St George Utah First Time Buyers – Home buying 101
If you haven’t read my first or second installment of this first time buyers 2013 guide to buying a home in St George Utah, you can check it out here: First Time Buyers Part One, First Time Buyers Part 2.
Part three of this step by step home buyers guide for buying a home in St George will focus on discuss how to GET your dream home and what to expect during the negotiation process. This will include tips for asking the seller to pay closing costs, obtaining a home inspection and the preliminary stages of opening escrow.
So after the various homes you’ve looked at both online and in person, you have finally found “the one”. Perhaps you knew it the second you entered the home, or perhaps with a little push from your significant other you’ve come to the conclusion that “it will work”. Great! What’s next? Out here in St George Utah, the real estate market for late 2012 has been intense. Moving into 2013 I expect this trend to continue, and with our inventory reducing it’s very likely that buying conditions will become increasingly difficult. Step one is making an offer
Step One, the Offer
With your real estate buyer’s agent, you should review the comparable homes that have sold in the area. It’s important to understand what other homes have sold for in the past 6 months. Maybe you’ve looked at EVERY home available for the past 3 months and you know the prices of everything, so you make an offer without first reviewing the comps—how will you feel when the appraisal comes in a little low because a similar home around the corner (which was LISTED for the same price) actually SOLD for $10,000 LESS than what you offered? Perhaps this information would have skewed your decision on what you initially offered on the home you selected. How can you make an offer without first realizing what is going on in the market? Just because a house is listed for a particular amount does NOT mean is actually sold for that amount.
On the flip side, you may find yourself making repetitive offers on homes and ultimately getting out bid by others. The reason? If you find a home that is priced VERY well here in St George, and you’re insistent on making an offer BELOW asking price (so you feel like you’ll get a ‘deal’) you may learn the hard way that the deals are not always achieved by going BELOW asking price. Often, it is a technique for a seller to price the home on the low side, in an effort to generate extreme activity and an ultimate bidding war. This technique proves successful for sellers in St George Utah. Their home is sold at lightning speed—but not necessarily OVER VALUE. You see, there is a difference between listing price and actual VALUE. If a home is priced at $150,000 and this home is superior to homes you’ve seen priced at $160,000—next you’ve run the comparable recent sales on similar homes only to find that a couple of homes have sold for $162,000; why would you go in with an offer of $145,000? It’s not going to happen, and after a few attempts you may realize this.
Here is a scenario: You are in a price range of $160,000 to $170,000 and this home is priced at $150,000, it is nicer than 2 other homes you saw priced at $170,000, comparable sales support a price of $162,000, your agent has reported this property is generating a lot of attention (and/or another offer is already on the table)… this is NOT the time to go low! You’ve got to be realistic. If the home is worth $162,000 in a market that is showing signs of improvement such as our current St George real estate market, there is no reason why you should not pay that amount or even another $1,000 to $2,000 to ensure your offer will be accepted. Over the past year here in St George, we have experienced steady market improvement and reduced inventory; this is creating appreciation. So the buyers who paid a few thousand dollars over asking price LAST year, are now likely sitting on equity. Recently, I’ve seen as much as $100,000 in equity from homes that were purchased within the past two years and re-sold late in 2012 (although the average equity on a number of other homes was less, in the report I ran it showed several homes achieved $10,000 to $40,000).
Will the Seller Pay Closing Costs or Does The Buyer Pay Closing Costs?
Who pays the closing costs? In Utah, the buyer is responsible for their closing costs. The seller will have some of their own title and transfer fees to pay, but it is the buyer’s responsibility to pay their closing costs. Buyers CAN request the closing costs to be paid by the seller, and this can be attractive to the buyer. This will reduce the amount they will be required to pay at closing. The buyer will still pay their “down payment” however; closing costs involve fees that come from the title transfer and the lender in order for the buyer to obtain the loan. These fees can involve most nonrecurring fees, such as points paid and appraisal (if rolled into the loan). This can cost anywhere from $4,000 to $7,000 or more—there are many factors to consider and if you’ve already been pre-qualified you’ll know the exact fees already.
Many first time buyers will arm themselves with a plethora of information and negotiating techniques for reducing the bottom line on their offer, unfortunately you must forgo the information you read about, with the exception of this article :-) and listen to your agent. All markets are different, and the same market can shift seemingly overnight, so any technique must be evaluated and will be determined by the current condition. Can you ask for the seller to pay for closing costs? Perhaps. In our St George Utah real estate market, we can ask for the seller to pay closing costs, and many times this is possible. Here are a few scenarios to consider. You cannot make a low offer on an attractively priced home AND ask for closing costs to be paid for by the seller. Doing this is surely a set up for a rejected or outbid offer, in our current real estate conditions. Many buyers will make an offer ABOVE asking price to offset the closing costs. Really, this is only a method of escaping out of pocket costs and rolling the costs into your own loan; leaving you with more money in your pocket. The seller is not actually paying the closing costs; the buyer is paying for it within their loan. This could make sense if you need some extra money, but you’ll be paying for that extra each month for the life of the loan. So long as the appraised VALUE arrives at or above the contract price, this technique will work. Perhaps there is a home that is overpriced, it’s possible to make a lower offer that is more in line with the actual value AND ask for closing costs. There are many factors for when this can work, so it’s a case by case basis and your agent will be able to evaluate and advise you. If you plan to ask for closing costs to be paid, this may limit the inventory available to you.
