When you purchase a resale home, you can purchase a home warranty (a.k.a., Residential Service Contract or RSV) that will protect you against most ordinary flaws and breakdowns for at least the first year of occupancy. The warranty may be offered by either the Seller, as part of the overall package, or by the agent. Even with a warranty, you should have the home carefully inspected before you purchase it.
A home warranty program will give you peace of mind, knowing that the major covered components in your home will be repaired if necessary. Here are the major RSV providers:
If you need help deciding, check out http://www.homewarrantyreviews.com/reviews but keep in mind that the bigger companies have more complaints because they have millions of customers and people are more likely to complain than express their satisfaction. “You can’t please all the people all of the time…”
I can say from personal experience that I no longer recommend First American Home Buyers Protection…they have terrible customer service these days and send terrible, low-quality vendors to perform the work.
Will Prior Foundation Repairs Effect a Home’s Resale Value?
In Texas, there is a saying that all houses here either have foundation repairs or will need them in the future. That’s because the soil in most parts of Texas is an “expansive soil” that significantly expands and contracts based on the level of moisture in it. And since Texas is known for either droughts or floods…our soil tends to expand and contract a lot.
That is why it is very important for homeowners to keep the soil around their home evenly watered. Water in the soil provides pressure to support the home. During a drought, the lack of moisture may cause a foundation to sag. Simply watering the soil can often push a slightly sagging foundation back up…no kidding!
Does having a prior foundation repair on a home effect the resale value? That’s a controversial question with no “scientific” data to prove one opinion or another. Some say that as long as the repair is done by a reputable foundation company and has a transferable lifetime warranty…no problem. It may even be considered a positive feature of the home, since the cost of the repair has been covered by a prior owner.
NOTE: If you need some brick or mortar repair in the Sugar Land area, contact JQ Brick at 713-253-5092…they do excellent work at very reasonable prices.
These kinds of cracks do not necessarily mean there are foundation issues…bricks and mortar crack very easily.
They do need to be resealed, however, with mortar (not caulk) to prevent water penetration into the side walls.
Call JQ Brick at 713-253-5092.
Others know that inexperienced home buyers may be scared of purchasing a home with prior foundation repairs…and will not even give such a home a second glance. So, by reducing the number of prospective buyers for a home this way, it could have a negative impact on the price per square foot that home can command. That would suggest that a home buyer should not pay a neighborhood’s top price/square foot for a home with prior foundation repairs…unless there are other special features that significantly override the foundation issues.
A real estate “Closing” is where you and I meet with some or all of the following individuals: the Seller, the Seller’s agent, a representative from the lending institution and a representative from the title company, in order to transfer the property title to you. The purchase agreement or contract you signed describes the property, states the purchase price and terms, sets forth the method of payment, and usually names the date and place where the closing or actual transfer of the property title and keys will occur.
If financing the property, your lender will require you to sign a document, usually a promissory note, as evidence that you are personally responsible for repaying the loan. You will also sign a mortgage or deed of trust on the property as security to the lender for the loan. The mortgage or deed of trust gives the lender the right to sell the property if you fail to make the payments. Before you exchange these papers, the property may be surveyed, appraised, or inspected, and the ownership of title will be checked in county and court records.
About a week in advance, I will schedule the real estate Closing with you and the title company. We will meet at the title company on the day of closing, sit in a conference room with an escrow officer (who is also a notary), and you will sign the legal documents to purchase the home.
You will need to bring your driver’s license with you to the real estate Closing. At closing, you will be required to pay all fees and closing costs in the form of “guaranteed funds” such as a cashier’s check. Your agent or escrow officer will notify you of the exact amount at the day before Closing.
Buyers: What To Bring to Your Closing Appointment
Here’s the minimum of what to bring to your “Closing”:
“Good funds” for your down payment and other costs: typically
a cashier’s check or wire transfer—never cash
Please know that a home inspection is one of the most important parts of buying a home. But it can be overwhelming trying to find a reputable inspector who you can trust. I provide all my buyer clients with a list of licensed home inspectorsin the area to make this process easier for you. You should call ahead and “interview” some inspection companies to find the one you want to work with when you get a contract on a house.
In choosing a home inspector, consider one that has been certified as a qualified and experienced member by a trade association.
Ask if they:
a) measure the foundation levels
b) check walls and ceiling with thermal camera
c) provide color photos in report
Also get them to hire your termite inspection. Different inspectors charge different fees and those fees are partly determined by the age and size of the home.
A lot of the time, home inspectors will advise you to have a licensed HVAC specialist check the AC and furnace. If you think this will be an issue (because the house has an old HVAC system), you should set that appointment up in advance as well. I recommend Hartford Services at 281-261-3333. One thing to note…it’s challenging to test an AC in the winter time. For ACs you want at least a 15 degree differential, but 17 or 18 degree differential is the best. If the outside temperature is below 72 degrees, then an inspector may not be able to get an accurate reading.
Home inspections should include information and photos on the condition of the following:
Air conditioning and heating
Roof and Attic
Keep in mind that NO HOME IS PERFECT, not even new construction, and you should be prepared for $1000-3000 worth of repair issues listed on an inspection report (maybe more, depending on the age of the home).
What Is Inspected
The home inspection is designed to report on any actual or potential defects or problems with the home that may require repair. Not everything they report will be considered an actual defect by you; you must decide on whether or not the items noted require repair or not for your peace of mind. For example, I rarely see a home inspection report where the inspector does not note that the dirt is too high around the foundation of the home. This seems to be something that they always note because it could potentially hide termite activity around the home…and inspectors have to protect themselves against potential lawsuits. But this is something that you can easily fix when you move into the home.
Homes are on a 17 year cycle (approximate) meaning that a lot of high-ticket items will “wear out” when they are about 17 years old. Be aware of that when looking at homes that are about that age or slightly more. High ticket items include roofs, HVAC systems, and water heaters.
Stucco inspections are very important and require special permission from the Seller because they are “invasive.”
