appraisal value is dependent on the recent sales of similar properties and current market trends. Other key factors influencing a property’s appraised value include the property’s amenities, number of bedrooms and bathrooms, floor plan functionality and square footage. A thorough property inspection is necessary to identify any conditions that may negatively affect the property’s value. Typically, the Federal National Mortgage Association, commonly known as Fannie Mae’s Uniform Residential Appraisal Report is used to appraise single family homes. The report requires an interior and exterior inspection of the property, neighborhood and nearby comparable sales. The appraiser then provides analysis of the property’s value based on his observations. The report generally contains a street map showing the property in question, an exterior building sketch, photographs of the property’s front, back and street scene and any other information such as market sales data, public land and tax records that would be used for the appraiser uses to determine the property’s fair market value. When purchasing a property, the appraisal is the first step you take in trying to close out the deal. If it comes in at or above the contract price, the transaction continues as planned. On the flip side that it doesn’t, the transaction could either be delayed or in extreme cases be outrightly cancelled. More often than not neither you (the buyer) nor the seller would want that to be the case. As the buyer, you have the upper hand in this scenario as low appraisal would offer a very good negotiating tool to convince the seller to lower his price as the bank will never lend you or any other prospective buyer more than the home is worth (a maximum of 80% of the value is usual). Bad appraisals can be a cause of conflict between the proposed buyer and seller of a property as though it helps the buyer avoid overpaying for the property, the seller would feel such a report is inaccurate and hence, be reluctant to drop the price. If such a situation arises, for the sake of peace and progress regarding the transaction, a second opinion should be obtained through another appraiser. MORTGAGE LOAN PROCESSING AND UNDER-WRITING Processing involves the organization of a loan applicants financial documentation ensuring it is in order before the underwriter reviews the loan file. The processor would typically be in contact with the applicant if information is missing or if additional documentation is required. A title search is ordered to ensure the seller has legal rights to the property and that the property can be transferred. The title company will research the history of the property, looking for mortgages, claims, liens, easement rights, zoning ordinances, pending legal action, unpaid taxes and restrictive covenants. Subsequently, an appraisal is scheduled as detailed earlier to determine the value of the property Underwriting on the other hand, is the process investment bankers raise investment capital from investors on behalf of corporations and governments issuing equity or debt securities. The word originates from the practice of each risk taker writing his/her name under the total amount of risk he/she is willing and capable of accepting at a specified premium. They also research and examine the risk each mortgage applicant presents, helping to create a market for securities by correctly pricing and setting fair premium rates that sufficiently cover the true cost of insuring policyholders. It is the underwriter’s job to closely scrutinize all of the loan documentation prepared by the loan processor and make sure it complies with lending requirements and guidelines. He is the key decision maker in the mortgage approval process and can reject a loan application if it doesn’t meet the required standards. He will review the applicant’s credit history, your DBI, assets and other tenets of your financial situation to predict your ability to mortgage payments. They focus on 1. Capacity: Asking questions of the applicant’s ability to repay his debts by looking through his income and employment history. 2. Credit: Checking your history of payment of debts and examining your credit reports 3. Collateral: Using the home appraisal report to check if the property’s value is enough to stand as collateral for the property A conditional approval might be issued in the event of there being a few resolvable issues during the review process. A typical example of such “conditions” is the underwriter requesting for a letter of explanation relating to a particular bank deposit or withdrawal. If the issues discovered are minor and resolvable in a timely manner, the mortgage loan can proceed and eventually lead to approval. On the other hand, if they are major issues, outside the eligibility of the parameters for the loan, there might be an outright rejection. Underwriting is arguably the most important step in the mortgage approval process as it to a large extent determines whether or not the mortgage loan is approved. CLOSING STEPS: One would love to assume that after all these rigorous steps, the closing part of purchasing a property would be a mere formality, but sadly, that is not the case. The mortgage taken out is rarely the full value of the property to be purchased, hence, you would be required to pay the remaining money owed to buy the property. This money is transferred from your solicitor’s account to the seller’s solicitor account. You might also need to pay a mortgage account fee, charged by the lender for setting up, maintaining and closing down your mortgage account. After which your solicitor’s bill would have to be settled. Furthermore, it would be expected of your solicitor to register the sale with the land registry and of you to pay land transaction tax which is dependent on the price of the property. With all these nitty-gritties out of the way, you can proceed to sign the deed of ownership and move into your new home. To summarize this entire process and emphasize on the importance pf not assuming that a pre-approval automatically means full approval, a story is told by a writer for the Home Buying Institute who for ambiguity’s sake would be referred to as Mike of how his mortgage application was rejected by the Bank of America. Borrower Profile: Mike and his wife both have excellent credit scores. This was their third home-buying experience. They’ve owned two homes in the past, and they’ve never missed a single mortgage payment in over a decade. This time around, they were using a Veterans’ Affairs loan to buy a home in San Diego County. This was to be their primary residence — not an investment property. Mortgage Summary: Mike and his wife started out using Bank of America. After being told they were “approved” on two separate occasions, the underwriter eventually rejected their file. They were officially turned down for the mortgage on May 31, 2011. After the Bank of America rejection, they applied with a smaller lender and were subsequently approved for the loan. The rest of this story is in Mike’s own words: A Tale of Mortgage Rejection This experience has been quite a roller coaster for us. But it turned out well in the end. In fact, it turned out better than we could’ve expected. That’s why I’m so eager to share out story with other home buyers. I want people to learn from our experience. I think people will find our story more useful than a lot of the “how to” articles online these days. It’s a real-world lesson in mortgage rejection. So here it goes… I’ve included a timeline below, so readers can see exactly what we went through (and how long it took). You’ll notice a big difference between the two lenders, as far as loan processing goes. Bank of America took a long time to process our application, compared to the smaller lender. We’re talking two months as compared to a couple of weeks. Loan Application Timeline This is the process we went through with Bank of America, leading up to the ultimate rejection on May 31: We sent our mortgage application to the loan officer on April 3, 2011. We got pre-approved on the same day (based on our application and credit scores). On April 5, they sent us a list of documents they needed, such as tax returns. From April 5 up to the conditional approval, we had to provide copies of all ongoing deposits and withdrawals from our bank accounts. They wanted to know where our money was going during this period, and where the new deposits were coming from. We received a conditional approval on April 28, 2011. A conditional approval is when the lender says, “We will approve the loan if you satisfy the following conditions…” We satisfied all conditions and provided the requested info by May 4, 2011. One of the most significant conditions related to a credit card. We had to pay off a $12,000 credit card balance in order to lower our debt-to-income ratio [defined]. We were led to believe the loan would go through, if we complied with this request. So, we paid off the card. The lender ordered the property appraisal on May 5, 2011. We had to pay this fee upfront, as opposed to having it rolled into closing costs. It cost us $500. Just when we thought we were done, the loan processor sent us a second list of conditions that had to be met. This time, they wanted several written explanations relating to our finances (like an explanation of a late payment on a credit card from six years ago). We satisfied the second set of