Sunday, February 15, 2009

The Offer - "Offer to Purchase".

Everyone that has bough a home has had to deal with "the Offer to Purchase". Its the very first document that you sign with an indication of what you are willing to purchase the seller's home for.
If you asked anyone, they might explain that they know exactly what the purpose of it is, but have you realized that there are some good strategies to get the purchase price going down your direction?

First of all, when someone makes an offer they have two figures already determined in their mind:
1. The "offer" &
2. The "Max" price I would be willing to pay. (This stays secretly silent in the back of your memory).

The following are some recommendations that I have read about, or come across with everything that I have read.

First of all, make a low ball offer. Do not feel like you are going to insult the seller, understand that this is a strategic move in order to further advance your interest and in the end perhaps getting a better deal in purchasing your home.

The seller should come back to you with a counter offer. Their counter offer is usually just slightly below listing price.

Most people have the habit of meeting people half way in negotiations. For example, if a home is for sale at $100,000.00 and you offered $70,000.00 but the seller counters with $99,500.00, I would bet that you thought it would be best to offer $185,000.00....hence aim for middle ground...DO NOT FOLLOW THIS STRATEGY.

After the seller has countered....your next best offer should only be slightly above the previous offer....if you offered $70,000.00 offer $73,000 and not $85,000.00.

Remember that you can make an offer, and counter offer forever, until both of you come into an agreement of the perfect purchase price.

The reason for the second low ball offer???...psychologically the seller...has to cover some ground with will movement towards the center too.

Rather than you going up in price...the seller will have to walk further into the middle ground.

Between $70K & $100K, the middle is around $185K.

But if you next best offer is $71K, the seller may go down to $90K.

The middle ground is now $80,000.000.

Its takes guts to offer low prices...but there are sellers that may be willing to sell for less.

Selling a home is competitive and sellers know that if they aren't the person selling their home to you, it will be someone else, and they will just have to wait who knows how long before another serious offer comes their way. They may reason that it is best to lose $10,000.00 from a deal and want away from their responsibility than to continue with the expenses of owning a home.

Use the above strategy only if you are 100% serious about buying.
You may save yourself a few thousand dollars in the negotiations with this strategy with the "offer to purchase".

Use your savings to cover your closing costs & to donate to my purchase of my own home.

If you found this information useful, please donate to my "new computer fund".


Saturday, January 31, 2009

The Deposit

Its not a great time to buy a house unless you have secured a significant deposit towards the expenses & down payment of the house you are about to buy.
Firs of all, generally the sales commission to an agent is about 4.5% to 6%. In my experience, I have learned that agents want buyer to give the maximum deposit towards the purchase to indicate that you are indeed a serious buyer.

The very first time you give a deposit to an an agent or agency will be when you want to make an offer. In general, this is the very first & smallest part of the deposit you will give. I have noticed most agents will ask for a $500 deposit to go along with the "Offer to Purchase". If no deposit is provided, there's no way to bind your offer with the acceptance.

CAUTION: Be sure that any deposit you provide is made out to the real estate agency and NOT the agent directly. Hence a check to "XXXXX Real estate" is what you want...not "John Doe".

The reason is if should anything fall through, you want to make sure that any possibility of recovering your money is made easier.

The agency is licensed and BONDED. The agent is an independent contractor.

With luck on your side, assuming you have managed to come into agreement on the PURCHASE PRICE, the next question is...where's the Purchase & Sale agreement?

I will cover Purchase & Sale's Agreements later.

I am almost certain that the agent will recommend to you the amount they would like you to provide to them as a deposit when you sign the Purchase & Sale agreement.

As I stated above, an agent will try to convince you to deposit with them the balance of the sales commission with them. (You are basically providing a 4. to 6% deposit on the purchase price.) The agent is trying to ensure that they don't have to worry about collecting their commission when the transaction closes.

If you are loaded, they go ahead and give the big deposit, but why such a big deposit when you don't have to?

ING is paying 2.4% per year on their savings account. If you had a purchase price of $200,000 and had to give a 5% deposit, that's $10,000.00.
Let assume you won't close for 30 days, that means you could earn $20.00 for that month. (It's not much, but imagine if there's a delay and you can't close for say 60 or 90 days?)
I can with 90 percent certainty ensure to you that the agent or Realtor will not provide you with interest. Some do, but they are the exception, not the rule.

