Top Factors To Consider Before You Buy A Home

   
     Whether you are a first-time home buyer entering the market or a seasoned homeowner jumping into the market yet again, there are a few factors that NEED to be considered before you put your signature down.

Financial Status

     First and foremost you need to be fully aware of your financial status, because knowing your financial boundaries is key. If you need a mortgage then it is best to contact a mortgage representative as soon as your ready to begin your home search. The mortgage representative will go over your finances and come up with a price range that you will be able to afford. If you do not need a mortgage or would like to begin figuring what your financial status is on your own, then here is a list of considerations for determining your affordability; Cash available for downpayment, your monthly income, your current debt, and your monthly expenses. Also, your credit score is a key role in your ability to obtain a mortgage as well as a determining factor in what your mortgage rate will be. Better credit means lower rates, so if you have any issues on your credit history be sure to resolve them before you apply for a loan.

Real Estate Agent
     Not everyone will utilize a real estate agent, however I would highly recommend it. From negotiating to utilizing the best vendors, real estate agents can help for a smoother process with less stress and a more beneficial outcome for you. Also, as a buyer you will not be covering any of the commission costs towards the agent because the seller is responsible for that. There are countless reasons to use an agent BUT you need to be very carful to pick the right agent for the job. There are bad apples in every bunch so you need to do your research; search online, ask family and friends for recommendations, and do not be hesitant to interview a few different agents before you make your choice. The agent will be working with you throughout the entire home buying process, so make sure you choose an agent that you can get along with. Also, make sure the agent you choose is familiar with and knowledgeable in the area you are searching.

Location
     Once you have chosen the town or city you will be moving into, the next step is figuring out what part of that town or city is most suitable for you. Make some time to drive through different neighborhoods during all different times of the day and week in order to get a feel for all the areas. Keep an eye out for factors such as traffic patterns, noise levels, and social behaviors. If you happen to see some of the locals outside do not be afraid to stop by and ask their opinion on the area as they would know best.

Utility Costs
     Utilities can really add up for a home and you need to know every expense that you will be incurring to make sure you do not get stuck in an unfavorable situation. Question the seller not only on the amount of yearly expenses but on their frequency of use as well. Not every person lives the same way; the current seller could say that the utilities are low, but the reason for that could be that the seller does not make much use of the utilities. If low utility costs are a main focus of yours then you may want to search for homes with updated, high efficiency appliances.

Resale Value
     The resale value of the home is typically something that is overseen by the buyer, however it is definitly one of the most important aspects of a home purchase. A home is typically the largest purchase you will ever make, therefore you need to make sure you are making a sound investment. Do as much research as you can to develop an estimated future value.

Escalation Clause: A Buyer Tool That May Be Valuable In Today's Housing Market

     As I mentioned in my previous post "Looking For A Home? What To Know & What To Expect" I explained the state of the housing market right now and what you should be expecting as a buyer looking to purchase a new home. Today's housing market is faced paced and if you hesitate at all you may lose the home you are hoping to close on. The "Escalation Clause" may be a useful tool in this type of market, but be careful when utilizing it because it may add more complication then necessary.
     What is an escalation clause? Well, it is quite a simple concept actually and may be the difference between obtaining or losing your dream home when you are in competition with another offer. An escalation clause (Also referred to as "escalator" clause) allows the buyer to submit an initial offer price (x), and if the seller receives an offer higher than that price, the buyer is willing to raise their offer to (y). The three main factors of an escalation clause include the original offer price, the amount that price will be escalated above another competitive offer, and the maximum amount the offer price can reach. 
     Here is an example of what an actual escalation clause would look like: Mr. Buyer submits an offer on a home for $400,000. Mr. Buyer's real estate agent adds an escalation clause that, in the case of a higher competing offer, will raise Mr. Buyer's offer in increments of $1,000 above the competing offer. Mr. Buyer's escalation clause has been set to only be able to reach a maximum of $415,000. So, if a competing offer comes in at $405,000, Mr. Buyer's offer will automatically go to $406,000 due to the escalation clause. If a third offer comes in at $410,000, then Mr. Buyer's offer will increase to $411,000. The amount will not be allowed to exceed $415,000, therefore if one of the two competing offers is raised to $416,000, Mr. Buyer will no longer be in contention for the home. Also, if no competing offers are submitted on the home, Mr. Buyer's original offer at $400,000 will stand.
     Although the concept is simple, using it in a real life situation may be more difficult than you think. Not all sellers will be comfortable with an escalation clause contract because it diminishes the possibility of a true bidding war. It also can be a risky move for the buyer because you are literally putting all your cards on the table and showing your hand. If a buyer is to offer a contract with an escalation clause and no other competing offers come in, the seller's agent will know exactly what the buyer is able and willing to spend on the home and the buyer loses all negotiation power. Therefore, the buyer NEEDS to be very confident that multiple offers will arise on the property in question.
     Every single situation is unique, please consult your real estate agent before deciding to use an escalation clause.