conditions on May 16, 2011. That same day, our mortgage file was sent to the underwriter for review. Also, on May 16, 2011, the bank worked with our chosen insurance provider to order the homeowners policy. (You need home insurance before you can close on a loan.) The underwriter requested additional info on May 18. We provided it the same day. We received the HUD-1 settlement statement on May 20. We were also notified of a cashreserve requirement that was not previously disclosed. * On May 23, 2011, the loan officer started working on an exception for the cash-reserve requirement. She told us she’d have an answer “in a few days.” The loan officer did not formally submit the exception request until May 26. The loan officer called and emailed on May 27, giving us the good news that the loan had been “signed off” on. On May 31, 2011, we were notified that the loan had been declined. Total time from mortgage application to rejection = 59 days. We specifically asked the loan officer about cash-reserve requirements in advance, at the time we applied for the loan. She told us VA loans had no reserve requirements. So, when the underwriter told us we needed six months’ worth of cash reserves only days before closing, we were shocked. Turned Down by One Lender, Accepted by Another At first, being rejected by BoA (Bank of America) was like a blow to the stomach. We weren’t sure what to do next. Our lease was up in less than a month. We thought we would have to scramble to find a suitable rental property (since we were moving from one part of the state to another). But then the sales person from our builder’s office suggested another lender. Apparently, ours was not the first loan to collapse in this fashion. The other lender told us they had no cash-reserve requirements. The new loan officer said the VA does not require cash reserves on VA home loans. He explained that his company did not use “overlays” (additional requirements) on top of the VA’s requirements. This was good news to us, because the cash reserves were the only problem with Bank of America. We were qualified in all other areas. So, we applied for a loan through the other lender. And let me tell you, it was like switching from a Kia to a Mercedes! The difference between these two lenders was like night and day. Timeline Part 2 – The Second Time Around Compared to our first experience, things moved more quickly the second time around. These guys were like a well-oiled machine. My wife referred to them as “mortgage ninjas” at one point. Here’s the timeline: On May 23, when the Bank of America drama was still unfolding, we spoke to our sales agent at the home builder. She suggested we apply for a backup loan in case BoA turned down the exception request. We spoke to the new lender and completed an application by phone on May 24, 2011. We submitted some additional financial documents on May 25. The new lender pre-approved us on May 25. We received disclosures from the new lender on May 27. It explained the terms of the loan, the interest rate, and other required disclosures. The lender needed us to sign and return the mortgage disclosures. They also needed Bank of America to release our original Veterans’ Affairs case number before they could submit our loan package to underwriting. The builder required us to wait until BoA officially declined our loan (which happened on May 31), before proceeding with the new lender. We sent the signed disclosures back to the new lender on May 31. We sent some follow-up information to the new lender on June 1, 2011. Our loan package was submitted to the underwriter that same day. The new lender gave us a final approval two days later, on June 3. Total time from mortgage application to final approval = 11 days. Admittedly, things moved faster the second time around because we were able to use some of the documents from the Bank of America process (like the home appraisal). But it was still like night and day, the difference between these two lenders. The smaller lender was much more efficient, and they communicated with us better than BofA did. Like I said earlier, it was like going from a Kia to a Mercedes. I remember saying to my wife, “It cannot be this easy, can it?” Two Types of Rejection Based on my experiences (and the research I’ve done for the Home Buying Institute), I believe there are two types of mortgage rejection: Some borrowers get turned down for a home loan because they’re simply not qualified for a loan — with any lender. An example of this would be a borrower with bad credit and a mountain of debt. That person would probably be rejected across the board, no matter how many times they applied. The other type of mortgage rejection is bank-specific. This is what happened to us. Bank of America had a lot of hang-ups about cash reserves. They wanted us to have six months’ worth of mortgage payments in the bank before closing, and they sprung this requirement on us just days before closing. The other (smaller) lender was surprised to hear we had been turned down. They said we were “totally qualified” for the VA loan program. This is an example of a bank-specific mortgage rejection. I’d like to reiterate that this was not a VA loan requirement. It was a Bank of America “overlay” requirement. The second lender we used did not have any cash-reserve requirements. As a borrower, you need to find out which “camp” you fall into. I recommend that home buyers check their credit scores and determine their debt-to-income ratios, before shopping for a loan. This will give you a good idea where you stand, in terms of mortgage qualification. For example, if you have a FICO credit score above 750, and a debt-to-income ratio below 35 percent, you are well qualified for a mortgage loan. So, if you get turned down by one lender, you should apply with another. On the other hand, if you have a credit score in the 500s and a debt ratio over 50 percent, you’ll probably be rejected by most mortgage lenders. This is a situation where you need to get your financial house in order first, before applying for another loan. You need to know how you measure up. Attention Home Buyers: Here Are My Lessons Learned When it comes to mortgage lenders, bigger is not always better. I think a lot of home buyers flock to Wells Fargo and Bank of America, just because they know the names. They’ve seen them on TV, in the newspaper, etc. They feel it’s best to go with a “trusted name.” The big banks might work for some borrowers. But it did not work for us. It was a long and exhausting runaround. We put a lot into the process, but got nothing out of it. We were just another statistic of mortgage rejection. Working with a smaller lender was a totally different experience for us. The process was smoother and easier. There weren’t as many hoops to jump through. And, most importantly, we finally got approved for the loan. I would also encourage home buyers to ask about cash-reserve requirements in advance, before you get too far into the process. Look at the “rejection timeline” above, and you’ll see what a big problem this was for us. These requirements aren’t always disclosed up front. So, you need to be proactive and ask about them. Simply ask the lender: “Will I be required to have cash reserves on closing day? And if so, how much will I need to have in the bank?” It’s also important to understand the difference between pre-approval and final approval. Pre-approval doesn’t really mean much. It’s the lenders way of saying how much they might be willing to lend you. So, it’s useful in that regard. But it’s not a commitment or guarantee — not even close. A lot can happen in the time between pre-approval and final approval. This is when the underwriting process takes place. Underwriting is when you really have to hold your breath. Mortgage pre-approval is not a license to spend money from your savings, or to charge up your credit cards. That kind of behavior can create problems for you down the road, when the underwriter starts looking at your file. Lastly, I would encourage home buyers to save as much money as possible. From what I’ve gathered, the three most common reasons for mortgage rejection are:    Borrower’s credit score is too low Borrower has too much debt Borrower has insufficient funds for closing costs, cash reserves, etc. Item number 3 is what caused problems for us. Granted, the first lender wasn’t very clear about their cash-reserve requirements up front. But if we had put some extra money aside before applying for the loan, we might have cleared the obstacle that ultimately led to our rejection. Start saving your money now. Save as much as you can. Expect surprises along the way. You’re bound to encounter some. Disclaimer: In this article, the narrator shares his personal experiences with Bank of America. We make no other assertions or claims about this company. Mike’s experience is unique to him, and he has shared his story in his own words. His views and opinions are his own. THE SELLERS EDITION A seller is a n individual or entity who exchanges any good or service in this case, real estate, in return for payment. It’s fair to say that every seller regardless of the products he/she is selling wants to sell fast and for top dollar. In order to be able to sell effectively, as a soon-to-be previous owner of a home, it would be wise to improve your property’s presentation in response to what buyers expect in your particular market. To get a good head start