My advice: Give a deposit that ensure you are a serious buyer, but only as much as you feel should convince the seller you are serious.

The other reason I highly recommend that you not provide the agent the full commission as a deposit is the following: Should you require their assistance or help in any manner....

If you have provided them the full deposit...they want the closing to happen to as soon as possible...regardless if any repairs request you have made are completed or not..and if they haven't they are your problem.

On the other hand...they don't feel like "they have earned" their commission until the closing happens because they will get paid when you close. The money has not already been sitting in the Real Estate Agent's bank account.

ONE NOTE REGARDING INTEREST: While real estate agents may or may not pay interest...Attorney's Bank accounts DO NOT PAY INTEREST...but the law firm DOES NOT GET ANY INTEREST EITHER...rather the interest that the account get paid to the STATE IOLTA COMMITTEE who then distributes and fund local programs that provide low cost legal assistance to the communities.

I hope that my advice helps some you you as you learn about what it takes to purchase a home.

New Computer Fund

Sunday, January 11, 2009

How much house can I afford?

The very first question anyone interested and ready to buy a home should be "How much home can I afford?". This questions should help you prepare for property showings. The main purpose is to give a range in home prices that you should be looking at.

Remember that home prices are not set in stone, and negotiable. So you may be able to find a more expensive home and negotiable the purchase price down to your purchasing power.

One other recommendation is to NEVER buy the maximum amount of home "MAX PRICE" that you can afford. If you do so, you will be placing yourself in a very tight budget. (There will be no room for error.).

So what are the criteria for knowing how much home you can afford?
When, I was going to try to put a calculator on this site, but haven't yet figured out how to do that.
Do a search for "How much home I can afford?" on Google, Yahoo, or your favorite search site.

You will notice that you will be asked to enter your Gross, not net salary.
You will be asked to enter your down payment, your anticipated interest rate on the loan, and estimated annual taxes & hazard insurance premiums.

Usually banks will approve you for a loan where your monthly payment is no more than 28% of your gross salary.
Lenders will usually not approve a loan where your monthly expenses for the home is any greater than 35% of your gross payment.

To clarity, your monthly payment on a mortgage payment is broken down into the following:

Principal & interest
Hazard insurance (Homeowner's insurnace)
Real Estate Taxes
Private Mortgage Insurance (If applicable)

Hazard insurance rates & real estate taxes vary from town to town, and state to state.
In order to get a better idea of what you can anticipate paying, you can always get free information.

For taxes, you can quickly and easily call the town the property is located in and ask to talk to the tax collector's office. They generally give out the tax rate on the property, and what the annual taxes are. (Or an estimate if the rate has not yet been set, but if that is the case, ask for last fiscal years real estate tax amount).

For hazard insurance estimates, you will have to call your favorite insurance agent and have them provide you a quote.

For hazard insurance coverage, the lender will want to make sure that your property either has "replacement cost coverage". It means that if your house disappeared off the face of the earth, they will cover the expense of rebuilding the property, to another of similar size and features.

The lender will at a minimum require that the property be covered for no less than the loan amount that they are providing you.
So that where the worst to happen, the bank gets its money bank, and you will be left holding the bag.

What does this mean?
Its means that if you buy a home for $200,000.00, you do not need the same amount in coverage, unless your home will indeed cost exactly $200,000.00 to replace.
Don't forget that the price is usually broker down between two parts- The land and the actual real estate located on it.

The land can't disapear and therefore does not need to be insurred.

What about your real estate home price...only the actually building...

With home prices fluctuating year to year,let me explain.

There are a few different ways of viewing property value. First of all, what you are willing to pay for a house is the purchase price.
The lender obtains an appraisal of the property, which is an independent property value report to verify whether the home is really worth its value in money.

Even if you paid $200,000.00 for a home, the replacement cost may only be $145,000.00. (The missing $50,000.00 may be a premium that an individual is willing to pay to live in a particular part of the city.)

The opposite may also be true and you got yourself a great deal.