The home cannot “pass or fail” an inspection, and your inspector will not tell you whether he/she thinks the home is worth the money you are offering.
Inspectors must base their findings on current building codes and best practices, but homes built 10, 20, 30 years ago were built with different codes and best practices. An older home does not need to be “brought up to code” and get a new building permit. A buyer needs to decide what they can live with and what they cannot live with.
According to the Texas Real Estate Commission: “A home inspection is a limited visual survey and basic performance evaluation of systems and components of the house. It does not require the use of specialized equipment and is not a comprehensive investigative or exploratory probe to determine the cause or effect of deficiencies noted by the inspector.”
I recommend being present for the last hour of the inspection. (It distracts the inspector if you are there the entire time, and then they miss things.) This is to your advantage because you will be able to ask questions, and get tips for maintenance, and a lot of general information that will help you once you move into your new home. Most important, you will see the home through the eyes of an objective third-party. But always keep in mind that an inspector’s job is to report on all potential issues (like dirt too high around the foundation) and you need to be reasonable in your repair request negotiations with sellers.
Never send an inspection report to your lender and avoid putting a long list of repairs in an Amendment, or it may impact your home loan.
Common Issues on Inspection Reports
The most common issues that appear on inspection reports in this area are listed below. The repair prices in the Usual Consequence column or approximate estimates only to give you some idea of the repair cost. You will need to get real estimates on the specific home.
HVAC not cooling properly
Usually you can have the HVAC serviced for around $500 or less and get it working properly, but if it is a really old (15 years or more) then you may be looking at major replacement costs, part of which may be covered by a Home Warranty.
Old furnace (20 years or more)
Since furnaces are not used in this region very often, they seem to last a long time! You may want to have a HVAC specialist check to make sure the heating element is in good condition…home inspectors cannot do this.
Electrical panel has issues or wrong size breaker on the HVAC system
You should be able to find an electrician to replace the electrical panel (worst case scenario) for $1500 or less. Other minor issues, such as wrong sized breaker, will cost much less.
Soil too high around foundation
You can use a shovel to lower the mulch/soil around the foundation or hire your “yard guy” to do it.
Minor issues can be fixed with a shovel and dirt. Major drainage issues may require a “french drain” type of solution that could cost $1500-2000. New construction homes often have drainage issues that need to be worked out.
Minor roof issues with flashing or a few raised shingles.
Find a roofing company to make the repairs which are often under $500.
No sediment trap on gas line to water heaters and furnace or other ventilation issues with those two appliances.
A licensed plumber will usually install sediment traps (for safety) for around $200/appliance. Ventilation issues may have other minor repair costs.
No (or non-working) GFCI outlets in kitchen or bath.
This is commonly MIS-reported. Inspectors often say the GFCIs don’t work when they do. A handyman can replace a GFCI outlet on most homes for $100/outlet.
General plumbing issues like leaky faucets or slow drains
A handyman or plumber can usually fix these items for minimum cost.
Exterior windows, doors, and siding need to be caulked on a regular basis (every 2-5 years) to prevent water penetration. Masonite siding must be kept well-sealed and painted with high quality paint or it will rot. Expansion joints must be sealed with special sealant to prevent water penetration.
Sprinklers heads often get broken by lawn mowers and sometimes the backflow preventor needs to be repaired, usually for less than $500.
Cracks in exterior brick due to settling
Cracks in brick need to be sealed with mortar to prevent water penetration. Hire JQ Brick to do this…usually for less than $500.
Settlement cracks in sheetrock
It is very common to see settlement cracks in the interior sheet rock, especially at the corners of an angled ceiling. These can be covered and painted by a you or good painter.
If the home has a pool, then the pool equipment may have issues. This is a common area where you will get INFLATED repair estimates. Make sure you hire the right company for repair estimates. Pools are a constant maintenance issue, especially the Polaris cleaners.
NOTE: “Corner pops” are not foundation issues.
If the foundation level differentials exceed 3 inches in an area, then you will need to get a foundation repair estimate. Foundation repairs can range from $5,000 to $20,000 or more, depending on how many piers need to be installed. Make sure you learn about foundations by reading: “Buyer’s Guide to Slab-On-Ground Foundations.”
To properly maintain your foundation, make sure you use a sprinkler system to keep the soil evenly hydrated. Sprinkler systems are very important for your foundation maintenance!
*Not a very common problem, but may pop up occasionally.
After the Inspection
Once the inspection is completed, you will have three options to take (*assuming you purchased a Termination Option) in the original contract:
Terminate the Contract – If any serious defects are found with the home, then you can exercise your Termination Option*, lose your Option Fee, but get your earnest money back.
Ask for Repairs – If you do not have the cash on hand to make the repairs that you deem important, then you can ask the Seller to make those repairs in an Amendment to the sales contract. However, keep in mind that this is not recommended because home owners tend to hire the cheapest repairs possible and it’s not guaranteed that repairs will be done in a satisfactory manner.
Ask for a Seller’s Contribution to Closing Costs – If you would rather ensure the repairs are done to your satisfaction, then request a Seller’s Contribution to Closing Costs (SC) which is a credit at Closing that will provide you with more cash on hand, after the completion of the sale, so that you can hire your own repairs.
In Texas, the home inspection phase is often referred to as the “Option Period.” Watch my video for an explanation…
Even if you do not purchase a Termination Option, you still have the right to inspect the home. You just do not have the UNRESTRICTED right to back out of the deal and get your earnest money back.
Even if you have a Termination Option, that does not guarantee that the Seller will agree to any repair requests or price reductions.
Are you worried about whether home buying is a good INVESTMENT?
Buying a first home can be an intimidating process. But the first step is making those first decisions: I want to own my own home; I can afford to own my own home; owning my own home makes sense for me financially and emotionally. If you are still struggling with those first decisions, here are some facts that might help you make that first step towards becoming a homeowner.
You Can’t Afford NOT to Buy a Home!