on preparing your home for sale, 1. Welcome buyers: Make the front door as visible and accessible to buyers as much as possible. However, in real estate, due to the peculiarity of the market, more often than not, it is necessary to engage the services of a realtor to help ensure that the selling price is a good reflection of the value of the property on sale. A realtor should be able to find buyers for the property and sell within a time frame specified by the seller. He is also required to place a competitive price on the property. It is essential to work hand-in-hand with your realtor, letting him/her know what you expect from him and what you desire from the sale of your property. KNOWING YOUR MOTIVATION AND WHY YOU NEED A REALTOR In today’s climes with such instant access to information across boards, it is common to ask the question, why do I need a realtor? And rightly so. It could look to some that the role played by realtors is not as significant as they would like to make you think and if they can do it, why cannot I? This sentiment cannot or rather should not be shared when it comes to the medical field for example, as the opinions of a qualified doctor are not one to take lightly. This sort of thinking should be made more common and respect for trained and certified professional realtors should be a given. As a seller, you can find your own buyer, especially in a hot seller market, however a realtor can help you earn more on net, about 22% more according to the National Association of Realtors. In super-hot seller markets, where buyers are literally throwing money around and falling over themselves, you can just stick a sign in the yard and attract countless buyers. But do you have extensive experience in dealing with multiple offers and how to get more bang for your buck from buyers? Realtors are charged by the ethics of their profession to do everything they can to smoothen the process of selling a client’s property. Enumerated below are just a few reasons you might want to consider hiring a professional realtor to help sell your property: 1. Education and experience: You do not need to know it all real estate when you can hire someone that does. The American inventor, Henry Ford, once said that, “When you hire people smarter than you, it shows that you are smarter than them.” The trick therein is to find the right person. Usually, realtors’ services cost about the same and hiring them would help save more of the precious time we all wish we had so much more of. 2. Realtors are Buffers: As a seller, your agent would filter all those phone calls that lead to nowhere from lookie loos i.e. people that often masquerade as potential homebuyers but 3. 4. 5. 6. 7. 8. have no real intention of ever buying or those who have developed the hobby of touring open houses and are intensely curious about the interior of other people’s homes. Realtors would try to induce serious buyers to write an offer immediately and hence, expedite the sale of the property. Neighborhood Knowledge: Realtors usually either know enough information about your neighborhood, or where to get that information. They can identify comparable sales and hand these facts to you in addition to directing you to where to find more data about the neighborhood in question. Price Guidance: Contrary to popular belief, agents do not select prices for buyers or sellers. However, they might help guide their clients to make the right choices for themselves. For example, if a listing is at 8%, an agent only has an 8% vested interest in the sale, with the client having the bulk of the interest at 92%. Selling agents will ask buyers to weigh all the data supplied to them, and hence, choose a price. Then based on market supply, demand and the conditions, the agent devises a negotiation strategy. Understanding how to price a home is one of the most valuable skills of any competent realtor. They avoid giving in to telling the sellers what price they would like to hear just to attract business as they know that too high a price in relation to comparable sales, would invariably chase buyers away. Marketing the property properly: Marketing is one major area a competent realtor would absolutely shine in. He/she should take great pictures of your property, hiring a professional photographer if necessary as this is an essential element in selling your property in today’s market. The internet would be your most ready and reliable source of buyers for your property and the pictures you take and put out can either generate or put off a lot of traffic. Realtors are well versed in getting word out on all available marketing channels to make as many potential buyers aware of your property. Market Conditions Information: Realtors can disclose market conditions which will govern the selling process and furthermore, determine how you proceed. They have information about criteria that would to a large extent have a bearing on the decision you take on selling a property such as the average per square foot cost of similar homes, median and average sales prices, average days on the market and ratios of list-to-sold prices among others. Professional Networking: Realtors usually have networks created with other professionals whose services might be required in selling your property. For the sake of legal liability, they might generally hesitate to recommend a certain individual over another, but they have sufficient information to know which vendors have a reputation for efficient and competent workmanship as well as competitive and fair pricing. They can however, give you a list of references with whom they have worked with in the past and provide enough background information to guide you in making a wise decision. Negotiation Skills and Confidentiality: Top producing realtors can negotiate well because unlike most sellers, they can remove emotional sentiments from the transactions and mostly because they are skilled in the art of negotiation. It is a major part of their job description. Good realtors are not messengers delivering buyers offers to sellers and vice versa. They are professionals who are trained to present their clients’ case in the most embellished fashion possible and agree to hold client information confidential from competing interests. Realtors advocating for their client’s best interest would always strive for the best possible terms for the transaction, especially as all real estate contracts a negotiable. A good realtor would not hesitate to counter offer at a time when such is required to get a price more favorable for their client. 9. Handling Volumes of Paperwork: In older times, one-page deposit receipts were sufficient to represent purchase agreements. Today’s version of such purchase agreements run into ten pages or more and this does not include federal and state mandated disclosures or nondisclosures dictated by local customs. The average thickness of real estate files ranges from one to three inches of paper. One seemingly tiny mistake or omission could either land you in court or cost thousands of dollars, emphasizing the importance of realtors in securing buyers for your property. It is essential that the eligibility of a potential buyer is confirmed before selling. The realtor would look through the buyer’s financial documentation, scrutinizing his credit reports and ensuring that he/she is not merely pre-approved for the loan to purchase the property, but that he is fully approved to make the purchase. Selling a home involves a lot of work and so many little details that must be taken of. As the closing stage approaches, a realtor’s service would prove essential to take care of loose ends involved in closing the deal. 10. Attending the home inspection as the seller’s representative: A seller client may or may not expect the presence of his realtor at home inspection tours, but they should nevertheless. His presence during these tours affords him the opportunity of getting firsthand feedback from the inspector. He can hence keep track of everything said and put them in perspective should the buyer ask for adjustments based on the results of the inspection. With this in mind, it would make the seller realize the requests that are reasonable and those that aren’t. Also, the seller’s realtor’s presence at home inspection protects the seller from buyers that would exaggerate the inspector’s report to get a higher closing cost credit or to make the seller pay for repairs. 11. Answer Questions after Closing: Even the smoothest of transactions that closed without any seeming complications can in some cases come back to haunt you. Taxing authorities that collect property tax assessments, documentation stamps or transfer tax could due to systemic errors fall behind on months of records and mix invoices, but a single call to your realtor can clear up any confusion. Questions could result from failing to notice some details in the excitement of closing and a good agent is on standby ready to assist, not leaving you in the dust to fend for yourself. 