When there are multiple bids, and the price of the property is bidding up over the asking price, the amount of downpayment is sometimes the reason why your offer is not accepted.
Lets say a property is put on the market at $275,000 and the highest offer is $315,000. There is an offer of $310,000 with 50% down and an offer of $315,000 with zero down. Usually the sellers agent will advise the seller not to take the $315,000 offer, because she does not expect the property to appraise. While one can buy a house with zero down, that does not mean that the seller is willing to take the risks associated with a zero down buyer.
It is the sellers agents job to know not only what they can get in the open market for a property, but also what obstacles might get in the way of the sale closing. These days, when an agent lists a property at $275,000, it is likely a price higher than the last few sales in the area and a price that will appraise, with some effort. When it bids up over that amount, the sellers agent must be ready for what will happen if and when it does not appraise. Often that means that zero down buyers will not get the house, if there are other offers with larger downpayments, even if the other offers are for less money. A common result will be that the seller will counter the 20% down buyer with the highest price offered, regardless of escalator clause considerations.
This points back to my post noting that the appraisal is done for the lender. If the property appraises at $300,000 and the sale price is $315,000, the lender does not participate in the shortage. If it is a zero down loan and the buyer has no cash, the buyer will need the seller to reduce the price down to $300,000 for the transaction to close. The lender will only give the buyer 100% of the appraised value, without regard to the agreed upon sale price. If the buyer is a cash buyer, often there is no appraisal at all, since the appraisal is ordered by the lender.
This issue has come up in the last two offers I have presented. In fact, I lost a client who did not get the property because another offer at 20% down trumped her zero down offer. When she asked me to be more aggressive in getting her offer accepted, I explained that the sellers agent made it clear that the 20% down buyer was going to get the property because they had 20% down and the agent knew the property would not appraise. There was just no way to get the seller to accept a zero down offer, with the costs included in the price, no matter what I did.
Buying your first property with zero down and the seller paying the closings costs is clearly possible, and is done every day. But often the zero down buyer, with no cash to pay their own closing costs, is excluded from purchasing the most popular house in the most popular neighborhood that has multiple offers.
Offering the highest price is of no consequence to the seller, if you can't close.
Mar. 22, 2006 - The Appraisal in the Purchase Process
While the buyer is paying for the appraisal, they are paying for it as part of their loan costs. The appraiser is hired by the lender and works for the lender and his/her purpose is to inform the lender. I just saw an appraisal of a property I know would sell at about $950,000, come in at $750,000. The appraisal was for divorce purposes and it was a unique, difficult to value property. Appraising is an artform, not a science. There is no one absolute number pointing to what a home is worth.
The reason there is an appraisal is in case you do not make your payments and the bank has to foreclose. If you are buying a house for $500,000 and you are putting $200,000 down, frankly, the appraiser doesn't have to agonize over the process. The bank is clearly going to be able to sell it for the $300,000 they lent you to buy it. Now if you are putting zero down, the appraiser is on the line in the event you foreclose and the bank can only sell it for $450,000.
You need to determine what the home is worth. It's great when it appraises and everyone loves those few times when it appraises for more than the sale price (except the seller). Different appraisers will get different answers. Appraising for different purposes when the house is not being sold, like to value for an estate or divorce, often will produce different results than when the appraisal is for a home purchase and ordered by the lender.
THE SELLER NEEDS TO BE AWARE OF THE FACT THAT THE SALE CAN FALL APART IF THE PROPERTY DOES NOT APPRAISE. THE SELLER'S AGENT WILL KNOW IN ADVANCE WHETHER OR NOT THIS MIGHT BE AN ISSUE, DEPENDING ONTHE CREDENTIALS OF THE BUYER, AMONG OTHER THINGS.
Mar. 20, 2006 - View from my window on the first day of Spring!
It's an absolutely gorgeous day in Kirkland today, the first day of Spring. I took a long walk and wished I had brought my camera. We have such interesting homes here in Kirkland, lots of character. I'll try to take a walk on every nice day and take at least one photo for you all. Soon we should have 6 nice days out of each 7!
One thing about the Seattle area is, it may rain a lot, but Spring and Summer can't be beat! We have the loooongest days and by June it doesn't get dark until almost 10:00 at night!
