Buying Advice
Real Estate Agent after Closing
Start with a good real estate agent. Their commission is generally paid by the sellers. Avoid the mistake of using the listing agent. They are required to work in the seller’s best interests, not yours. Make sure that you sign a “Buyer’s Agent” contract to assure that they work for you. Do not communicate with other agents or sellers. Agents are required by law to disclose who they work for before talking about confidential information (see "Real Estate Law Book")
Your agent’s primary responsibility is helping you find a home and guiding you through the buying process. They are not mortgage brokers, appraisers, lawyers, nor inspectors. They may know a little about each of these fields, but when it is important, ask the specialist.
Find a mortgage broker immediately. You should not have to pay them anything until you close on a home. You can use any mortgage broker that you want with any real estate agent. Consult your real estate agent on who to use. A bad mortgage broker can make your experience a nightmare.
Check out a few mortgage brokers. Don’t have more than three pull your credit. Don’t shop for loans based off the rate alone. There are a lot of other mortgage costs that you need to be concerned about. Ask your broker if they attend their closings. You want to be certain that there is a representative from the mortgage company at the closing (or available) just in case something goes wrong.
Your mortgage broker will tell you what you qualify for and the terms. Starting the process early gives you the opportunity to clean up any blemishes and obtain better terms and therefore qualify for more. Starting early also gives your mortgage broke plenty of time to collect your documents so that you can close on your house quickly. Your mortgage broker should give you a “Pre-Approval” letter. You will need this when you put an offer in on a house. Your real estate agent should communicate directly to your mortgage broker so that they know what kind of house to show you and what terms need to be in the offer.
This question is best directed towards the mortgage broker and your accountant. A general rule of thumb is that your house payment should only be 30% of your monthly income (before taxes). Your house payment is often called a PITI Payment. PITI stands for PRINCIPAL, INTEREST, TAXES, and INSURANCE. Most mortgage companies only quote you the principal and interest portion of the payment. Taxes (property taxes) run around 2% of the purchase price per year (varies per city and school district). Insurance (homeowners and PMI) fall around 1% of the purchase price per year.
Most mortgage companies will not let your total monthly debt payments (PITI payment, credit cards, car loans, and personal loans) exceed 40% of your monthly income. So if you pay out 25% of your monthly income towards credit cards, the mortgage company will only let your house payment be 15% of your income. On the other hand, if you don’t have any debt, they may let you spend 40% of your income on your house payment. Two ways to qualify for more is to reduce your debt or improve your credit score so that you can get a better interest rate.
Make your buyer’s agent do the work for you. Avoid talking to sellers and their agents. Your “Buyer’s Agent” is the only person that is working for you. It is very difficult to negotiate a lower price when the seller knows that you love the property and can afford it.
Most real estate web sites reference the same database. The big difference is the interface for searching the site. Our site has some nice search engines. www.Realtor.com is another great place to search. Most homes sell for about 3% less than their list price. Search for homes that are at your price limit first. Houses that are priced nicely sell fast. Make sure your agent sets you up for automatic notification of new listings. Don’t waste time putting your offer in when you see a house that you like.
Avoid looking through newspapers and real estate magazines. If those homes were within your criteria, your agent would have already showed them to you via the MLS. Your agent can help you with homes for sale by owners (FSBO) but will probably avoid them. The problem is how inconvenient they are to work with. Your agent has access to thousands of listings that are easier to see and find. If you want to search web sites and periodicals on your own, concentrate on the FSBOs.
Your agent can often get you into a house that is listed with an agent within a half an hour. FSBO usually need a few hours or days. You don’t need an open house to see a house. Your agent is not limited to homes that are listed with their company. All sellers prefer as much notice as possible. Most buyers spend about a half an hour in each home. This time adds up quickly.
Here is a method that may help save you and your agent a lot of time. Make a list of the homes of interest. Avoid judging the homes from their photos. Drive past them to verify that you like their location/neighborhood. Give your agent a list of the ones that you like and ask your agent to preview them for you. A preview is when the agent goes through the house without you. The agent can go through houses a lot quicker without you. Then have the agent walk you through the best ones.