12. Develop relationships for future business: As enthused earlier, the foundation upon which any realtor can build a successful career is referrals. Very few realtors would survive if their livelihood depended entirely on persistently attracting new business. This in return gives a strong motive for realtors to make their clients happy and satisfied with the services provided. This also means that an agent who has been in the business for long has definitely had a good track record in dealing with his clients and would be available for hire again on request. Some would periodically mail market updates to you to keep you informed and stay in touch. A good realtor would also help to fix up a property for sale in order to gain more on the sale of said property. CHOOSING YOUR REALTOR Hiring the right person to sell your home is more critical than you might think in ensuring there are as few delays and obstructions as possible during escrow and to ensure you get a good price for your property. It is essential to get a realtor with a wealth of experience in the industry especially one who has sold properties within the same price range as yours. Some important character attributes should be looked out for while trying to hire a realtor 1. Honesty: Above all else, the realtor should be able and willing to put your needs above their own 2. Professionalism: From the dressing to their manners. The realtor hired is essentially an extension of you to everyone that indicates any interest in purchasing your property and anyone they might encounter in the home sale process 3. Excellent Communication Skills: The realtor should be able to always say what he means and keep in touch with you and the potential buyers, every single one of them. 4. Creativity: Especially in the marketing of the property, the realtor must be able to do more than just the bare minimum and must have a comprehensive marketing plan. Selling a house can be an enthralling, sometimes exhausting experience. This stress involved in this process can be alleviated by a hiring good realtor who knows all the intricate details of the market. But with there being so many realtors to choose from, finding a realtor that can meet your demands might even be more daunting than you can imagine. Before embarking on this search, it is important to do some groundwork. First you should do your own market research. Checking out the local housing market in person, look out for repeat agent names on real estate signs. It’s a bonus if a “sold” sign is next to them. You can also attend open houses and try and relate with the realtors present in order to build personal and professional chemistry, then you can collect the business cards of the realtors you met and keep in touch. Secondly, compare and contrast the realtors you’ve met by ratings, reviews and references by doing online searches on the identified realtors. Do not settle on the first realtor you meet. Interview as many as you can, handling it like the job interview that it is and ask the right questions such as how long the realtor has been in the business, whether they work with a team or on their own and most importantly if they are equipped to handle my unique situation. Thirdly, you should set clear expectations when hiring a realtor, explaining your communication and the number of showings you would be open to having for the potential buyers. Working with an experienced and competent realtor can go a long way in ensuring your property sells at top dollar. To help with the selection process, here are a few ideas as presented by the Forbes real estate council on how to make sure the realtor you are working with is the right one for you: 1. Look for a certified Realtor. It is popular belief that a Realtor and real estate agent are the same thing, only real estate agents with the title "REALTOR" after their name actually belong to the world's largest trade association of agents. Official Realtors earn more industry credibility since they must pass certain eligibility tests, abide by a strict code of ethics and participate in annual extended education courses to belong to the group. Search for a Realtor with access to the Multiple Listing Search (MLS) database, which comprises the world's largest listing of properties for sale. Also, it is important to work with realtors from a certified and reputable real estate office. Size doesn’t really matter, although bigger companies would obviously have more resources available, smaller ones can offer more services and added advantages such as discounts. It is important the you search for a locally owned and based realtor office as they would invariably have a better understanding of the local real estate market. 2. Choose the person, not just the experience: Many individuals are trained as realtors and receive their licenses each year, but only a few make it an actual profession. Your ideal realtor would be someone with sufficient experience and modern education. It is easy to verify their certificates and time spent in the classrooms by going through one of their associated Realtor’s association. Although the experience of a realtor is invaluable, it is not everything. Do not choose a realtor solely based on their experience, because you will be spending a lot of time with the realtor and you both need to be able to work together seamlessly. Put yourself in the forefront of your decision and not the house and choose someone relatable and real, someone who is good at talking and negotiating. Equally important is choosing a realtor that has a proper marketing plan in place. Knowing the right way to price your house in order to attract buyers while ensuring you get the value of your property is an important feature to look out for. Your realtor should know your target audience and with this knowledge recommend a strategy for making your home appealing to buyers and additionally present a plan to market the property using several media outlets. 3. Place emphasis on chemistry: While conducting the interviews, try and check if their marketing is about them or their property? Also try to gauge how trustworthy and honest they are. 4. Seek referrals from other homeowners: Regardless of the technology that seems to take over much of the searching for a home, getting the right realtor is still very much a humanto-human choice. Referrals are always best as there is no bigger compliment to an agent than a referral from a past client. Ask from homeowners in the area you want to sell in who they will recommend. 5. Find someone with your best interests at heart: While discussing with the realtor try and as transparent and honest about what you want and if the agent isn’t providing the right answers, it’s likely that they are not looking for houses for you but rather to benefit themselves. If it doesn’t seem to be going well do not be afraid to move on to another potential realtor that would better suit you and your demands. 6. Make sure they offer sufficient support: While doing your research on your potential realtors, always check to see if they are supported by a team. A realtor with a strong support system in place is able to offer better customer service compared to ones without. Since 7. involved with buying and selling houses, it’s very easy to miss something or fall short without proper support staff. 8. Check if they mitigate risk: Selling property always comes with its attendant risk, it is crucial to find a realtor who is upfront and about these risks and is realistic and proactive in managing these risks. When conducting interviews for potential realtors, it is imperative that special attention be given to those using real data in their answers when it comes to investment analysis, neighborhood-level market performance and the long-term impact of your decision to sell as opposed to those who give flattery and fluffy answers. 9. Avoid Double agents: These individuals represent both the buyer and the seller and as history has shown, humans can not be trusted to be impartial all the time. In their bid to stick by their code of ethics and represent the best interest of both the buyer and the seller, toes of either party would eventually be stepped on. Strive instead to work with a realtor whose commission hinges solely on their willingness to fight for one party’s best interests. Above all you must have it at the back of your mind that good realtors do not just spring out of nowhere. They take a really long time to build a solid track record that in turn attracts high quality inventory. YOUR HOME’S VALUE This value refers to the assessed value of your home i.e. the amount a local or state government has designated for a particular property. This value would be used when property tax is levied upon the property by the government. It is not necessarily the same as the assumed value of the property, however it is very different from the appraised value of the property. The appraised value of a property pertains to the amount contained in an appraisal report for the property in question. Your home in the most uncomplicated of ways is worth whatever someone would pay for it. Taking this definition up a notch, your home’s value depends on the market and who you are asking, i.e. a lender, an agent or a county tax assessor. Having an idea of the market value of your home gives you an inkling on what might be a realistic price for the property. The value of your property can be assessed by 1. Using Online Valuation tools: A Nerdwallet online survey conducted by The Harris Poll in August 2018 shows that 22% of American home owners determined the value of their homes using an online estimator. These tools are technically referred to as Automated Valuation Models (AVM) and use public records like property transfers, deeds of ownership and tax assessments along with a little arithmetical modelling, they are able to predict your home’s value based on recent comparable sales. Most AVMs are generally used for marketing and lead generation purposes and are tasked with returning a value for just about every property even with very limited data. They might not be the most accurate but at least they can give a ball park estimate of the value of your home. These tools provide what is called a confidence score to indicate how close the AVM provider thinks an estimate is to market value. A confidence score of 85% informs the user that the estimate is within 15% of the market value. 