Over the last ten years, the cost of rental housing in the U.S. has increased an average of 3 percent per year. That means that an apartment or home renting for $750 per month will cost more than $978 a month in ten years. If you rent the same home for ten years, the total amount you would pay for rent will equal $103,000!
Tax Advantages of Owning a Home Result in Savings
None of that $103,175 is returned to you, either through savings or as an investment. Homeownership, on the other hand, has tax advantages over renting a home, and those advantages can help you save money. Unlike your monthly rent, part of your monthly mortgage payment “comes back to you” in tax savings. Here’s an example:
You purchase a home that costs $110,000 (plus closing costs – expenses incurred to actually process the transaction). You finance the balance with a 30-year fixed rate mortgage at 6.5 percent interest. Your monthly payments (not including utilities, maintenance, insurance, etc.) are:
You actually save $195 a month by owning your own home. On a yearly basis, the savings is even more dramatic:
Homeownership is a Good Investment
For the majority of Americans, their home is their largest financial asset and a major player in their investment portfolio. It’s a good thing, too, since stock market value has declined since 1998, while home price appreciation has increased. The NATIONAL ASSOCIATION OF REALTORS® estimates that home value rises, on average, by 4.5 percent a year. That’s a steady return on investment; one’s own home is a much less volatile asset than stocks, bonds or mutual funds.
As an example, let’s look again at that $110,000 home. Unlike your rental unit, your home should appreciate over time. Assuming a 4.5 percent appreciation rate, your home will be worth $114,950 in the second year of ownership, $120,123 in the third year of your owning it, etc. After ten years, your $110,000 home will be worth $163,470. Not only do you earn a rate of return on your original purchase price, but you also get a return on any subsequent appreciation.
Homeownership Builds Wealth for Households
The Federal Tax Reserve Board estimates that homeowners have a net worth almost 36 times more than that of renters. In 2001, the median net worth for homeowners was $171,700 compared to $4,800 for renters. How do you build up your net worth? Through those “appreciating returns” on your home.
We’ve already seen how your $110,000 home is worth $163,470 in ten years. In addition, you are paying down the principal on your mortgage. Remember that $100,000 you borrowed at 6.5 percent over 30 years – that debt amount is decreasing every month and every year.
After the first year, you now only owe $98,786 on a home that is worth $114,950. You have “netted” a $4,950 increase in the value of your home, plus $1,116 a year that previously you owed as part of your mortgage debt. As your debt decreases and the home value increases, you accumulate wealth from the value of your home. In addition, over this ten-year period, you will have a significantly lower after-tax payment for housing. Each year as your home appreciates and you continue to pay down your mortgage debt, you increase your own net worth.
Homeownership – It’s NOT Just About Money
The “numbers tell the story” should ease your mind about the financial aspects of becoming a homeowner. But there are other, less monetary, benefits to homeownership. Several research studies indicate homeownership adds to the value of communities, has positive effects on children, and even contributes to increased voter participation rates.
One question that I get a lot is, “What’s recommended: buying new vs resale home?” A new home is one that has never been lived in while an existing home has been lived in by a previous owner. There are Pros and Cons either way that you should consider. Here are my home buying tips for buying a new vs resale home.
PROs for Purchasing a New Home May Include:
Lower maintenance costs during the first years of owning the home.
Lower energy costs because new homes are built with better energy saving materials and equipment than older homes.
More functional home designs and floorplans as well as up-to-date home fixtures.
Latest technology features such as pre-wired for a home computer network.
Possibly the ability to choose paint colors, floor types and colors, exterior colors, and other optional home features.
NOTE: There is typically a substantial markup on these items.
Builder incentives to lower the initial cost to purchase.
Easier to get to know neighbors because everyone is “new.”
PROs for Purchasing an Existing (Resale) Home May Include:
Lower price per square foot than newly built homes.
Better locations and shorter commute times.
Mature landscaping in both the yard and throughout the neighborhood.
Proven track record of home values in the neighborhood.
Lower tax rates since more neighborhood features have already been paid for by home owners.
Sales contracts that are fair to both parties…not one-sided in favor of the builder.
Lower move-in costs (possibly) since home already has window coverings, landscaping, garage door openers, and other items that you will have to buy for a brand new home.
Easier for home inspector to find home defects because more time has passed since the home was constructed. NOTE: New homes may have hidden defects that are impossible for a home inspector to find.
More established school zone boundaries than for new neighborhoods.
Established community activities and events.
Quicker move-in date compared with building a home from scratch in a new neighborhood.
If you decide to buy a new home, make sure that you check out the builder first: http://houston.bbb.org/consumers/. Also make sure that you hire an inspector (read http://www.best2inspect.com/buyersguide.html for more information). And don’t forget to bring your Realtor along when you view new home models! Remember: A Realtor’s job is not “just” helping you find a house to buy…there are over 100 tasks that Realtors may perform for you during the home purchase process! Your Realtor should be on your side because she is your agent. The salesperson at the builder’s model home office is not on your side…as an employee of the builder, he or she is looking out for the builder’s best interest.
I don’t want to discourage you from buying a new home…Houston has some really great new home builders. But it’s my job to make sure that you have all the information that you need to make a wise buying decision.
NOTE: The Following rankings are from JD Powers 2010. I’m not aware of a more current list.
This list is not comprehensive. There are a lot of steps that your REALTOR® takes care of behind-the-scenes.
Call Sheila Cox for help at 832-779-2890
Buying a home is a serious legal commitment with important deadlines and possibly large financial losses if you do not meet your contractual deadlines (as established in the contracts that you sign). Always make sure you read the docs you are signing. Discuss deadlines with your real estate agent and put them on your calendar.
Print this checklist and use it to keep track of your transaction.
Contact three or four lenders to determine how much house you can afford. Determine how much money you will need to purchase a new home. Do you have enough? If not, create a budget and start saving now.
Get approved for a loan. Don’t forget to get an preapproval letter! We will need to submit it with an offer to buy a house.