Looking For A Home? What To Know & What To Expect

     Today's Real Estate market is very complicated IF you are unaware of what is going on, so I will give a little breakdown of what I have personally been seeing out there in the market as well as the research I have been doing day by day. 

WHAT TO KNOW

     Right now it is a Seller's market, which means that the seller's have the upper hand when it comes to negotiating and closing on a price. Why do the sellers have the advantage? Think of a simple supply/demand model in which the buyers are the demand and sellers are the supply. If there were the same amount of buyers and sellers then the market would be in equilibrium, but currently there is a lot more demand (buyers) than supply (sellers), therefore the sellers hold the advantage. 

     There are a few reasons for the higher demand, one of which is the mortgage rates. Recently the mortgage rates have been extremely low, especially when compared to the historical averages. Mortgage rates bottomed out a few months ago at just under 3.5%, currently the rate sitz around 4.5% but is expected to hit the 5% mark when we enter into the new year 2014. Another reason for the higher demand is the rising home prices. Buyers would obviously purchase a home at a lower value if they could. Home prices have been increasing consistently month over month for the past year which, in combination with the mortgage rate situation, is causing the urgency to buy a home now. 

     On the other side of the coin, the low supply in the market today is being caused by sellers and banks together. There are a lot of people who would like to list their home for sale right now but the biggest issue seems to be gaining back lost equity from the housing crash. Many homeowners are thinking that they will wait until they gain all their money back before they sell. Although we can all understand this thinking, it is not necessarily the best option. Why not sell your current home and gain equity in a new home? As I mentioned earlier, home prices are rising, so if you were to move into a new home now, you could look at it as an investment and watch your new home increase in value. 

     The other cause is the banks. During the housing market crash, many homeowners sunk underwater on their mortgages and were forced into foreclosure. Well, now that all those homes have been foreclosed upon, the banks are simply holding all of their inventory for the same reason mentioned above, waiting on the home prices to come back up. How can the banks afford to hold on to all these homes? They can because our administration decided to bail out the banks right after the crash and give them a ton of money. When this was done, the banks were given the monetary leniency to hold their inventory. Expect a change in the bank situation soon though. Banks have been holding on to these homes for a while watching the home prices rise, but it is not cheap to do so. As we all know, homes cost money to keep in working condition and the banks can only hold on for so long before they start losing money. Therefore, expect to see more bank owned properties entering the market and helping to fill up the low inventory. 

WHAT TO EXPECT

     Now that you have an idea of why things are the way they are with the market, you need to know what to expect when you go to purchase your next home. Due to the large amount of buyers and shortage of inventory, there will most likely be more than one person interested in the home you are interested in. I have been seeing many multiple offer situations as well as sellers receiving offers ABOVE asking price. Bidding wars are very common right now so be prepared to go up against other offers. If you are very interested in a specific home DO NOT low ball the offer or ask for the extra ordinary; you will most likely lose out on the home. When searching for a home, KNOW YOUR PRICE RANGE! Do not look at homes 10k, 20k, 30k above your price range and expect to get a deal because you will only be wasting your time. Understand that the final negotiated price will not be to far from the listing price. Also, to make sure a home's listing price is relevant to the fair market value, MAKE SURE your agent does a good job pulling comparable sales to double check what the market is indicating the home is worth. Also, do not stop looking for homes once you have decided to make an offer. In a market as tight as this one with a limited amount of inventory you do not want to lose out on any valuable time. So, what I have been instructing my clients to do is this; once we submit an offer we do not stop searching for more possibilities, we will have a list of more homes together and ready to view as soon as possible. That way, if our offer does not go through, or we lose out to another offer, we will already be set-up with appointments so we do not lose out on the other available homes.