Mar. 17, 2006 - Canceling the Real Estate Contract - Condo Resale Certificate
When you purchase a condo (which can be a townhome) in the re-sale market (as opposed to new construction), there is a very important event that takes place during escrow. Line 19 of our Condominium Purchase and Sale Agreement Form 29 provides that the seller will deliver the Resale Certificate to the buyer within (blank) days from mutual acceptance. You have a limited period of time to cancel the contract based on the resale certificate and when that timeframe runs out, you lose that right. The period is normally 5 days.
I want to talk more about the practical aspects of this event, rather than the legalese, so the above is short and not all inclusive and simply an introduction. In the past several weeks I have canceled two escrows based on the resale certificate, or more accurately the buyers canceled escrow based on the resale certificate, and so I think this topic is timely and worth noting. I will give a real life example as an anecdotal story to raise some of the issues involved.
I showed a condo at night. We went up the elevator and into the unit and we at that point were more concerned with getting the property into escrow than examining all aspects thoroughly. It was a one of a kind condo. I knew that if the buyer lost the opportunity to make an offer, I could not easily find them another like this one. And so the offer was prepared and accepted rather quickly. We had two timeframes to further examine that choice, one was the home inspection and the other was the resale certificate info and timeframe.
During the home inspection which was in the light of day, we walked all over the complex and found two alarming issues. The inspection itself was fine. The alarming issues were part of the common area and HOA responsibility. Neither of the issues we viewed were addressed in any way in the Seller Disclosure Form 17. I asked the listing agent to go look at the problems we viewed and respond, he would not do so and said the seller had no knowledge regarding what we could readily see. I believe that was true as they did not go where we went, which was everywhere. When the resale certificate arrived, there was almost no information regarding the issue, the minutes in the resale certificate being from 2002 through 2004 were not any help. There was a minor, yet bold notation, regarding one of the issues with an estimate of a very large cost. I am being vague as this is a real life current situation and you need to know the steps to take more than the actual detail. It was obvious that the total actual cost was not yet known and that the repairs would not be completed until several months out. The buyer canceled the escrow based on the resale certificate. The seller did offer to pay the amount the HOA expected the total cost to be, but we deemed that to be insufficient. Another buyer may be willing and able to work something out acceptable to both parties, and that is OK. We returned the resale certificate so that the seller could use it to raise this issue to the next buyer in a more timely manner, should they choose to do that.
When you purchase a condo, be sure to walk all over the complex and view everything there is to view. Make notes of anything that is worth noting. The seller's disclosure is normally about the unit itself, and not all issues of the complex. Likewise, the inspection is normally an inspection of the unit itself and not the roof or siding or other issues deemed to be HOA responsibility. When you receive the resale certificate, read the minutes thoroughly. Look at the Rules and Regulations, CC&R's and By-Laws and make sure you understand and have no problem with these. Even if the mls says you can have pets and you see pets when you view the condo, that does not mean that pets are allowed. Look specifically at the pet rules and make sure you can comply with the written rules. Look at the amount in reserves and make sure that the amount is sufficient for the needs of the complex. Most importantly know that you have a very limited time to note a lot of things when you get the resale certificate.
All too often people take this big stack of "stuff" and do not even look at it. I do review it with my clients. There is no way I could put "Everything you need to know about the Resale Certificate" into a blog post. Hopefully this will be enough to highlight some key points, and cause you to read the information contained in the Resale Certificate carefully, before the timeframe expires.
When the ceilings are high, as in this soon to be for sale townhome, I place things to attract the eye upward to highlight the fact that the ceilings are higher than 8 feet. I also try to put some stainless objects up high when the appliances are stainless.
I was watching the Oscars the other night. There was a brief clip of To Kill a Mockingbird where Atticus is telling Scout that you have to step into another mans shoes/skin and walk around in them a bit, before you can know (paraphrased). It reminded me of the many people I have helped find the right home over the years. I try to remember when I stopped showing houses and started finding them.
I remember sitting in my office one day noticing all of the agents who were listing homes of people whom they sold the same homes to a short time before, and wondering why my clients were content with the homes I sold to them. My sister is still in the same house I sold to her in 1992. My sister-in-law and brother-in-law are still in the same home I sold to them around the same time. Every once in a while I do an owner search and find that the people are still there, living in that same house I sold to them, many years later.