2. Get a broker price opinion or competitive market analysis: You can always ask a local real estate agent for his professional opinion (aka a Broker Price Opinion, BPO) on the estimated value of your home. This might not be as detailed and informed as a professional appraisal, but it combines the agent’s evaluation of the home and market conditions typically for listing purposes. Similarly, a competitive market analysis (CMA) would include an agent’s estimate of value, but relies more heavily on the recent sale value of similar properties in your neighborhood. Local realtors may provide these services at little or no cost in the hope that they might be eventually employed as your selling agent. 3. Use the Federal Housing Financing Agency (FHFA) House Price Index Calculator: If you are bothered by the inaccuracy of the AVMs but still want an estimate of your home’s value, the Federal Housing Financing Agency (FHFA) house price index calculator applies a more scientific ad inherently accurate approach. This tool uses the repeat sales method, armed with millions of mortgage transactions gathered since the 1970’s keeping track of the changes in values of houses from one sale to another. It then uses this information to estimate the fluctuation of home values in a given market. The only setback with this tool is that it can only be used for conforming loans i.e. loans that are greater than $453, 100 but less than $679,650 and is not adjusted seasonally or for inflation. 4. Hire a professional appraiser: Lenders would require a professional appraisal on a property before they approve a mortgage to the buyer, but as a property owner, you can seek an appraiser’s services at any time to estimate your home’s value. Among other things, appraisers examine:  The market: The region, city and neighborhood in which a home is located  Property: Characteristics of the house, including improvements on the land it sits on.  Comparable properties: Sales, listings, vacancies, cost, depreciation and other factors for similar houses in the same market. This information is combined to create a final opinion on the value of the home and is delivered in an official report. 5. Examine comparable properties: One thing appraisals and AVMs have in common is that they heavily rely on recent sales to determine the estimated value of a specific property. Taking just the face value into consideration, this approach seems the simplest. Getting information on comparable properties sales is one way to determine the market value of the property without paying an appraiser, but use good judgement, just because the property next door sold does not mean it is a comparable property. To accurately choose comparable properties, employ an “apples to apples” approach. Find properties that would interest a buyer if yours was not available. Similarities in size, location, condition and upgrades should be considered. To identify suitable comparable properties,  Browse a site that lists recent sales to find comparable houses in your neighborhood.  If it happens that there are not enough recent sales to draw up an accurate conclusion on the prices, you can look at listing prices but keep in mind that they might not be realistic.  To conclude on the value range of your property, you would need at least three valid comparable properties. After choosing valid comparable properties, you will need to adjust for differences between your property and the comparable one selected. Such as adding or subtracting from the value of your property if yours has more or less bedrooms than the compared property. How much that is added or removed is determined by the market conditions. After making these adjustments, look at the highest and lowest comparable properties. A rough estimate of your property’s value is somewhere in the middle. The value of your property is heavily influenced by the following elements: 1. Location: This is the most obvious factor that affects how much a property can be sold for. The property’s proximity to city centers, public transportation, shops, schools, restaurants or a well sought-after waterfront would generally attract people to consider buying it as people would rather live close to where they work and where they can peacefully enjoy their free time, making properties in such areas more expensive. Then there is the small matter of the reputation some areas have built for themselves in relation to unemployment or crime rates. It is not uncommon to see two homes location a few streets apart have a markedly different value simply because they are located in different postal codes. 2. Supply and demand: The real estate market like every other free market is controlled by the powers of supply and demand. If the demand for properties exceeds the supply of adequate properties, in a given market, the prices of properties in that area would increase. This is simply because there are more people in the market for a smaller amount of properties and this competition for the purchase of homes drives the prices up. 3. Interest rates: When there is a change in monetary policy by The Federal Reserve System, this can affect the value of property. If the reserve bank takes the official cash rate up and lenders around the country follow suit with their home loan interest rates, the average monthly mortgage repayment would also increase. This can affect property affordability immensely as there would be less competition in the market and hence the prices for properties would drop. On the other hand, an interest rate cut would make it more affordable to obtain mortgage loans and hence increase the prices of property. 4. Economic Outlook: The overall growth of the economy signified by employment and labor conditions would mean more Americans are able to afford taking loans to purchase a home. This would inadvertently lead to a rise in the prices of property. 5. Property Market Performance: The performance of the local real estate market has an effect on the value of property in that area. If there’s high demand for homes in that area and properties are being sold for well above their asking price, expect values to rise. 6. Population and Demographics: The more people want to live in a given suburb, the greater the demand for properties in that neighborhood. At the same time, the type of people living the area would also help determine the prices of the homes. For example, if a lot of young and single people are the dominant demographic group in an area, small single bedroom apartments would be more common than multi-bedroom houses. 7. Size and facilities: The structure and all-round size of a property goes a long way in determining the value of said property. A three-bedroom house is more likely to fetch more than a two-bedroom house in the same area, while features such as extra bedrooms, a garage, swimming pool and other outdoor entertaining centers would also drive up the prices of these property. In very busy cities, the absence or otherwise of parking facilities is a critical factor, while the convenience of a property’s layout is always important. 8. Aesthetics: The appeal of a property should never be underestimated. First impressions are very important in real estate, so the outward appearance of a house can instantly add or subtract tens of thousands of dollars from its value 9. Renovation Potential: The potential for expansion and growth is important for both home buyers and investors - The potential to add a few extra feet for an extra bedroom, the potential to add an extra story, or to add a pool or outdoor patio. This would help increase the resale value of the property. 10. Investment potential: The potential a property poses to investors influences the value of that property. Elements like the rental income a property can afford an investor and the capital growth they will enjoy if and when they decide to sell the property all play their roles. Ways by which you can enhance your property’s value to get as much money as you can from its sale are outlined in the next chapter. GETTING YOUR HOME READY FOR SALE We have established already that every seller wants to sell fast and at as high a price as considerately possible. This desire can only be achieved through careful planning and knowing how to professionally spruce up the home so that you can convince potential buyers to run around for their checkbooks. It is essential that you remain patient and level headed as setting your house up for sale is not a day’s job. It would take a lot of small steps to get your home ready for sale. The following tips can be used to get your house in tip-top shape so as to get top dollar when it sells. 