Hire a real estate agent to help you with your purchase. You need a professional looking out for your best interest. Send your Preapproval letter or “Proof of Funds” to your agent (see video).
Do you need to sell your current home? Your agent will help with that too. Get it on the market!
View “Dream Home Alerts” (see video) for homes when they “hit” the market.
Tour homes (see video) until you find the one that meets your specific needs.
Sign the legal paperwork and make an offer to buy the house that you chose. Be prepared to write check for Earnest Money (see video). Be prepared for some back-and-forth negotiations.
Deliver the Earnest Money and Option fee to the title company. TIME IS OF THE ESSENCE! If you don’t deliver the Option fee on time, then you have NO Termination Option.
NOTE: Learn about Option Periods in Texas (see video).
Once the title company “receipts” your Earnest Money and Option Fee, then send the executed and receipted contract to your lender and start the approval process with him/her.
After the sales contract is executed, hire home inspectors to inspect the home as needed (learn more). This will cost $300 to $700 or more, depending on the number and type of inspectors you hire. Depending on the home, you should think about the following inspections:
Discuss insurability with insurance company and get a CLUE report from insurance agent.
Verify the following if they are important issues to you:
· Square footage of home
· Schools zoned to home (but those may change with rezoning in future)
· Property taxes
· Crime in area (contact police department)
· HOA covenants and restrictions (usually online at HOA website)
Negotiate repairs to home as needed. Be realistic…small miscellaneous items should be expected because no home is perfect. Negotiate big-ticket repairs (if any) or walk-away.
Now that you have exact address, compare mortgages and lenders (at least three is recommended). Choose a lender and mortgage and apply for a loan if you haven’t already. Remember, you have a deadline to meet in the sales contract. Be prepared to pay an application fee (approximately $300) and an appraisal fee (approximately $300-400).
Submit items for your loan application (W2s, tax returns, pay stubs, bank statements, etc) as requested by your lender. Time is of the essence! According to the contract, your deadline for Individual Approval and Notice to a Seller (from lender) is à
If you do not get loan approval, then notify your real estate agent immediately.
Check your Title Commitment (learn more) in a timely manner when you receive it. You have only a few days to “object in writing.” Make sure your real estate agent receives a copy.
Review the Lender’s appraisal in a timely manner. You have only a few days to “object in writing.” Make sure your real estate agent receives a copy.
Review the survey in a timely manner. You have only a few days to “object in writing.” Make sure your real estate agent receives a copy.
Re-inspect home, if you choose, based on agreed repairs.
Obtain home owner’s hazard insurance. Make sure you get at least three quotes. Notify your real estate agent which policy you choose. Don’t forget Flood Insurance!
Select your residential service contract (“home warranty”) if applicable and notify your real estate agent (learn more). The title company will order and pay for the home warranty.
Plan your move (get detailed list) and order your utilities to be turned on the day you Close. Always allow a week or more overlap to move out of current home and into new home. Do not plan to Close and move on the same day!
Ask your lender for the amount of money you need to Close. Make sure your funds for Closing are available at local bank. Transferring money from investment accounts can take time…work with your lender and bank and prepare in advance.
Your property MUST reach Lender Approval at least 4 days before Closing otherwise you may not be able to obtain a refund of your earnest money due to default on Closing. If there is a delay in getting the loan, notify your real estate agent immediately.
Make sure your Closing is scheduled. You will need photo IDs, checkbook, and a cashier’s check or wiring instructions from your bank.
You must sign your Closing Disclosures (from lender) at least 3 days before your Closing date or you will not be able to Close on time. If you do not sign the CD in a timely manner, this may put you in default and there could be serious financial consequences.
Get your cashier’s check for funds needed to Close the day before Closing.
Do your final walk-through.
Go to the Closing and bring your funds to Close, a checkbook, and a photo ID for each person (husband and wife). Plan on a 2-3 hour process.
Move into your new home and enjoy!
Make sure you receive a copy of your Deed (from the Title company) within a couple of weeks after Closing. Be prepared for mail “scams” offering to file legal docs for a fee.
Apply for your property tax exemptions as applicable in your state.
Contact three or four lenders to determine how much house you can afford. Determine how much money you will need to purchase a new home. Do you have enough? If not, create a budget and start saving now.
Get approved for a loan. Don’t forget to get an preapproval letter! We will need to submit it with an offer to buy a house.
When you sign up as my client, I will provide this checklist and more in my 30-page Home Buying Tips & Checklists guide.
In Texas, you can buy an “option period” (usually 10 days) from the seller for $200-$300 that gives you the irrevocable privilege to back out of the sales contract for any reason, and still receive your 1 percent earnest money back. (During this time, the Seller cannot back out of the contract…only the Buyer has that right.)
This gives you time to have the home thoroughly inspected and find any defects that you cannot live with. It also allows time to negotiate repairs with the Seller. At the end of the Option Period (and the timing is very strict) you can do one of the following:
If you “exercise” your option (and decline purchasing the home), then you lose your option fee, but you get your earnest money back.
If you do not exercise your option (and continue the purchasing process), then the option fee is usually applied toward your closing costs.
Make sure you hire a real estate agent who knows how to properly handle Option Periods and protect your money.
Applying for a home loan these days is not for the “weak at heart”! It is a pain-in-the-neck process no matter how much money you have or which lender you choose. So mentally prepare yourself for a hassle, and you won’t be disappointed. ;-D
There is a lot of paperwork required in order to obtain a home loan. Plus, you will have to provide much of the paperwork multiple times throughout the loan process because of new lending standards (Dodd-Frank Wall Street Reform and Consumer Protection Act legislation and the Patriot Act).
Lenders are now required to verify certain items several times through the process…so please don’t get offended or frustrated when they ask you for something that you have already provided them.
Here’s what you will probably need to apply for a home loan (aka, mortgage):
Proof of identity for borrowers including driver’s license and Social Security number.
Address history for three years.
Copy of tax returns for past 2 years.
Banks names and numbers for all checking and savings accounts.
Bank statements for the past 3 months.