Finding the right house to buy has a whole lot more to do with where than which house. People buy a lifestyle. The absolutely perfect house in the wrong place for you, does not seem to make someone as happy as finding the right house in the right place.
I was meeting a man last night in a dark parking lot to show him a property that is not for sale. I met him back in May or June of last year. Since that time I have told him not to buy several properties and last night I took him to the property he should buy. It was what is known as a pocket listing and involved two other agents and no written agreements to pay any of us. For him it was more about the right property and the right circumstances. The right property for him unfortunately is the kind that gets multiple offers. His demeanor and need to process the info, just doesn't lend itself to a competitive environment, so I had to find something that wasn't for sale. No other buyers vying for the same property.
I have three or four buyer clients right now in the same price range, but they all have different profiles. My partner brings me properties for sale and says How about this one for X & X? I say no€¦wrong lifestyle. They need a newer house built in 1995 or 1998 in this neighborhood and that elementary school€¦ He checks with the buyer. They agree with me. He comes back with a condo and says this one is perfect for X! I look at him and wonder why he thinks that, it is obvious to me that X does NOT want to live there. He checks with X and X doesn't even respond.
The X and X couple needs a house in a newer neighborhood where a large percentage of the neighborhood has younger children. Where there are pavements to walk all over with a stroller and maybe a tot lot. A remodeled home in an older neighborhood with no sidewalks and mostly empty-nesters for neighbors, wont do. I have pinpointed the exact neighborhood and am sending letters to all of the homes that would likely sell in their price range. I target the homes based on year built and assessed value using the tax records.
Mr. X needs a condo in a lively area, not too close to work. He is a workaholic and needs to go home. If his home is too close to work he will be tempted to drop by the office nights and weekends. He has to look out of his window and see something relaxing. He needs a territorial view or a lake view and not a lot of business and traffic and yet at the same time, he needs to be able to walk out of his front door and window shop or stop by the coffee house and mingle with people.
Ms. X works from home and needs to be close to downtown Kirkland, but also needs enough space not to be confined while working from home. She needs to be close to her friends and church and yet her price range and space needs predict that she needs to be just outside of where she would most like to be.
I first take people to property to get into their skin and not to find a property. I look into their eyes and watch their body language like a profiler. I take them to properties I pick that are not alike at all. Its like the optometrist who keeps putting lenses with slight differences and saying is this better than that? How about this? Once I find what they like and dint like, usually after showing them 3-6 properties. I go out and get that. Usually its not for sale, yet. I watch for it to come on market or I actively seek it out by writing people who own it. I don't tell people they cant have what they want because it is not for sale, but I do tell them they cant have it if it doesn't exist or is not in their price range. Agents have in their brains and via the tax records, a fairly good handle on the realm of possibilities. Getting access to the mls does not empower the consumer, it limits them to what is for sale.
Don't sit at a computer screen looking at property until you have first identified where you will be happy. Think more about what makes you happy. I like to walk down a street with lots of houses and look at the architecture and flowers in peoples gardens and say hey to the neighbors. Put me in a great house on an acre lot out in the middle of nowhere, and I may love my house, but hate my lifestyle. Conversely, some people hate to walk outside of their home and have someone look over at them and say hey, neighbor! They are like, Oh God, I just want to read my morning paper in peace!
So spend at least as much time knowing where you will be happy as you do calculating monthly payments and number of bedrooms and to thine own self be true. First find your lifestyle match and then your house. You will be much happier in the long run if you do.
There are a thousand stories in the Naked City. This is just one of them.
I was working on my computer one day when I saw some emails coming from Realtor.com
I stopped what I was doing and opened the emails. The emails were from clients of mine whose son purchased a condo from me several months ago. The emails had no messages, just property. Vacant lots out on the coast in Washington that were really cheap $25,000 to $90,000.
I called the clients and arranged for an agent on the coast to take them out to look at those lots and others. They returned here having found a fabulous lot that backed to a canal, one house from the ocean, with an easement access to the ocean directly across the street. It already had septic, water and electric hooked up.