Many buyers get impatient and want to go through homes without their agent. Avoid this. It is very easy for sellers or other real estate agents to extract information from buyers that will help the seller get a higher price. It also gives the seller and their agent an opportunity to influence you emotionally and prevent you from seeing the house rationally. Finally, you want to avoid creating friction with the seller. The whole negotiating process can be very emotional. Real estate agents act as a nice buffer to keep tempers inline.
If you haven’t used an agent up until this point, consider getting one again. Be careful if you decide to use the listing agent to draw up the contract. Remember, their loyalties are with the seller. It’s a good idea to have your lawyer look over your offer. Your lawyer is the one that will defend you in court if something goes wrong. Keep in mind that your agent is primarily a sales person and not a lawyer. Treat verbal agreements as never being said. Michigan Law requires everything to be in writing.
Anything goes when it comes to offers. You do not have to offer full price, you can ask for items in the house, ask the seller to help with closing costs, ask for items to be fixed in the house, and even asks for modifications to the house. This applies to new construction as well as existing construction. There are some things that the law does not allow and other things that your mortgage company will not allow. Don’t ask for too much because it may irritate the seller and they might refuse to deal with you. Many times one offer is the catalyst for other offers to come in. When you submit an offer, don’t expect a counter offer. Make your first offer a good one.
Laws require that the seller provides any buyer with a Seller’s Disclosure (see "Real Estate Law Book" for sample form), Lead Base Paint Disclosure, and receive a copy of the federally approved pamphlet "Protect Your Family From Lead In Your Home" before accepting any offer. The buyer must sign these disclosures before submitting their offer. The disclosures are standard forms that have the seller indicate the condition of various items in the house. Sellers are only required to specify what they KNOW is wrong. They are not required to test these items.
Keep in mind that when you submit your offer, another buyer may also submit an offer. The big questions center on what the house is worth and what you think the other buyer is going to offer. An appraiser is the most qualified person to tell you what a house is worth. They generally charge around $300 for an appraisal. Your mortgage company is going to require an appraisal regardless. If you order an appraisal, see if your mortgage company will use it. Most people don’t get the appraisal until after the offer has been accepted. The problem with doing that is that the appraiser is now trying to justify your agreed on price to the bank as opposed to coming up with an unbiased value. It’s a different mindset that could lead to an inflated value.
If you decided against the appraisal or want to double check it, here are some considerations. Have your agent pull the listings of ALL of the homes that have sold in the area within the past year. Concentrate on the houses that are about the same size, with the same features, and within the same square mile. Look at the remarks of the houses to see which ones had updates. You may even want to drive past the houses. Pay attention to when the house that you are bidding on hit the market or last dropped its price. If it is a new price or listing, it’s pretty likely that another buyer will put in an offer. You would probably need to put in a full price (or more) offer. If the house has been listed for a few months, you should be safe offering less. Regardless, it’s difficult to get sellers to accept offers that are more than 5% below list price.
The document that you submit your offer on is called a purchase agreement. It is legally binding. It is a good idea to have your lawyer look at it before you sign it. Not all purchase agreements are the same. Some are written to favor the seller and others favor the buyer. Some are written poorly or have not been “battle tested”. Real Estate One sells more property in Michigan than any other company. Their purchase agreement is going to be more solid than a small company that only sells a fraction of the homes.
Earnest money is your assurance to the seller that you will follow through with the purchase agreement. Do not give the money to the seller. You place it into an escrow account when you submit your offer. If you fail to follow the purchase agreement, the seller is entitled to that earnest money. Otherwise the seller would have to take you to court to enforce the purchase agreement. The earnest money amount can be whatever you decide. Sellers like it to be around 3% of the purchase price. Sellers often use the amount of the earnest money as a gage of how qualified the buyer is. The earnest money is returned to you at closing or used to cover any closing costs that you may have.
Before you started looking for a house, you should have talked to a mortgage broker and applied for a loan. Once your broker sees that you qualify for a loan, they should give you a Pre-Approval Letter. This letter should be presented with your offer to the seller. It let’s the seller know that you should not have any troubles getting financing for your home. Keep in mind that the seller is going to be taking their home off the market if they approve your offer. They want to make sure that the deal will go through if they do that.