Documentation of all income including pay stubs for past 2 months.
Proof of bonuses for 2 years if applicable.
W-2 forms showing income for past 2 years.
Job history for past 2 years.
Net worth sheet with list of all assets and liabilities including account numbers.
Most recent 401K statements and other retirement accounts.
Copy of gift letter if applicable.
If self-employed, copy of balance sheet.
Divorce decrees if divorced in the past 2 years.
Proof of residency, if applicable.
College transcript if you were a student in the past 2 years.
Bankruptcy discharge papers, if applicable.
What Not To Do
Maybe you’ve just gotten married. Maybe you got a raise … or maybe you’re just plain sick of renting. Whatever the case, you’ve decided that it’s time to buy a house. You’ll be given all kinds of advice and pointers about what you should do and how you should do it, but there are things you shouldn’t do that are equally important.
Don’t be deceptive or dishonest when you’re filling out your loan application. Even if you get away with fudging the numbers a little to secure a higher loan (which is loan fraud), what’s the payoff you’re looking for? A monthly payment that you can’t truly afford?
Avoid moving your money around. To eliminate potential fraud and provide a degree of quality control, a lender will review the source of funds for your down payment and closing costs. Most likely, you will be asked to provide recent statements for any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stocks, mutual funds, and even your 401K and retirement accounts. If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them, which could make it more difficult for the lender to document properly.
Once you’ve been approved for a certain amount, resist the temptation to make any big purchases that could affect your ability to service the loan. Examples might be a new car, a boat, or expensive furnishings.
Sure you may be able to afford the mortgage and a car payment, but what if an unexpected expense comes along that causes your monthly budget to become unbalanced—you’ve got a shiny new car, but you may have trouble affording that and gasoline, and the mortgage, and the utilities. You’re caught in a situation where you’ve over-extended yourself. Even if you’re able to make it work on a month-to-month basis, you may have trouble putting money to your savings account.
Sometimes, knowing what not to do is just as important as knowing what to do.
Big Bank vs. Local Lender
At the risk of offending anyone who works for a big bank…
Many people think that using their current “big bank” as the mortgage lender will speed up the process because “everything is in one place.” That is not true; it is a myth. My understanding is that all lenders have access to the same databases and such. I have been told that using your bank will not change the process or make it easier.
A “big bank” is Chase, Bank of America, Wells Fargo, etc. They may be great banks but, that doesn’t necessarily mean they are great mortgage lenders.
Please understand that you can use whichever lender you want. I highly recommend that you shop around and talk to multiple local lenders and your local credit union (if you have one). Always keep in mind that, to a big bank, you are only one customer in a million. They don’t really have to care that much about you, because you won’t really impact their business. In contrast, to a small, local lender or credit union, you are one in a hundred (or thousand), and very important to their business. Plus, local lenders know the local laws and procedures. Big national banks don’t necessarily know how things work in Texas.
Another thing is experience. I highly recommend that you use a very experienced loan officer (aka, lender), which you can get at a local mortgage company. At a big bank, you may end up with a very inexperienced loan officer, in another state, who makes the process challenging, because he/she doesn’t know what they’re doing.
Plus, real estate agents don’t like big banks as lenders, because of delayed Closings. In a multi-offer situation, if you have a big bank as your lender, and another buyer has a local lender, the seller’s agent may highly recommend the other buyer. I’ve had listing agents tell me they won’t accept an offer from a buyer using a big bank! (This has happened multiple times.) So always remember that the lender you use, is part of your competitive advantage.
When you have deadlines to meet, and your movers are scheduled to pick up your belongings, and you will have no place to live if you don’t Close on time, then the stress of a delayed Closing is very real. Big banks are notorious for delayed Closings. If you miss your Closing date, you could lose your 1% earnest money, but there are no consequences for the lender.
I’ve had several clients over the years, who didn’t listen to me, used their big bank, and had horrible experiences. I’ve had multiple clients call me crying, the week before Closing, due to all the issues with their big bank lender and a delayed Closing. I had a horrible experience once, when a Wells Fargo loan officer demanded that my client leave her mother’s deathbed to perform a task, and the bank STILL didn’t Close the deal…and my client’s mother died while she was away. (I closed my Wells Fargo account over that! Absolutely horrible experience.) Unfortunately, there’s nothing that I can do to help, the week before Closing, if you used a big bank lender. So I try to warn my clients in advance, to try to prevent these sad and stressful scenarios.
To be fair, I have seen a handful of deals, with big bank lenders, that went very well. However, several of them were for employees of the bank…who had the inside advantage.
Lenders to Consider
Lenders (loan officers) that my clients have used in the past:
One of the questions that I’m frequently asked is, “Who pays the real estate commission in Texas for a real estate transaction?” That’s a good question! Here’s the answer. Please not that the sales commission is NEGOTIATED (not always 6%) between the Seller and the Listing Broker BEFORE the house even “hits” the market.
Typically, real estate sales commissions are paid at the closing table. The title company disburses two checks out of the seller’s proceeds from the sale: one to the listing broker (such as a RE/MAX or Coldwell Banker) and one to the Buyer’s broker (in our case, Keller Williams Southwest). Then the Seller’s broker splits their sales commission with the Seller’s agent (also known as, the Listing Agent). And the Buyer’s broker splits their sales commission with the Buyer’s agent (Sheila Cox)–after deducting certain transaction costs, such as “Errors and Omissions Insurance.”
Please note that practically all real estate agents are independent contractors…not employees of the broker. In fact, real estate agents are usually required to pay certain fees to their broker for the privilege to work at that brokerage. Plus all expenses, including gas and mileage for taking you on home tours, refreshments on tours, paper and ink for contracts, phone fees, computer fees, etc. are paid by the individual agent and are not reimbursed.