The owners were a couple who owned it for many years and enjoyed it and needed to sell it because the wife was dying of cancer. To make a long story short, the woman left her hospital bed and her husband drove her two hours and the listing agent drove two hours and they met at midnight under the bridge to sign the offer. The woman felt a huge weight lifitng knowing that her husband would have this money toward her hospital bills. She died before it closed with that peace of mind.
It is closing today and I received this message from the listing agent Mr X says he hopes they find as much happiness there as he and his wife had throughout the years.
This area was never on the mls, and so not on the internet, until they joined NWMLS this summer. Had the area not joined the mls, my clients would never have seen the lots on Realtor.com and emailed me. A chain of events started and ends today when it closes.
We are in a business of people. Buyer people and Seller people. We do not sell property, we help people buy and sell property. The people are important. Lets not forget that.
Mar. 3, 2006 - Is your townhome a condo or a single family home?
First, lets all agree that a townhome usually has at least two stories, but you can have a ranch style townhome or rambler style townhome. Usually there is no one over or under you in a townhome, except sometimes, like in Sixty-01, they occasionally stuff a condo under the two story townhome. In the Seattle area a townhome usually has a garage on the first level, main living areas on the second level and bedrooms on the third level. When there is a view involved, especially a water view, it is better to but the main living areas at the top and the bedrooms on the lower levels.
But why is a townhome sometimes a condominium, and sometimes a single family dwelling? Why is it sometimes a single family dwelling when it is attached to other townhomes, and sometimes a condominium when it is not attached at all?
The phrase townhome was coined by the real estate industry to upgrade the term rowhome. Many major cities, like my Philadelphia, have had rowhomes for over a hundred years. As many as twenty five all attached together with no break until you get to the end of row or breezeway. When builders started building attached dwellings out in the suburbs, they didnt want to call them rowhomes and so came up with the term townhomes. Very upscale areas started calling their rowhomes, townhomes, and so the term was created and expanded.
Very simply, if you own the land under the townhome all by yourself, meaning the lots are subdivided at every shared wall from the front of the lot to the back of the lot, then it is a single family townhome or single family attached, much like the original rowhome.
If the lot is not subdivided and you build two or more separately owned structures on one lot, whether they are attached or not, they are condominiums. As far as I know, condominiums are always built on land that is shared and not subdivided per each individual owner. So if you put two separate houses on one lot and sell them two two different people, they are condominiums. If you attach 25 homes in a row, but subdivide the lots so that they own their front yard and back yard and the land under their house, they are single family dwellings.
I always say, when you are sitting in your house, if you own the land under your butt all by yourself, it is a single family dwelling. If the land under your butt is jointly owned with other people, then it is a condominium
Mar. 1, 2006 - Is Your Earnest Money Protected by the Finance Contingency?
While the purpose of the Finance Contingency is to protect the buyer in the event they are not able to obtain a mortgage, more and more the buyer is not covered all the way to the day of closing.
In a perfect world, the buyer submits an offer with a Finance Contingency that runs through the day of closing. If the buyers loan is rejected, the sale becomes null and void and the Earnest Money is returned to the buyer. The seller puts his property back on the market and finds a different buyer.
Finance Contingency addendums are two pages long and much more complicated than the simple explanation above, and much more dangerous to the buyer than they often expect. I have not met a buyer in 15 years who did not expect to get their Earnest Money returned if their loan is not approved. I also have not had a buyer client in 15 years whose loan was not approved
It is becoming common practice in the last few years for the seller to counter the offer by shortening the timeframe on the Finance Contingency. Often this is deemed a minor date change, when in fact it is a major change for the buyer. I have even seen buyers agents write offers with a 30 day escrow and a 15 day finance contingency because that is common practice :0
If you have a 30 day escrow and a finance contingency that expires in 15 days, you are not likely covered if the loan is rejected on the 23rd day. You are also not covered if you did not apply for your loan on time or if you did not submit the documents to the lender in a timely manner.
VERY IMPORTANT, you are also not covered if you do not have enough cash to close.
Suffice it to say that just because you have a Finance Contingency, that does not mean that you will automatically get your Earnest Money returned if you can not close due to financing issues.
ARDELL
DellaLoggia
On Seattle Real Estate including Kirkland, Bellevue, Redmond, Green Lake and most areas around Lake Washington North of Downtown Seattle.
Phone: 206-910-1000 - Mailto:Ardell@RainCityGuide.com
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