5 Questions Home Buyers Should Understand

In 2010 somewhere in the range of 50% of all homes purchased in the United States were purchased by first time home buyers. First time home buyers have a lot of questions about each stage of the buying process, and rightfully so. However, not all homebuyers know where to start, or what questions to ask up front, which leaves them at the mercy of their agent to proffer information that is vital to their understanding of the transaction, and their understanding of their personal exposures.

So, here are 5 questions every home buyer should understand. They are NOT the only 5, but it’s a start, and if you start asking these questions you are likely to unearth additional vital information from your agent.

1. What should I do first if I want to buy a home?

Hands down the answer here is, speak to a lender. Speaking with a lender assures that you are making the best use of your time, lets a good agent know that they are spending their time wisely, and lets a seller know that you are a serious buyer. You may also learn things you didn’t previously know about your credit, some of which you may need to fix before you can qualify. If you think you want to buy a home 6 – 12 months from now, then tomorrow is when you want to make your first contact with a lender. You don’t want to wait and then find out at the last minute you have some credit items to resolve.

Make sure to explore any number of loan options for first time home buyers. FHA is one, but there are several others available, some of which are offered only by specific banks, such as BB&T’s “CHIP” program.

2. What is Agency, and who is representing ME?

During your first meeting with an agent you should be presented with what is commonly called a “Buyer Agency Agreement”. These agreements go by different names depending on the state, but in each case they exist to create an exclusive relationship between a buyer and a broker, and designates the agent as the individual responsible for taking care of that buyer. If you are comfortable with the agent you are sitting across from then by all means you should sign this agreement. Once you do you have just hired a professional in your corner who is, in the vast majority of cases, going to be paid by the seller and not you (many firms to charge a processing fee, typically less than $400).

If you are not sure if you are comfortable then do not sign it, and do not tour homes with that agent.

3. What is an “Earnest Money Deposit”, and when will it get cashed?

Once you are finally out looking for homes, eventually you will find the one you want to make put in an offer for. There will be many new questions at this phase, but one that affects your pocket book right then is the “earnest money deposit” or escrow. This is a deposit that is typically from 1%-3% of the offer price and is a check written to the broker at the time the offer is written. Those funds serve as a show of real intent to the seller, letting them know you are serious enough about your interest that you are willing to put some skin in the game.

Once the offer is accepted the broker must deposit that check within a certain number of days (determined by state law). This means that when you make that offer you will need to have 1% – 3% of your offer value liquid in your bank account. You should have these funds set aside in an easily transferable place as soon as you begin searching for a home, that way you can react immediately once you find the right home.

4. What is an “As-Is” property, and what does that mean for me?

In today’s market (Dec. 2011 at the time of this writting) “As-is” is a very common status for many of the homes on the market. Homes are listed “As-is” for several different reasons, whether it is because they are a “short sale” or a foreclosure, an estate sale, or just simply dated to the point that the owner is not willing to assure that everything in the property is in working condition.

Whatever the reason, a property listed “As-is” means just that. It means that particular seller is making no guarantees as to the the condition of the property, and is (in most cases) offering no remediation of any issues that may be found. By listing the property this way, the owner no longer has any contractual obligation to provide the property in any specific condition, and what you see (or don’t see) is exactly what you get.

Typically a property will be priced accordingly, which for the right buyer can create a nice opportunity to bring in some seat equity.

5. I am hearing the word “Customary” a lot, should I be worried?

In any given region certain things about a real estate transaction become “customary”. In some cases this is fine, but you should raise a few flags if this term is being used a bit too frequently. Some things do become customary, but in many cases this is because it takes both agents down the path of least friction. Filling out a contract strictly per custom can mean that you are not getting the full representation you have at your disposal through the intent of the contract.

For instance, according the the Maryland real estate contract the seller is to pay all of the first time home buyer’s recording fees and sales taxes. To soften this blow the state charges half the amount they would in a non-first time buyer transaction. However, it is now “customary” for the buyer and the seller to split these costs. Do I think you want to lose a deal over this? No, but also don’t think you should take the customary path on your first offer. This is just one example.

I will say, it is not always a good idea to break custom. If you are in a competitive situation there are several areas where you not only want to keep to custom, but you may want to throw the seller a bone or two. You will need to trust your agent to guide you through that process.

Summary

Again, these are just 5 things to be aware of as you enter the home buying process, there are plenty more. For more information check the Home Buying 101 tag at the end of this post, or feel free to reach out with any specific questions.

 

 

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