So how do I earn the sales commission? I have a very detailed “To Do List for Buyer Clients” that has over 100 tasks that I may perform for you…and only one task is “Show properties until one is found.” So even if I show you 30 houses, that only represents one of the line items on my To Do list! Trust me when I say that there is a lot more to my job than “just showing houses.” I’m looking out for you every step of the way and keeping my eye on the Listing Agent, the Seller, the builder (if applicable), the lender, the inspector, the title company…I’m always watching out for you because I’m your agent.
Now you need to understand one more important thing:
___ Did your agent provide all the other necessary disclosures, notices, and the Buyer’s Representation Agreement to you before showing you houses? Be careful! You don’t want to find out after-the-fact that your agent actually represents the Seller.
___ Does your agent provide a detailed 18+ page house report on a home (see my sample), before you make the offer, to ensure that you know what you are buying before you make the purchase? This report should include information on the home’s price history, comparable sales numbers, school ratings, flood plain, tax info, environmental hazards (if any), near-by sex offenders (if any) at a minimum.
___ Can your agent effectively explain the HOA maintenance fees, MUD and LID taxes, compliance certificate requirements, amenities, property tax rates, school performance ratings, and other important information for the neighborhoods you are looking at?
___ Does your agent know how to provide you with an accurate CMA (price analysis) on a home before you make an offer? Is he or she committed to helping you get the right price or does the agent just want you to buy the highest priced home you can afford? (See “How to Price a Home Correctly“)
___ Does your agent point out possible defects of homes when you tour them or does your agent always seem to overlook the obvious problems of a home and try to convince you that they don’t matter? (Check my client satisfaction rating.)
___ Does your agent actually show you homes or does he or she expect you to drive the neighborhood on your own and then contact the listing agent directly to let you see the house? A dedicated agent wants to be with you every step of the way.
___ Has your agent set up a customized automatic home search for you that is pulled directly form the local MLS? Or are you still trying to find homes on your own using the limited online search Websites available in your area? These programs (such as Realtor.com, Zillow, Trulia, and Homes.com) can be outdated very quickly showing contract-pending homes as “active.”
___ Does your agent use an online paperwork system where you can e-sign documents instead of having to fax and scan them (which is sometimes challenging and time-consuming)? What if your spouse is still back home in another state or country? You need to be able to e-sign!
___ Does your agent work to negotiate a residential service contract (aka, home warranty) in the deal or provide one for you to protect you from too many future home repairs?
___ Does your agent have at least a 4.5 star client satisfaction rating with the local board of area Realtors? What’s your agent’s YELP rating, Homes.com endorsements, Angie’s List reviews, and so on?
___ Does your agent have 20 years experience? (Trick question.) IT DOESN’T NECESSARILY MATTER! There are terrible agents with 30+ years of experience who even have a broker’s license. And there are outstanding agents with only a couple of years experience. Time does not equal quality in this business. Time cannot guarantee attitude, dedication, integrity, intelligence, or commitment to customer service. Check their satisfaction rating...this is a free service for all members of the Houston Association of Realtors (HAR). If your agent hasn’t signed up, maybe they have something to hide.
If you are buying a home in Texas, then you need to learn about the home buying process, which may be different than other states. One thing to consider is that before you even begin the process of searching for a home, you must:
Determine how much house you can afford. A lender is the best place to get that information…it is part of the pre-qualification process.
Determine if you will actually qualify for a loan. Some good people don’t, under today’s stricter lending guidelines. You will need a pre-approval letter from a lender to submit with an offer on a home in Sugar Land….Seller’s almost always require one these days!
I like to break the home buying process down into seven phases.
Search Phase: Find the Home You Want
This is where my Automated Updates comes in handy. Never miss out on another great home! My customized home search will check all MLS listings (including distressed properties) daily and inform you when a house that meets your criteria hits the market. This is the most accurate and up-to-date house search available! And it’s great for out-of-town buyers who need to search for homes online.
Touring the Neighborhood With a Local Expert
When you are ready to take a look at houses, then let me know and I will set up the appointments with the sellers, create a map, print out the brochures, and drive you around to see those homes. As we go from house to house, I will point out special points of interest in Sugar Land to get you familiar with the area. It’s very helpful to have a local expert show you around the area…especially if you are new to Sugar Land or Fort Bend County.
But what if you or your spouse are located out of reach of a local tour? I am also able to video tape a walk-through of homes when need be.
Sometimes buyers have difficulty choosing between two or three houses. I have a fantastic Buyer Decision Analysis spreadsheet that helps you to score houses and compare them to make it easier for you to make a wise decision. (See sample below)
Offer Phase: Analyze the Property and Make An Offer
When you find the house that you want to buy, then you move into the Offer Phase. But before you make an offer, you need to know what you’re buying before you buy. That’s part of my Unknown Hazards Protection. I will research your home of choice and create an 18+ page house report so you will know everything there is to know about a house before you make an offer. This report includes tax data, school details with demographics, possible environmental hazards, possible sex offenders on that street, flood data, and more! Where else can you get this level of service?!
Fair warning! There is a lot of paperwork involved in buying a home in Texas. Why hassle with fax machines and scanners? My brokerage, Keller Williams, has the most innovative online paperwork solution available. So you can eSign your paperwork easily online…and so can your seller! This is especially useful for all those buyers who live out of the area and are relocating here. Or, if you have a spouse that hasn’t moved here yet, this is the perfect way to make it easy for him or her to sign the necessary documents.
Option Phase: Thoroughly Inspect the Property and Negotiate Repairs
In Texas, you can buy an “option period” (usually 10 days) from the seller for $200-$300 that gives you the irrevocable privilege to back out of the sales contract for any reason, and still receive your 1 percent earnest money back. This gives you time to have the home thoroughly inspected and find any defects that you cannot live with. It also allows time to negotiate repairs with the Seller. At the end of the Option Period (and the timing is very strict) you can do one of the following:
If you “exercise” your option, you lose your option fee, but you get your earnest money back.
If you do not exercise your option, then the option fee is usually applied toward your closing costs.