1. Improve your curb appeal: The front of your home is the first point of contact a potential buyer would have with your house. It is important to make as good a first impression as possible. These seemingly basic acts – trimming overgrown trees, mowing the lawn or plating flowers – would go a long way in improving the outlook a buyer has of your home. You can also improve the outward appearance of the home by putting on a fresh layer of paint. You would be amazed how much of a difference this can make to transform the look of your home. 2. Make a room-to-room checklist of everything that needs to be fixed: To ensure your house is not a bad case of being judged by the front cover alone where the interior does not match the perceived elegance of the exterior, take time out to move through the house, room by room, keeping a list of things that need to be repaired in each room. Remember, patience is key. Endeavor to work on a room at a time to ensure a thorough job. Over the years, homes tend to take a beating especially when it comes to chipped off walls. Paint touch ups are a simple but effective way of improving the ambience of your home. This also extends to re-calking the bathroom and kitchen because after years of use, the calk in those rooms can start to look cracked and dirty. This would help to refresh the kitchen and bathroom counters. You should also take this opportunity to wax or refinish all the wood floors. 3. Deep cleaning: Decluttering the home is a vital step in the preparation of a home for sale. Tackling this job should also be done a room at a time. Three containers should be made available during this process, one for the trash, one for donations and the last for items that might still be useful in the home you plan on moving into. 4. Depersonalize the home: Letting go of a home, especially one that an emotional bond has been built with can be very difficult, considering that you have lived there for years and it might have become a part of you. You need to remind yourself that at the point of selling the house, it is no longer “home” but its just a house. That it is a product to be sold just like a can of paint at the hardware store. Make the mental decision to set aside your emotions and focus on the fact that soon, this building would no longer be yours. Picture yourself handing the keys over to the new owners. Pack up all those personal photographs that might have been hung up as the new owners would not want to see pictures of your family, rather they would want to envision their family portraits hanging on the walls. This follows for furniture as well as other personal belongings. Stay around in the doorway and just take in the ambience of your now almost empty home and try and look at the home from the perspective of the buyer. Assess the positions the furniture could take to achieve maximum visual appeal. With this preliminary cleaning and decluttering out of the way, you can proceed to staging the home for sale. It is about making the home look bigger, warmer, brighter and cleaner than it might actually be. Most importantly, it’s about making the buyers want to instantly buy the house. This goes beyond just preparing the house for sale. It is done after cleaning, decluttering and making minor repairs. It’s about adding the small details, the lipstick if you’d like. Home staging has paid off big time for sellers over the years. It could either be large scale involving a huge financial investment, painting the home and improving the landscape and adding a few furniture or otherwise with just minor cleaning or removal of day-to-day items which will give the potential buyer an idea of what the home would look like when they move. To be able to sell your home for top dollar and as fast as you want to, it is important to do some home staging. In preparing your home for sale, there are a few things you can do to improve its value and increase the sell-ability of your home to lure potential buyers. 1. Plan your remodeling: The fastest way to improve the value of your is to lay out a concrete plan on how you intend to upgrade the home. Ensure the upgrades are intentional and not made on impulse. Always bear in mind that the sale of your house is a marathon and not a sprint so remain patient. Start slowly, list all the things you want to change and updates you would like to add. Take this list and categorize the upgrades required based on cost, i.e. both time and money. Subsequently prioritize the list based on what needs to be done and what you simply want to be done. 2. Go neutral: The use of bold colors to customize your home can throw off potential buyers as in most cases it would take up significant resources to redecorate the home to their taste. Using neutral colors would offer a blank canvas ambience allowing the buyers to produce their own concept for the home. Neutral colors can also make the home appear bigger and brighter than it actually is. 3. Appeal to the buyer’s sense of smell: When trying to sell a property, try and leverage on the olfactory sense as it can improve the experience of the buyer when he/she visited your home. Light aromatic candles, burn some incense or oils to create a pleasant atmosphere before their arrival and improve their experience. 4. Enhance lighting: The brighter a home is, the more spacious it would look. Open the curtains and windows, allowing more natural light to come in. You can also purchase some extra light fittings and place them at strategic positions to improve the lighting and eliminate dark spaces. 5. Put your kitchen and bathroom in order: The kitchen and bathrooms are two of the top value adding rooms in a house and have high potential to sell a home. Pay extra attentions to these two rooms by replacing the flooring and invest in new cupboards for the kitchen and you can induce a sense of luxury in the bathroom by including boutique fittings. It would not be a bad idea to add heated floors as these can attract buyers to a property like bees to honey. Do a mini remodel of the kitchen, change the paint, use a lot of stainless steel as this is a hot ticket item for new buyers, hang a pot rack with new pots, pans and a handing wine bottle holder to catch the buyer’s eye. Since the bathroom is the workhorse of the, it experiences a lot of wear and tear. It is therefore important to maintain its functionality and improve on its aesthetics along the way. Bathrooms are not basically utilitarian anymore, people want to feel relaxed in them. Use granite and marble on your countertops, replace the overhead lighting fittings with on the wall mounts to add warmth and value to the bathroom and ensure there is no side shadow as a result of the lighting around the mirror. MARKETING YOUR HOME: With proper implementation, strategic marketing places a property at a vantage point over other similar properties competing for buyers. It helps generate leads making it easier to convert those leads to actual customers. Marketing tactics range from the basics that merely put your property on the map to the extraordinary that would make you a major competitor in the real estate market you operate in. As the market has evolved, it is necessary to correspondingly review your marketing techniques. Today’s world is becoming increasingly globalized, it would be a smart move to adopt an internetbased marketing system for your properties for sale. Simply placing a “For Sale” sign on the front lawn and running an ad in the Sunday paper for your open house is in relation to today’s market simply not enough. The goal when marketing your home is to gain as much exposure as possible and the larger your pool of buyers the higher the likelihood of you fielding multiple offers and getting multiple offers fosters an atmosphere among the prospective buyers where they offer their highest and best price in order to compete with other offers. The most effective approach is to run a promotional salvo as soon as the home hits the market. The following tools can be employed in this promotional bombardment: 1. 2. 3. 4. Printed materials such as flyers, pamphlets or postcards that buyers can take home. Listing on the Multiple Listing Service complete with all descriptive details. Professional photographs of the home and/or a virtual tour of the property on the internet. Featured listing on numerous websites such as your agency’s company website and possibly other listing sites like Zillow. 5. Use social media to boost the promotion and increase the exposure. 6. Use newspaper and trade magazine ads. Although this is a bit archaic, it can be quite effective. If done correctly, these marketing techniques should unleash a great deal of power and help propel your listing above the competition. Although it is primarily your realtor’s responsibility to create and facilitate these advert streams, the key to their effectiveness is your commitment o having your home staged. Photos and videos should only be taken when your house is in perfect condition. One more component to a successful marketing approach is scrutiny. It is important that your realtor tracks and evaluates all your showing activity. This is the primary mode of communication from the market to you. Keeping up to date with recent comparable sales will provide sufficient information for you to craft your own marketing strategy. Keep in mind that your marketing plan must be dynamic, ever-changing in order to adapt and accommodate the changes in market trends. To effectively market your home, 1. Post Pictures, loads of them: Considering the fact that most home buyers start their search for a new home online, posting good photos of your property is fundamental. Listings without a photo or only photos of the exterior are often ignored. Cropping out irrelevant aspects of the home, such as the sidewalks or streets can make your home look several times better than your competitors’. When taking these photos, endeavor to take out your vehicles from the driveway or the front of your home. Take long and closeup shots and avoid shade falling on the house. Also, try and clear out any vegetation that is blocking the front door or the path to the door. If your home has some extra features e.g. a clubhouse, pool or tennis court that you think can increase the demand for it, it would be a good idea to take photos of those features and include such in your listing. Take photographs of every room even if you feel a certain room does not necessarily look good in pictures. Open drapes and blinds and turn on the lights. Focus on the interesting details of the rooms such as the wood floor conditions or the decorated fireplace. Remove trash cans and drop the toilet lids in the bathroom and use floral arrangements in the kitchen and dining areas. 