Change Of Address Scams

      When someone goes through the exciting process of buying a new home, one of the final steps to completing the move is to officially change your address. Now, after going through such an extensive home buying process, many people will quickly try and get the change of address done by going to the internet and searching what they should be doing. BE CAREFUL! There are scamming companies out there right now who will charge you anywhere around $17-$24 to process this request. Your local United States Post Office will process this request for $1, and if you have the time to stop by the post office they will process your change of address for no charge.

"Some people report they are charged a dollar at first [on these other sites], but then a short time later, there's another charge for additional services they did not knowingly purchase," says Miranda Perry with Scambook.com

There seems to be one site in particular that is drawing a lot of attention for this scam. There have been approximately 150 customer complaints filed with the Better Business Bureau about: Change-My-Address.com. This site advertises, “USPS(R) Change of Address Form. Fast & Secure Mail Forwarding.” Although a spokesperson for this company has come out and said that they state in several places on the website they are not affiliated with USPS, why go through all this hassle. Please save yourself any trouble and simply visit the USPS Website (CLICK HERE FOR THE OFFICIAL USPS "CHANGE OF ADDRESS" REQUEST FORM). Once you go there you can submit your request for $1 or to save any cost at all just visit your United States Post Office and fill out the change of address request free of charge.

ARMs Coming Back Into The Picture

   With the recent upswing in the mortgage rates, the option of an ARM is starting to be explored a lot more with current borrowers. The mortgage rates recently spiked, going from 3.5% in April to over 4.5% as of now in late July which is having a significant impact on peoples' buying power. I know that a few of my clients just recently had to lower their price range by 10 to 20 thousand in order to adjust to the rates. At the same time the 30-year fixed rates are experiencing this small surge, ARMs have been keeping fairly steady, fluctuating between 2.7% and 3.1%. Yes, those rates look very appealing right now; but at what cost? For those of you who do not know what an ARM is, I will explain. ARM stands for "adjustable rate mortgage" which means exactly what is says; the rate is not locked in for the length of the mortgage and periodically adjusts according to an index that reflects the cost of the lender to borrowing on the credit markets. This closer focus by borrowers on ARMs is starting to get some people nervous, but why?
     Well, ARMs are often accused of having a hand in causing the housing bubble. Their low rates and low initial payments are very appealing, HOWEVER that is not the whole picture. You are assuming a hefty risk when entering into an ARM and you need to be prepared for the future. Prior to the housing bubble many home buyers went with an ARM and once the higher reset payments went into effect many were forced to default on their loan. In recent years, fixed rate mortgages have reached record lows, staying steady at 3-3.5%. With rates like that in fixed rate mortgages, it didn't make sense to take on the risk of an ARM, but now with the recent spike, ARMs are back in the spotlight. Earlier this month, the share of ARM activity jumped to its highest level in 5 years (since July 2008, according to the mortgage bankers association.)
     ARMs are based off short term interest rates which are still seeing numbers near record lows. Although, economists are expecting to see an increase in these short term rates fairly soon. Borrowers choosing an ARM will be able to purchase a more expensive home then if they were to go with a fixed rate mortgage, but at what cost? If the monthly payments rise to much because of the variable interest rates, it would be like digging yourself into a hole that you eventually cannot climb out of. The purpose of me writing this is not to scare you away from ARMs as it may be the right choice for you. Just keep yourself informed and make sure you consult with a mortgage expert before jumping into something you may not completely understand.

C21 Adds New Search Option For Buyers' Convenience

     Not surprisingly, one of the most important factors for buyers is the quality of the school system they will be entering their children into. As a real estate agent I know first hand that one of the most popular questions from buyers with children is, "How is the school system" or "Which area has the best schools?" Seeing the significance this factor holds to a large amount of the buyer audience, Century 21 has just added a "Search by Schools" option on their website (century21.com). This option offers buyers a much more convenient method to search for a home location within specific school boundaries. 

“Selecting the right school is an important part of the decision to buy a home,” says Bev Thorne, Century 21 Real Estate LLC chief marketing officer. “We have now made the search easier by delivering data to consumers precisely as they want it.”

     Once buyers are on Century 21's website, they have the options of searching schools by location in a specific state, county, city, or even near a street address. The search options for the buyer go very in depth, including options such as student-teacher ratios, grade levels, public/private, or charter school types. Once the buyer has set all their search criteria, they can simply set a new listing alert and as soon as a new home pops up in their search area they will be notified. If you are a relocation buyer or simply do not know enough about the school systems to make a decision, Century 21 also provides a list of all the top rated schools right there so you do not have to wander the web for information you cannot always trust.