Please know that a home inspection is one of the most important parts of buying a home. But it can be overwhelming trying to find a reputable inspector who you can trust. I provide all my buyer clients with a list of licensed home inspectors in the area to make this process easier for you. Plus, I will negotiate necessary repairs for you with the selling agent…before you close on the home.
In addition, we have many great homes in the Sugar Land area, but some of them may need your personal touch. It’s difficult to estimate these costs ahead of time or to know who to hire. I can help by estimating costs and by recommending local contractors who provide good quality service at reasonable prices. Plus, since I have remodeled many homes myself, I can help answer questions that you may have and get you going in the right direction.
Pending Phase: Satisfy the Lender and Title Company Requirements
If you go past the Option Period and continue the buying process, then you move into the Pending Phase where the focus is on the lender and the title company. This is when you will need to diligently pursue getting your loan, providing all the documentation that the lender requires in a timely manner. This is not for the “weak at heart”! Not only is the loan process much more difficult than it was before 2008, there are also strict time guidelines in the purchase contract regarding the loan application process, and if you do not follow them, you can lose your 1 percent earnest money (and the house).
NOTE: In Texas, title companies are neutral, third-party companies who handle the closing and lending documents to purchase a home. We do not close in attorney offices.
During this phase you will also:
Select your home owner’s “hazard” insurance (get three quotes to get the best price).
Select your residential service contract company.
This is where my Repair Protection kicks in. Since I believe that all buyers need a residential service contract (a.k.a. home warranty) on a newly purchased home to help off-set future repair costs, I will either negotiate the Seller to pay for one, or else I will pay for it myself up to $500.
Closing Phase: Sign On The Dotted Line
As previously stated, in Texas, title companies are neutral, third-party companies who handle the closing and lending documents to purchase a home. We do not close in attorney offices.
About a week in advance, I will schedule the closing with you and the title company. We will meet at the title company on the day of closing, sit in a conference room with an escrow officer (who is also a notary), and you will sign the legal documents to purchase the home.
You will need to bring two forms of ID with you to the closing.
Follow-up Phase: Enjoying and Maintaining the Home
After you “Close and Fund” you will receive the keys to your new home! If you would like, I will wait a few weeks to let you move in, and then I will photograph your home after you are settled and create a “Just Moved” video that you can email to all your loved ones. This is a wonderful way for you to show your new home to friends and family who don’t live close-by.
And, after the sale, I stay in touch by sending you a Monthly Home Maintenance list and other items of value that will help you as a home owner. I usually become friends with my clients, and I enjoy keeping in touch with them.
“That’s what I used to think! In fact, before I became a licensed real estate agent, I did several FSBO (For Sale By Owner) sales and THOUGHT I knew what I was doing. But if I had known then what I know now…I never would have risked it. Here’s what I’ve learned…” –Sheila Cox
Yes…You Need a Partner During the Home Buying Process!
Your home is probably your largest single financial investment. Most homes in my area (Katy and Sugar Land TX) cost over $200,000. If you had a $200K legal problem would you try to handle it yourself or would you high a quality attorney to help you?
Of course, not all attorneys are equal in skills, knowledge, integrity, experience–and neither are all real estate agents. In fact, most people have had at least one bad experience with a low-quality real estate agent. I know I have! As in any industry, please consider that it is possible the 80-20 rule applies to real estate agents…maybe 20 percent are not very highly qualified, but that would leave another 80 percent who are! (Just like in your line of work…do all your peers provide the same quality of expertise?) Always keep in mind that having a bad experience with one agent, doesn’t mean that all real estate agents are bad. The trick is finding and hiring the right, high-quality agent. Here are some things to consider…
Real Estate Laws Vary From State to State
Not all states have the same real estate laws. In fact, Texas real estate laws and practices are highly unique in comparison to other states. Just because you have bought or sold a home in another state, does not necessarily make you qualified to do so in Texas. (I know, I know…we Texans think everything is bigger and better here!) But the fact is, Texas real estate is so complicated, that agents are required to have many more hours of education to get a license here than any other state…about three times more hours of education than average across other states!
Your Legal Exposure in a Real Estate Transaction Can Be Very High
A very common type of real estate lawsuit involves Deceptive Trade Practices in which a home buyer accuses the home seller for not properly disclosing the actual condition of the property. In these cases,treble damages (three times the actual cost) can be awarded. This can really add up! And the cost for hiring a real estate attorney to defend yourself can cost well over $10,000! It doesn’t always matter that you did nothing wrong. Without a licensed real estate agent there to watch out for your interests and to make sure that you comply with all of the Texas real estate code and statutes, you can end up with a real nightmare on your hands.
Likewise, home owners can sue home buyers for non-performance or can keep large amounts of earnest money if a contract doesn’t Close. This is when you want a professional agent looking out for your best interest to (hopefully) prevent you from breaching a contract and losing your earnest money. And if a lawsuit is not prevented, isn’t it best to have a large, reputable real estate brokerage (and their legal team) behind you when you need it?
Real Estate Data Is Not a Matter of Public Record In Texas
Texas is one of 14 non-disclose or partially-disclose states in the U.S. That means that real estate sales prices are not a matter of public record in Texas. So Internet-based companies like Zillow and Trulia do not have the real data to accurately “Zestimate” what a house is worth in our state. Property tax records are what these companies use in order to estimate a home’s value. But everyone in Texas knows that tax appraisal values do not usually reflect the actual value of a home…they are typically lower than actual value. (Which helps to keep the costs of our already too-high property taxes down.)
The only people in Texas who have accurate sales records are members of the Multiple Listing Service (MLS) including real estate agents and home appraisers. So if you want an accurate sales price analysis on a home (so that you don’t pay too much for it) you will need to hire one of these professionals.
CAUTION: Not all real estate agents are equally good at sales price analysis. Hire an agent who knows how to put together a valid comparative market analysis (CMA).
Do You Really Want (or Have the Time) To Learn Everything You Need To Know About Real Estate?
Yes, you can read up on real estate and I encourage you to do so. But no amount of book-learning is going to make up for the actual real-world experience a high-quality real estate agent offers. Real estate laws change yearly and vary from state-to-state. So most books are out-of-date by the time they go to print or are too generic to meet your specific state’s requirements.