Here in St George, most homes sell at or very close to market VALUE, this includes foreclosures. Just because it’s a foreclosures does NOT mean the bank will sell under value. All prices are determined by the market conditions, which is why it is imperative to understand those conditions and comparable homes sales PRIOR to making an offer. So, with your agent, you’ve reviewed the comparable sales and market conditions and you’ve made an offer and your offer was ACCEPTED. Now what?
Here in St George, the market moves QUICK…so a buyer must move even quicker to have any chance at a home. Fortunately, our contracts are written in favor of the buyer, which essentially allows an escape clause should they discover something about the home that will not work for them. A buyer may find a hot property, rush to make an offer, get under contract and then realize that the home needs a new roof, or it’s located to close to something undesirable that was not previously noticed by the buyer. Typically the buyer will have 7-21 days for their due diligence in which to complete ALL inspections of the property. This is YOUR time to understand everything you need to about the home. Drive the neighborhood, contact the police department for crime stats, visit the schools, note the distance to markets, hire a home inspector and evaluate every element of the house. Should you discover something that will not work for you, you can cancel the contract within the designated, predetermined timeline and your earnest money will be returned. Your contract will illustrate all of your timelines.
Due Diligence and Title and Escrow
The contract is accepted and escrow is now open. The home will move into “pending” or “under contract” status and you will begin the next phase. Typically the first two weeks are mildly stressful. You’ll have a list of tasks to complete and information being requested from the Title Company (title agency) and/or the Lender and you’ll be receiving various reports such as the title report on the property. You’ll start working on your “due diligence” which is your time to understand EVERYTHING you want to know about the property. Maybe you’ll knock on the doors of a few neighbors and ask them about the neighborhood, you’ll likely hire a home inspector, and perhaps other inspections will be required. Your agent will now serve as your assistant and task manager; a liaison of sorts between all of the parties involved. The agent will be guiding you through what you’ll need to consider and reminding you of your timelines in which you have to complete each task. They will offer recommendations for various companies you may need and for first time buyers, the agent will be there to “hold your hand”. This is a scary time! You’ve just made the biggest purchase of your life and your agent should be there for moral support. Due to the fact that agents buy and sell homes on the daily basis you can take comfort in the fact that we totally understand the process.
Hire a Home Inspector
Home inspectors are excellent tools to utilize for assistance understanding the components of the home, and if the major components are in good working order. They will climb up on the roof, inside the attic, check the furnace, and tackle all of the areas that the average home buyer may not be able to check. Typically they will discover a list of normal wear and tear. The seller will NOT fix every crack in the concrete or a few areas that could use caulking. If however, the home inspector uncovers something that compromises the safety or integrity of the home, the buyer and seller can negotiate those items be fixed or the buyer has the ability to cancel the deal and their earnest money is returned. The seller does NOT have to fix ANYTTHING. If it’s a safety or structural thing, it’s likely they will consider it (because now they must disclose this to the next buyer) but they DO NOT HAVE TO FIX ANYTHING. The buyer is still obligated to pay the home inspector, even if they do not buy the home.
Once you’ve passed the home inspection, next is the appraisal (the appraisal could be completed first, there is not a required order between the two). Because you have already reviewed the comparable sales in the area for similar homes, the appraisal should not produce unexpected information. Keep in mind that an appraisal is just an opinion from a person who is researching the same comparable sales you reviewed. They may have decided to include a home in their comps that you feel was not altogether accurate but it’s still likely to come in very close to the numbers you and your agent arrived at after reviewing the comps. If it comes in a little low, you have the option of renegotiating the deal or walking away and have your earnest money returned. Just because it comes in low, does NOT mean the seller will automatically reduce the price; in most circumstances an agreement will be reached and often the seller will reduce, but NOT always. It is their choice to do this, just as it is the buyer’s choice to pay the higher amount or walk away; it’s imperative you watch your timelines and consider your options prior to your Finance and Appraisal Deadline.
Tips for buying a home, St George Utah home buying 101 in the next article (#4), we’ll discuss the real estate closing and settlement process, what to expect during closing in Utah, as well as the difference between “closing” and “recording” in Utah. This will explain when the buyer will receive their keys and the when they can move in.