Buyers and Sellers Answers to Frequently Asked Questions

“Pre-qualified” vs “Pre-approved”?

If you are “pre-qualified” you have determined, with a loan officer, what price you can afford based on the down payment, your debts and the amount the mortgage company will approve for your mortgage. Being “pre-qualified” is only a determination of your probable credit. If you are “pre-approved”, your credit, employment and funds have been approved by the lender.

What are closing costs?

Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers, they are usually about 4-6% of the total sales price of a property. Some of the closing costs you might encounter are: application fees, appraisal fee, county taxes, credit report, discount points, documentation fee, escrow fees, homeowners’ association fees, load fees, mortgage insurance, origination fees, tax registration and title insurance premium.

What is a point?

One point is equal to 1% of the new loan amount. Whenever government regulation, state usury laws and/or competitive practices prohibit the lender from charging a rate of interest that would make the real estate loan competitive with other fields of investments, the lender must seek some method of increasing the yield for the investors. By charging “points”, the lender can bring the real estate loan up to those other investments.

What is earnest money?

When you make an offer, you will need to put up an earnest money deposit as a sign of good faith that you are seriously interested in buying a home. That deposit becomes a part of the purchase price and is held in a trust account until there is full acceptance of the offer. Typically, an earnest money is 3-5% of the offer amount.

Who does the real estate agent work for?

This depends on how the agency relationship was established. If the seller has listed his or her property with the agent, then they are the principal/client. The agent works for the seller in this instance. If the buyer has entered into a buyer brokerage agreement with the agent, then the agent works for the buyer. The buyer is the principal/client. Good real estate practice requires that a listing and a selling agent provide to their respective principals in a real estate transaction with oral and/or written disclosure of which the agent represents in the transaction. A pamphlet, which describes agency as written by the State of Washington is made available and given to the clients. If it’s a buyer, a buyer agency agreement is signed by the buyer; for a seller, a listing agreement is signed.

How much will my property sell for?

It really depends on current market conditions. Your true need to sell will dictate the price you are willing to accept. A lower price will bring a faster sale. You need to be careful of the “window of values”. Price it too low, in relation to comparable homes for sale, and you may attract buyers who think it’s a fire sale and you will take even less. Price it too high and you’ll never see an offer. The “just make an offer” thought never seems to work. The buyer will think if they do make what they deem a reasonable offer, it may offend you.

What is an appraisal?

An appraisal is the process of formulating, supporting and communicating an opinion of value. It is usually required when real property is sold, financed, condemned, taxed, insured, or partitioned. Remember that an appraisal is an estimate, not a determination of value. The appraiser does not determine value; parties to the transaction establish value.

An appraisal may be in the form of a lengthy written report, a completed form, a simple letter, or even an oral report. Note: When a home is being bought, the appraiser most always uses a pre-printed format and fills in the necessary data as required by the lenders. The report is prepared in accordance with the Uniform Standards of Appraisal Practice. The purchaser will pay for the appraisal, the lender will order it to be done, and usually the listing agent will be at the home during the appraisal process. If it’s new construction, often times the builder will also be there.

I need to insure my home?

Correct. In fact, the lender will require insurance regardless of how big of a down payment you have. A homeowner’s policy is a combined property and liability insurance policy designed for owners. There are a variety of these packaged policies designed for owners of single-family dwellings, for tenants and condominium owners. These policies can also be endorsed for additional coverage, such as inflation guard, an art collection, flood insurance, etc.

Who does the negotiation for me?

In the true sense of the word negotiation is the transaction of business with the aim of reaching a “meeting of the minds” and final settlement among the parties that are bargaining. In the case of real estate, it’s usually a home, some land, perhaps investment property that’s at stake. The agent who you hired will negotiate in your behalf. It’s sometimes hard for the people to bargain for themselves and at other times personalities can get in the way. The agent will act as a buffer between the parties, and in doing so, will soften the back and forth offers given by the principals. This softening can make all the difference in final completion and total agreement.

Do I need a bank or mortgage company to buy a home?

The answer is no. If the owner of a property owns it “free and clear” or has an underlying loan that is assumable (with or without qualification), you can buy without using an institution’s money. The easiest way is when the property is free and clear. The real estate contract is a written agreement between the seller and buyer for the purchase of real property. The purchase price is paid in installments, usually principal and interest, over the life of the contract with the balance due at maturity. Many things are negotiable; interest rates, amortization schedule, and cash out time periods. Remember, there may not be a lender involved (no underlying mortgage) so care needs to be taken when writing the purchase and sale agreement.

Will my agent have all the legal papers I need to buy my house?

Your agents real estate company should supply all the documents necessary for the purchase of the home.

Timing is very important to my family, how can we be assured everything will go smoothly? A seasoned agent can help enormously. Getting everything agreed to up front in the original purchase and sale agreement is vitally important. No surprises, that’s my rule. Especially the move out date for the seller, and the move in date for the buyer. It can’t be the same day. Sounds nice on paper, but in reality it can be a nightmare. Make sure your agent has a firm grip on the various areas of timing in the transaction. Getting the needed repairs done on time, when to order the appraisal, when to order the home inspection, will water tests be necessary, how about the septic tank, should it be pumped? These are just some of the timing issues your agent should know about.

Do I need a home inspection?

The home inspection is done for the buyers and is paid for by the buyers. The appraisal is done for the lender, and is also paid for by the buyers. Home inspections are usually done when the buyer sees an older home that they want to buy and is unsure of it’s current condition. Home inspections are very thorough indeed. All aspects of the homes integrity are checked out. Electrical, plumbing, roof, foundation, appliances, pest and dry rot, gutters, siding, just about anything you can think of is looked at and gone over. Many homebuyers are starting to get home inspections on new construction as well. Peace of mind is what it’s really all about, and it’s worth every dime.

What is a mortgage?

It is a legal document used to secure performance of an obligation, a pledge to pay back a loan. In the real estate transaction, the buyer of the real estate needs or wants to borrow money to pay the seller the difference between the down payment and the balance of the purchase price. When the lender loans the money, the buyer-borrower is required to sign a promissory note for the amount borrowed and execute a mortgage to secure the debt. The purpose of the mortgage note is to create a personal liability for payment on the part of the borrower. The purpose of the mortgage is to create a lien on the mortgaged property.

In effect, the mortgage states that the lender can look to the property in the event that the borrower defaults and fails to make payments on the loan. The lender can start foreclosure proceedings to sell the property and retain that part of the proceeds from the sale to pay the remaining unpaid balance of the note.

What is title insurance?

Title insurance protects the named insured against loss because of defects, liens, encumbrances, adverse claims or other matters not shown or disclosed to the new owner that attach before date of policy.