And please don’t believe all the real estate advice that you can read on the Internet. I recently read an Internet article about how to sell a home without a real estate agent and most of the advice offered was not accurate according to Texas real estate laws…which could get you into some costly legal trouble. Even the advice from real estate agents on one of my favorite online resources, ActiveRain, is not always accurate for Texas.
Besides all this…aren’t you busy enough with just deciding on a home, getting your lender all the necessary paperwork, planning the move, changing utilities, registering at new schools, packing, training for the new job, and so forth?
It’s Complicated! Are You Qualified to Manage the Entire Transaction?
A high-quality real estate agent wears many hats: local area expert, state real estate rules expert, amateur remodeler, price analyzer and mathematician, home decorator/stager, professional photographer and videographer, marketing expert, chauffer and tour guide, psychologist, marriage counselor, sales negotiator, amateur home inspector, administrative assistant, project/transaction manager, communications expert, and tech writer. Very few professions require skills in so many different areas! I don’t think the average person realizes how much they expect their real estate agent to handle.
(Read a great article by non-agent: “How many hats does a Realtor wear?”)
And then there are the home buyers who think real estate agents just help them find a home to buy and once the contract is accepted, their job is over; but that’s just the “end of the beginning” for an agent! Likewise, a great listing agent doesn’t just take a few photos, put a sign in the yard, and wait for the offers. A great real estate agent is looking out for you every step of the way and keeping their eye on the other agent, the other party (buyer, seller, builder), the lender, the inspector, and the title company.
Here are more examples of what a real estate agent does for you:
Helping you maneuver the Option Period, including getting the right inspections and, if necessary, repair estimates. Do you know how to “exercise your option” properly if needed? Do you know how to minimize the impact of the OP when marketing a home as a seller? How do you deal with lender-required repairs?
Negotiating necessary repairs with the Seller so you don’t get stuck with them after Closing. Can you get repair estimates in a timely manner? Do you know how to effectively overcome common repair objections? Do you have the knowledge needed to accurately estimate a remodeling project?
Helping you meet your contractual obligations (such as appraisals, surveys, deed restrictions, HOA compliance certificates, legally required disclosures, title commitments, hazard insurance, and more) in a timely manner so you don’t find yourself in breach of contract. How many days do you have to get the survey? If there is an existing survey, what other legal document is required? What do you do if encumbrances are found in the title search? What do you do if your financing falls through after the deadline in your contract?
Dealing with home inspectors, appraisers, lenders, and title companies to get them to do their jobs in a timely manner so you can move when you plan to. There are many moving parts in a real estate transaction! What do you do if the lender doesn’t get the paperwork to the title company on time? How do you know if the fees on the HUD1 are accurate? Did you remember to get hazard insurance and order the residential service contract? Did you negotiate a temporary lease so you can move out after Closing? What do you do if the Closing falls through?
Do You Know the Area As Well As You Need To?
If you are moving to a new area, there is no substitute for getting the opinions and advice of a local real estate expert. Even if you know someone who lives in the area that you are moving to…they only see that area from their individual, and probably limited, perspective. You really need a professional who has the BIG picture and the “inside information” that only a local real estate expert can provide. Someone who will listen to your specific needs and find the right neighborhood and right home for you.
And watch out for online companies offering you price reports and other types of statistics based on ZIP Codes. Sugar Land consists of multiple ZIP Codes and let me assure you that a price analysis for a home in Sweetwater in 77479 is not going to accurately reflect the price of a home located in Woodstream which is in the same ZIP Code.
Home prices vary not only from neighborhood to neighborhood, but even within the same neighborhood. For example, a home in New Territory that has a water view is going to be valued higher than a home right down the street that does not have a water view. And a 2000-2600sf home probably has a different average sales price/sf than a 3500-4100sf home…even on the same street. AND those same values can change from month to month (depending on the actual figures for recently closed home sales). Do you have the real sales data and price analysis expertise to ensure that you don’t pay too much for a home or list it at an unrealistic price?
Sometimes You Need An Objective Partner When Choosing the Right Home
Let’s face it…even the most level-headed, objective, analytical engineer-type can get emotional (and become unobjective) about a home. Trust me on this observation! Everyone gets emotional on some level about the house they are going to live-in for the next several years. And if you have raised four kids, two dogs, and three cats in a home for the past 23 years…forget about it. You may not see the worn-out carpet and outdated wallpaper for the good memories.
Sometimes it is just like “love at first sight” when buying a home. And that emotional response to a home may cause you to do something you will regret later. You need an unattached, neutral, third-party (such as a dedicated real estate agent) to help keep you focused on the facts and the big picture. I’m not saying all agents do this. I agree that some agents are just out to close the deal no matter what, and don’t really care if you are going to end up with a poor investment that you will regret when resale time comes along.
But I once talked a client out of a $650,000 home because, when I was researching the home and looked at the bird’s eye view, I found a hidden dump where you could see railroad cars deteriorating and rusting into the local water supply! You never would have seen this driving around the neighborhood because it was hidden behind fences and shrubbery. But when I showed my clients what they would be living next to, even though they were disappointed because they loved the house, they were thankful that I found the problem and objectively pointed it out to them before they purchased that potentially costly mistake. I ended up selling them a $525K home they loved and we are very good friends to this date because they know I am trustworthy and not just looking out for the highest sales commission I can get.
So let’s recap. Since…
…real estate laws vary from state to state and change every year,
…your legal exposure in a real estate transaction can be very high,
…real estate data is not a matter of public record in Texas, so you don’t really know what a specific house is really worth,
…you probably don’t have the time to learn everything you need to know about real estate
…it’s complicated and you may not be qualified to manage the entire transaction,
…you may not know the area as well as you need to know it, and
…you probably want an objective partner to help you choose the right home…
You should definitely hire a real estate agent to help you with your next real estate transaction!