Part II – The search and offer

Desire vs. reality

When you begin your home quest, the home on the left is what you’ll desire, but after you crunch the numbers, is this the home you can REALLY afford?

Before you start seriously looking, many suggest you define your basic needs – the bare bones necessities for your home. If the budget (and back end ratio) allow, you can add to it.

First the loan – then the home.

If you’re serious about house hunting, the first step you do is to get pre-approved for your loan.

The lender is qualifying you for the loan at this stage of the game. Once you’ve got your approval in hand, you’re ready to shop. Later, you’ll see why this is important.

First, use the MLS to narrow your search and get an idea of neighborhoods, price ranges, etc. Drive around the neighborhoods after work when families are home. Get a feel for things.

When looking at potential homes you’d be interested in, beware of homes that are “short pay”. The asking price may or may not be relevant. A short pay simply means the owner owes more than the home is worth. In essence, it’s the bank selling the house – the owner is merely still on title.

Some agents will put a ridiculously low asking price on the home merely to entice buyers to look and make an offer. But the bank isn’t stupid. If comparable homes are selling for $500,000 and the agent has it listed for $399,000 (all things being equal), there’s no way the lender will accept that offer. Good agents will price the home in a range that will be acceptable with the lender.

Another potential to watch out for is that if you do make an offer on a short pay, it may take awhile (a couple of months?) for a response back from the lender to your offer.

Bank  owned properties (REOs) are generally setting the floor of the marketplace. Often they aren’t cream puffs. They need work, but with a little sweat equity can provide great value. Many however are beautiful – homes built only in the last 5 years or so. North Oxnard around St. John’s Hospital is one area with homes like these.

Choose your Realtor.

Who pays your Realtor? Traditionally, the commission the sellers pay their agent gets split with your Realtor, so it’s always in your best interest having your own Realtor giving you another point of view.

Should you work with lots of agents? Some buyers mistakenly think they should keep all their options open and work with several Realtors simultaneously. What they’ll ultimately find is that they’ve never earned the trust of those Realtors. No Realtor is going to spend quality time on your behalf, knowing full well you’re not loyal to them.

When you’re ready to become a serious buyer, interview 2 or 3 agents you think could really help you. Meet them in their office. Do you feel they’re really listening to you? Everybody connects at different levels. How do you feel you connect?

A good agent will tell you the good and bad. Not everything in life is peaches and cream. A good agent should never push you one way or another, but ensure you have full knowledge to make informed decisions.

A good agent should be a trusted consultant. But trust is never given. It is earned, and only over time.

Once you’re ready to work with a Realtor, they may ask you to sign a Buyer’s Broker Agreement. This lets the Realtor know you’re serious about house hunting, and you’ll see a marked increase in the level of commitment and effort on your behalf.

The offer! (The California Residential Purchase Agreement)

The money page (Page 1 – pdf file).

This page lists the stuff you’d expect to see. You, the seller, address of the property, offered price, plus how you plan to structure the deal – the amount of the first mortgage, any secondary financing, and the amount of down payment.

But also note the security deposit you’ll have to make (paragraph 2.A – “Initial deposit”). That amount will generally be 1 – 3% of the offered price, and often that amount is dictated by the seller/seller’s agent in the MLS listing.

Note an innocuous, but biggie, thing you see in 2.I (Loan Contingency Removal) which is the first mention of a 17 day contingency removal time line. More on the 17 day thing later.

Who pays for what? (Page 2 – pdf file).

This page has the breakdown of costs for various items between you and the seller. Your Realtor will explain who customarily pays for what for each item.

You’re buying the home “AS IS” (Page 3 – pdf file).

All the termites, holes in the roof, ratty carpet, 1960’s wall paper – you get the picture! However, you (and the seller) have rights and responsibilities.

The seller has the responsibility to disclose known material facts and defects. This is done through a form called the Transfer Disclosure Statement, plus any other supplemental facts. We tell our seller clients to fight the urge to “gloss over” issues; rather, go the other way and disclosure any and every potential issue you can think of. It pays off in the long run. Better for the buyer to know ahead of time, rather than find out through other sources. It will allay suspicions that the whole enchilada wasn’t revealed upfront.

You, the buyer, have the responsibility of due diligence. For example, this would include a physical home inspection and review of all the seller’s disclosures (and resolve any questions). Then, you are free to ask the seller to repair or resolve some, none or all of your issues. The seller has the right to agree or disagree to some, none or all of your issues. If the seller and you don’t come to an agreement, you’re free to walk. This is a huge decision for both parties, not to be taken lightly. You obviously like the house (you DID make an offer!) – do you have another backup home ready? And the seller may loose the very best candidate (you) they’ll ever see!

The 17 day thing – just dating, or married? (Page 4 – paragraph 14)

In a bid to be fair to both buyers and sellers, time limits have been placed on getting certain things done. You’ve got 17 days to: 1) do all your inspections and come to an agreement with the seller; 2) everything concerning your loan(s) must be done, with full lender approval (ie, appraisal and any other lender conditions). Then you must release all contingencies. What’s the significance of that?

When you made your offer, you submitted a “good faith” deposit into escrow. That’s your money. If you’re not happy with what you’ve found about the house, within that 17 days you can walk, escrow will be cancelled, and you’ll get your deposit back. This is merely the dating stage of your relationship. Breaking up is tough, but not “permanent”.

However, once you’ve released all contingencies, you and the seller are married! If you back out now, like a divorce, it will cost you. Your deposit is on the line as liquidated damages.

What happens if you don’t release all the contingencies in 17 days?  The seller will give you a 24 hour notice to perform, then the seller can cancel the purchase agreement. Those are the highlights. Obviously, anything negotiated between buyer and seller can change these things, but you get the picture.

Liquidated damages and Dispute Resolution (Page 5 – pdf file).

You already know about the liquidated damages. But this page also covers disagreements. First, if there’s a serious disagreement between buyer and seller, then mediation of the issue is the first course of action. If that doesn’t work, then the provisions of the purchase agreement state (if both parties initialed at the beginning of the agreement) that the issue will be resolved through arbitration.

Agency – who represents whom (Page 7 – pdf file)?

One of the important things to know is who represents whom? There is a section on this page that confirms that, but prior to any of this, you need to know. The State of California says so, and so before you do anything with your Realtor, your Realtor will review a disclosure form called Disclosure Regarding Real Estate Agency Realtionships with you. This form states that your agent has a fiduciary duty of utmost care, integrity, honesty, in dealings with you.

Finally – you sign your life away (Page 8 – pdf file)!