Anyhow, buying a home is a very important decision.

If you find it boring to take the time and learn about what you are getting yourself into, then your are setting yourself up for financial problems and a possible disaster.

Remember that anything worth doing is usually not quick or easy.

Did you consider this information useful.
Contribute to my "new computer fund"

Sunday, January 4, 2009

The First Steps to Buying a Home

The first step in deciding to purchase a home is knowing that that is what you want. But wanting to own your own home does not prepare you to actually be an owner. If you really want to own your own home my first advice to anyone is - Get Informed- in everything there is about owning a home.

There is a lot of information out there online, but I personally feel that it you are reading it on a website that provides a service to you, they will only tell you the part that makes you happy and smile. They will answer honestly to any question you may have, but it does not help if you yourself don't know what questions to ask. Remember that anyone you deal with in purchasing a home has a financial interest in making sure the deal goes through if they are providing you a service in the process.

So to begin, be well informed and remember there are no dumb questions.

Let me walk you through in my own words how the home buying process begins:

  • You decide you want to own a home
  • You find out what loan amount you qualify for and how much you can afford
  • You contact a real estate agent to show you property and find one that you like
  • You make an offer to buy
  • The Offer is accepted
  • You sign a "Purchase & Sale" agreement
  • You close
  • Congratulations new home owner.

In real life there will be pitfalls along each one of those steps, I will explain why and how you can avoid them.

Thursday, January 1, 2009

January 1st, 2009 The beginning

Well, isn't this the perfect time to get started towards a goal worth trying to pursue?

I have always wanted my own home. I feel that I cam still far away from that possibility, but I know for sure that one day, some day in the near future, the keys that I will carry in my own pocket will be to my very own home.

I currently find myself in a lot of debt after bad decisions in 2008. There’s no point in thinking backwards, but I do want to ensure all of you that I will try to provide you guidelines on how you yourself can avoid my previous mistakes.

My goal through this blog will be to share with you what I have learned in the past about real estate. And it will detail what I will learn in my path to owning my first home. I will also share the steps I am taking to get there with all of you.

If I am successful, then the result will be my very own home. If I fail, then at least I will be here to share my experience and story.

To begin, I know I need an initial deposit which I don't yet have.
Therefore, I began working on my very own personal budget for this year.
It’s not down on paper yet, but I should have it down soon.

I am beginning to follow financial planner's advice...advice I hear on the radio or read about online...I don't have a personal advisor...but hope to be of some help to others someday....

I plan on trying to follows the guidelines listed below :
(They were aired by NPR this past week)

  1. Develop a budget
  2. Stop using your credit cards (pay cash only, or debit card)
  3. Automate your savings (direct deposit part of your income on a regular basis into an account that you don't normally have access to through your debit/ATM card)
  4. Live within your means (takes some analysis and practice, but everyone should be doing this)

I recently heard the advice that the best ways to get into budge would be to start a spending journal. Spending journal would be a book or journal in which you track all your expenses, item by item, on a day by day basis. The result of your effort in maintaining a journal makes you more conscious of where you are spending your money.

Keeping a spending journal may sound easy, but this is actually a lot harder to follow and keep up with than you might think. I challenge all of you to start and keep a spending journal for a week or two weeks. Once you get more familiar and in the habit of updating it, perhaps you can complete the challenge of keeping a spending journal for a full month. It takes a lot of discipline.

Remember, getting constrained to a budget is a matter of discipline, otherwise who would need financial advice?

How do you know if you need financial advice and lack financial discipline?

Answer the following two questions:

Do you know the exact amount currently due on your credit cards?

Can you itemize and list the items that you bought that total the full amount of your credit card debt?

If you answered no to either of those two questions, now is the time to take the first step and get some financial goals set up.

Well, “Happy New Year!!”

….more to follow

Tuesday, December 2, 2008

The path to owning my own home

My goal will be to use the information that I have learned to help everyone out there that wants to learn more about buying your first home. I want to eventually own my own home too. This is a goal that will take some time, but one that I will one day accomplish.

I hope that what I share here helps others that are just starting to look into purchasing a home. I am sure I can provide useful advice and tips, as well as basic information about things to what out for. Feel free to contact me with any questions.