2. Create Virtual Tours: Virtual tours aren’t just for high-end million-dollar homes anymore, every home regardless of its size should have one. A good virtual tour would grasp a buyer’s attention and lead them on a room to room basis through the entire property. Depending on your target market, you can decide to add sound (music or a read-out description of the property would suffice) or a professionally scripted narrative that scrolls with the movement of the tour could be added. Virtual tours can also include individual photos available for download. 3. Use signage: A properly set up sign encourages home shoppers to put a call through to you or your realtor. The location of these signs is essential to attracting as much traffic as possible. You should try and locate them at corners of busy streets. The sign should without having to say, have the realtor’s contact information. 4. Print Advertising: While online ads might reach a wide variety of potential buyers, the place of print adverts can never be overemphasized. Your marketing strategy is working when you get comments like, “I’s seeing your home advertised everywhere I look”. Do your research on the papers you would like to print your ads in, and have an idea of the days that pull the most readers. It is necessary to use every channel at your disposal to advertise your home. 5. Direct Mail: As an unrepresented seller, you can obtain mailing lists from list brokers. If you have a realtor representing you, ask for a direct mail program. Give your neighbors the over-sized four-color postcards as these are inexpensive to mail and eye-catching. 6. Open Houses: Not every home is fit for a n open house due to its location or other peculiar factors, but the only way to know sometimes is to try. If no one attends, that’s probably a good sign. Homes in areas located near a high traffic zone where buyers would often stream are usually good candidates. Place directional signs around the area, pointing people in the direction of your home. Advertise your open house in the papers and online and do not forget to invite the neighbors, they will be around nonetheless. 7. Host Broker/Realtor Tours: If you plan on being represented by a realtor, drawing as many of them as possible to view your home is probably a good idea given that most buyers are represented by realtors. Realtors lingering around your home would better remember details they can later describe to buyers and the best way to entice them to stay around is food. It doesn’t necessarily have to be expensive, just enough to keep them interested. The hope is that they will admire tour home as they munch and network and eventually bring back a buyer. 8. Do not forget the MLS: This is not a suggestion. Your listing agent will certainly make sure your house is listed in the Multiple Listing Service if you are represented, but even unrepresented sellers can be accommodated on the MLS. You can find a discount broker who is willing to enter the information about your property without actually representing you. Some will do so for a flat fee. Having your home listed here would make countless buyers and realtors inclusive aware of its availability. Some homes due to their peculiar architecture and location, cry out for drone photography, especially those situated on waterfront, in the mountains or near a park. An aerial view would adequately showcase the surrounding neighborhood in these cases. Another important feature in luxury home marketing is the use of night views of the home illuminated by outdoor lighting. PURCHASE OFFERS AND NEGOTIATING Once you have finally gotten a buyer who is interested in buying your home, you will receive an offer to purchase. This is a stage where all first-time sellers should be very cautious as the offer may differ from the asking price. The buyer makes an offer by submitting a written and signed offer to purchase showing the price to potential buyer is willing to pay for the home and it specifies the term of the sale. Your realtor would go through the contract offer with you and help review it to help you decide whether or not the offer should be accepted. A good offer should be close to the price the house was listed for. This shows that the realtor priced the house properly. If it happens that the offer is less than the asking price, review the buyer’s basis for submitting that offer. You can accept an offer if the terms are adequate and match your demands, reject the offer if they do not, or you could negotiate a counter offer, trying to make the terms of the buyer’s offer as mutually beneficial as possible for the parties involved. This counter offer would combine the terms and conditions, and negotiated selling price agreed upon by the buyer and seller. It is important to keep in mind the permanent features of the home which can be used as bargaining chips as they form a part of the sale of the home. Upon agreement of the modified terms and conditions by the buyer and seller, both parties will sign a contract now refereed to as the “Agreement of Sale” and proceed to the next stage. Once the deal has been officially closed, with the help of the realtor, the buyer and seller would initiate the transfer process. As the seller, you get to choose the transferring attorney or your realtor can suggest one and it is the buyer’s responsibility to handle his fees. The transferring attorney would request for the required documents i.e. banking details and identity documentation. The transferring attorney will prepare the transfer documents and both the buyer and seller will sign the Deed of Sale at the Deeds office. Once these documents have been lodged, both the buyer and seller are notified and the seller is paid the following day. At this point the home has legally switched ownership from the seller to the buyer. Closing out a sale is heavily dependent on the negotiation process – how frugal the buyer is, how flexible the seller is and generally, how good both parties are in getting what they want. Buyers would generally want to get more and pay less and as a seller you would have to be able to view the bigger picture. Realize that sometimes, the return on your investment would be significantly higher than the few dollars the buyer is trying to knock off his monthly mortgage payments. For you as the seller, it’s all about price, for the buyer on the other hand, it’s about the deal. With all these under consideration, here are a few tips for sellers to help them effectively communicate and receive the value deserved for the home they have put up for sale. 1. Get your home inspected: This may sound contrary to your expectations, but a major key to striking a good deal is knowing your cards. Getting your home inspected is one of the best ways to get to know exactly what you are selling. A home inspection would furnish you with details about the state of your home’s structure, your electrical and heating systems as well as any safety and health hazards that might arise as an unpleasant surprise during the negotiation phase. There’s nothing worse than an extremely shrewd buyer walking into your home and telling you everything that is wrong with it and why they plan on paying less. Carrying out a home inspection beforehand will help you know exactly what is wrong and what isn’t with your home, arming you with all you need to facilitate a straightforward sale. Once armed with this information, get all the problematic items fixed. The money you stand to gain from selling a well-fitted house is way more than a few superficial issues your buyer would want to use against you in order to drive down the selling price of your property. 2. Offer a home warranty: Before going down the murky roads of long negotiations, try and conjure up a simple and affordable solution to your potentially frugal buyer. Buyers would usually point out the age of certain home features and try and use this as a bargaining chip. They are not entirely evil for employing this tactic. Looking at issues from the buyer’s perspective, no one would want to be hit with a major investment on repairs a few months 3. 4. 5. 