Most purchase agreements have an inspection contingency. Some are more lenient than others. The inspection contingency gives the buyer an opportunity to inspect the home after the offer is accepted. If the buyer doesn’t like something about the home, they can walk away from the deal and get their earnest money back or they can negotiate with the seller on how to rectify the problem. Some buyers request the seller to fix the problem before closing, reduce the sale price of the home, or set aside money for the buyer to make the repairs. Make sure that whatever you ask for is approved by your mortgage broker. Your lender may limit the about of concessions the seller can make.
Have the property inspected by a professional inspector. Don’t trust the friend or family member that does building on the side. Inspectors are not licensed in Michigan, but there are associations of inspectors that have inspecting requirements. Find your own inspector. Don’t use one that is recommended by your agent or the seller’s agent. An inspector recommended by an agent may try to make the house sound good so that the deal stays together and the agent keeps recommending that inspector. If you are concerned about Black Mold or pests, see if your inspector can test for those.
The inspection is the easiest way to get out of a purchase agreement. Most real estate agents will not list a house as pending until after the inspection. Mortgage companies and title companies tend to hold off their processing until after the inspection.
The mortgage contingency typically states that if the buyer does not get approved for the mortgage, then the buyer can walk away from the deal and get their earnest money back. The mortgage contingency should specify what type of loan that you would need to qualify for and the amount. Some loans, like FHA and VA loans, have additional requirements that need to be added to the purchase agreement.
After the home has passed inspection, your mortgage broker will order an appraisal of the property. The mortgage will be rejected if the appraisal does not exceed the loan amount. This will allow the buyer to walk away from the deal and receive their earnest money back. Your mortgage broker will then need to collect some additional documents, submit everything to underwriting for final approval, and then prepare the closing documents in conjunction with the title insurance company. The whole process should take around 30 days. The process can go quicker if you and your broker did prep work before submitting the offer.
Title insurance is used to verify that the property is cleared of all liens. A lot of different people/companies put liens on a property throughout its lifetime. Most of these liens are recorded, but sometimes they are not and that entity may have a right to the property that you are buying. Your purchase agreement will typically demand that the seller pay for a title insurance policy in your name. The policy will pay you for any damages incurred by a lien presenting itself after the sale. Your lender will require you to pay for a policy in their name as well. This is one of your closing costs.
The title insurance company is typically chosen by the seller, but you can negotiate this detail in your offer. The title company and mortgage broker do most of the work leading to the closing and they need to work together to prepare the closing package. If something goes wrong at closing, the title company and mortgage broker need to scramble to correct the issue. Your real estate agent may prefer to use their own title company and mortgage company to assure that issues will be handled smoothly. Rates for title insurance are regulated in Michigan, so service becomes a bigger issue when choosing a title insurance company.
Real estate transactions involve contracts and many other legal documents. All of them should be reviewed by your lawyer. Real estate transactions are between the buyers and sellers alone. The real estate company will not take people to court for you. They are primarily a sales organization.
Most people don’t involve lawyers because of costs and because most of the documents are somewhat standard. You should have your lawyer review your purchase agreement and closing documents. Keep in mind that a real estate agent is not qualified to give legal advice. On the same note, keep in mind that a lawyer is not a real estate agent. Both professions have their place.
The title insurance company typically puts together the documents necessary for closing and conducts it. They charge a fee for doing the closing. That cost is not regulated by the state and varies between companies. Lawyers sometimes do closings, but they also charge a fee for that service.
Get a copy of all of the closing documents a few days before closing. You, your real estate agent, mortgage broker, and your lawyer should review them before closing. Pay attention to the HUD statement in particular. It has the financial breakdown for the buyer and the seller. Be certain that you understand all of your costs. Make sure that you know how much you will have to pay at closing.
The closing is between the buyer and the seller. It is not necessary that you have your real estate agent, mortgage broker, or lawyer there. However, issues often pop up during closing. It is nice to have all parties available to resolve any issues.
The buyer owns the homes immediately after closing. Many times the seller needs to stay in the home after closing. If this is the case, the seller becomes your tenant. The conditions of which should be spelled out in the purchase agreement.
Real Estate Agent after Closing
Stay in touch with your real estate agent after closing. Ask them any questions about home values in your neighborhood or other real estate questions. Refer your friends and family to them if you had a good experience. Have them call your agent if they just have questions about their neighborhood. Your agent may not make money off general questions, but they always welcome the opportunity to showcase their service.