6. after the purchase of a new home. One easy way to get around this type of depreciationnegotiation is to offer the buyer a home warranty. By spending a few hundred dollars you can provide a warranty that would cover a considerable time period after purchase instead of standing there with a calculator chipping off dollars over a roof that may or may not need to be repaired in a few months’ time. Price Ahead of the market: One way to ensure that little or no time is wasted on negotiations is to price ahead of the market. Working closely with your realtor, try and understand the market trends and envision your home’s worth in the next few weeks. Know what will happen tomorrow and next month, and if the market is appreciating, price a little higher than normal and if it is falling, go vice versa. Knowing the market you are negotiating in will help give you a better idea of how much negotiating power you wield as the seller. This will give you the best chance to sell your home at a fair price and also minimize haggling. Counter at Your List Price: As a seller, you should not accept a buyer’s initial bid on your home. Buyers generally expect a back and forth negotiation, so their initial offer may be well below your asking price and lower than what they intend paying. At this point, out of desperation born out of fear of losing a potential buyer, some sellers would reduce their asking price to below the listing price. They want to appear flexible and willing to negotiate to close the deal. This might work as many sellers have attested to it, but it does not necessarily sell the house at top dollar. Instead of dropping your price to get closer to the buyer’s offer, if you have fairly priced your home to begin with, stick to the list price. If a buyer is really interested in buying, he will come back with a better offer. This shows the buyer that you know the worth of your property and intend to get the money you deserve. A variation of this strategy is to counter just below your listing price, say $1000 dollars below it. This altered strategy should be used when you want to be tough but also flexible enough to engage the buyers. Whichever versions of this strategy you employ, always apply wisdom. Reject the offer: This strategy is not for the lily livered. It is a very extreme negotiation tactic, more extreme than countering at your listing price. Simply reject the buyer’s offer and don’t counter at all. To keep them interested though, ask them to submit a new offer. If they are really interested, they will respond with a better offer. Also, when you do not counter, you are not locked into a negotiation with a particular buyer and can now accept a higher offer if it comes along. For the buyer, knowing that another buyer might come in with a better offer at any moment creates pressure to submit a consummate offer quickly. This strategy is particularly useful if the property has been on the market for a short time or if an open house is coming up. Create competition: Creating healthy competition among the potential buyers is a great way to get the best possible price for your home. Potential buyers would expect to be in a competition and may place higher bids as a result. If you eventually get just one offer, the potential buyer does not need to know that. Inversely, if you receive multiple offers, you can go back to the top bidders and request for their best offers. 7. Place a premium on your counter offer: When you receive an offer that you either do not want to or can not accept as the conditions do not meet your demands, you make a counter offer, locking you in a legally binding negotiation with that party making you unable to accept a better offer if it comes along. In the interest of selling your home quickly, you can include a short expiration period on the counter offer. This would compel the buyer to decide, so the home can either be sold to him or you move on. This deadline should not be too short that the buyers are turned off, but it should be shorter than the default time frame in your state’s standard real estate contract. Besides closing the deal quickly, another reason to push sellers to make a fast decision is that as long as a counter offer is outstanding, the home is effectively off the market making it impossible for you to consider other offers. In the eventuality that the deal falls through you have lost valuable time in trying to get your house off the market and the more days a house stays on the market, the less desirable it becomes and hence, the more likely you will be to reduce your asking price from subsequent buyers. INSPECTIONS (HOME APPRAISAL AND SELLER REQUIRED) For home sellers, the home inspection phase can be a very trying experience, strangers arriving at your front door and diving into every nook and cranny of your personal space for hours on end. Climbing your roof, flushing toilets, wandering through your basements and seemingly trouncing over every inch of space in your yard. The challenge here is to remain calm, pleasant and completely accommodating throughout this barrage of your chambers. Surviving this harrowing ordeal without losing control has a very huge payoff attached to it: a windfall of hundreds of thousands of dollars from the sale of your home. A study jointly carried out by the American Society of Home Inspectors (ASHI) and the National Association of Realtors (NAR) revealed that nearly 80% of homes sold in the nation were assessed by a professional home inspector before they were sold. Home inspectors are hired by the home buyer and are designed to protect the buyers from investing in a property that is a life size money pit. For sellers, understanding the home inspection process and preparing your home adequately for it ensures that the transaction goes through painlessly and often translates to selling at top dollar. Virtually all purchase contracts for homes sold in today’s market include a home inspection contingency clause that allows the buyer to employ a professional home inspector of their choice to thoroughly examine the home for any major problems. Once the contract has been signed, inspections usually happen quickly. An appointment is booked with the seller, the home inspector arrives with the buyer and goes through the entire house. Home inspections usually focus on the structural and mechanical condition of the building. It may also look to run tests for radon gas and wood destroying insects especially termites. The American Society of Home Inspectors is the statutory body that regulates home inspections and the actions of home inspectors. The society’s Standards of practice dictate what must be inspected and how far home inspectors can go in reporting these findings. A basic home inspection includes an examination of ten different areas of the home: Structure, exterior, roofing system, plumbing system, electrical system, heating system, air-conditioning system, interior, insulation and ventilation, and fireplaces. Upon completion of the home inspection, the inspector would issue a report to the home buyer detailing what was found. The report would cover issues requiring immediate attention as well as conditions that might lead to more serious issues down the road. The next step would usually be detailed in the home inspection contingency clause. There would usually be additional negotiations in light of the results of the inspection. Generally, the difference between what the buyer expected going into the contract and what was actually uncovered by the inspection defines the extent of repairs they would demand of the seller. In the most optimistic of views, these disputes are usually settled by both parties sharing the expenses. While the home inspection process can be invasive and intimidating, keep in mind that the inspector works for the person that employed him. Hence, they will only discuss their findings with their clients. Consequently, the seller would most likely be the last to hear about any hitch discovered during the inspection. In fact, some states have legislation in place to prevent the inspector from divulging any information about the results of the inspection to anyone who isn’t their client. In addition to ensuring your home is in pristine condition, the best thing you can possibly do during the inspection would be to withdraw yourself. This does not necessarily mean that you should be absent, but give the inspector and the buyer room to comfortably carry out the inspection. The buyer would more happily discuss issues raised with the inspector without you being within hearing distance. Whatever you do, do not follow the inspector and buyer around. Buyers tend to perceive this behavior as evidence of the home seller trying to conceal defects and that their “secret” has been unraveled. This would result in creating a needlessly tense atmosphere which does not benefit any of the parties involved. FINAL STEPS The acceptance of an offer and signing of the purchase agreement comes as a great relief to all the parties involved. It signifies the end of an arduous process – prepping, marketing and negotiating phases. However, with the end of this process comes the beginning of another. A process that involves preparing for closing day. You will need to gather much of the necessary paperwork alone if you are selling by yourself. Here is a list of the forms you would expect to fill when meeting with the buyer at closing: 1. 2. 3. 4. Disclosures as prescribed by the state or municipalities Property records, building permits and receipts for the appraiser. Property records for the title insurer. Insurance documents. 5. Mortgage, loan and lien documents. 6. Related legal and financial documents.