The Housechick Blog

If you read here regularly, you’ll remember I had Lasik done last week.  Given the process involves lasers and my eyeballs, I was more than a little nervous about the whole deal.  I knew I didn’t want to go to one of those huge cattle-call laser eye surgery places, I knew I wanted some personal attention, and I wanted a whole lot of warm-fuzzies from the doctor and the staff before I selected who I would go with.

Just because I was scared of the procedure didn’t mean I wasn’t committed to it.  I just wanted the right person to help me through it all.

Skip to a few days ago when an email arrived in my inbox from a woman looking to buy her first home.  She had a whole list of questions for me, and after a couple of exchanges, she let me know that she firmly believes that buying a home is absolutely the scariest thing she’s ever done.

And when I read that, it made me pause for a bit.  Man, I remember being a first-timer.  I hadn’t a clue what was going on half the time, I didn’t understand the loan stuff, overall, it wasn’t a fabulous experience.

But how awesome is it that this person is taking the time to find an agent that will work in her style, and give her the confidence and knowledge she needs to make good decisions?

So many buyers just end up with some random agent from an open house, or by calling a number on a for sale sign.  I know I did.  More than once.  I wish I had put the same kind of effort into picking my real estate agent that I did picking my Lasik surgeon.

And that first time buyer?  We’re meeting this weekend.  I’ve got a whole bag of warm-fuzzies and lots of questions and answers.  We’re gonna get her through this, making confident, well-informed decisions, with a smile on her face when it comes time to pick up the keys to her new home.

I’ve been thinking a lot about trade-offs lately. 

Whether you’re buying or selling a home, there’s always a trade-off.  Price for location.  Condition for price.  Yard size for age of home.  Condition for age of home.  The list goes on.

I think it’s important to make smart trade-off decisions.  If you’re a geek like me, you could make a weighted scoring function to help you decide.  But if that doesn’t float your boat, you could always just sit down and make a list of pros and cons. 

I think learning how to make those trade-off decisions is the hardest part about selecting a home to purchase.  Your picture of the ideal home may change over time as you see what kind of homes are available for your money in Tucson.

It’s a skill that takes a bit of time to develop, and one that I can help you with, but ultimately the decision is always yours.

I’ve got a sweet first-time buyer couple going through this right now.  Not only are they making a decision which home to purchase, but it’s one of their first big decisions as a couple.  Will it be the one with the big garage and back yard with no HOA and the small bedrooms and new paint needed?  Or the move-in ready one with the smaller yard and garage and the HOA?

I sat down with a first time buyer the other day and we were going through my little buyer presentation and we got to the money section, talking about earnest money and closing costs and down payment - she stopped me and said that everyone is telling her that she shouldn’t have to put any money down as a first time buyer.

Ah, hold on a second there, my dear.   Things have changed since your friends bought houses three years ago.  For one thing, financing has gotten tighter.  Lenders, in general, are much more picky about which loans they will originate and to whom.

She’d been talking to a lender who was rather non-responsive, so we got her to a lender more interested in helping her purchase a home, and we’re working on the financing end.  There are various assistance programs and Seller closing cost credits we can use to help her come in with less money, respectively.  It will depend largely on what kind of loan she wants and her credit scores.

But no money down in general for a first time buyer in today’s lending market?  Not so much the best advice. 

I’ve been working with a couple of first-time home buyers recently, and we’ve had lots of discussions about how to pick the right home.

One of the big considerations is the age of the home.  In Tucson, older homes tend to be smaller and sit on bigger lots than a newer home for the same money.  Older homes have a lot of character, newer homes can be bland.  Old homes may need a lot of maintenance and care, newer homes may not need any work and can need less upkeep.

Ultimately, after looking at a wide variety of homes, you’ll have to figure out what is most important to you for yourself.  Your agent is there to help you work through the decision, but it comes down to personal preference.

If you’ve got an inclination to learn about home maintenance and aren’t scared to take on some small projects, an older home may be the perfect fit.  If you want a home where you’ll have to do the minimum of home maintenance, go for the newer home.

Yards are usually bigger on the older homes.  If you want a huge yard and spend a lot of time outside, maybe you want that older house.  If you are happy with an area just large enough to hold a barbeque and a couple friends without a lot of yard work, maybe that newer home is right.

Either way, there are trade-offs to be made.  My first house was a brand new home on a tiny postage stamp of a yard, and I loved that house, but missed having a big yard.  My next home was an old 1950’s adobe home on nearly a third of an acre, and I loved that house too.  I learned a lot in that house.  Then again, when you’re hip deep in a trench during the third day of digging out your old broken clay sewer line, those new construction homes start looking good!  Either that, or you realize it’s okay to learn some jobs from the sidelines while the professionals do the work.

I’ve been showing some first time buyers homes in a neighborhood called Country Club Manor.  It’s a decent sized neighborhood, about 860 properties or so, and is often attractive to first time buyers on a budget.  The homes were built in the early 1950s, and are usually 2-3 bedrooms, with a single bathroom.  Average prices run in the mid $160s. 

Because these are classic “starter homes,” the turnover is a bit high, at 2.97 years on average.  Typical turnover for Tucson is somewhere between 4-6 years, I’m told.

My Buyer is a bit concerned that high turnover means low appreciation.  Instead of guessing, let’s look at some actual numbers.

Here’s a chart of price per square foot for single family homes from 2000 to present.  The black line is a smoothed trendline for Country Club Manor only, the red line is for all of Central Tucson.

To my eye, Country Club Manor appreciates just as well as the average home in Central. You can see it lagged a little in early 2005, but quickly caught back up.  It’s a little cheaper to purchase a Country Club Manor house than the average Central house - but we knew that already!  That’s why we’re shopping in the area. 

An interesting exercise, nonetheless.  Perhaps we’ll compare rates for the other neighborhoods with contending properties.  I looked for a large Central neighborhood in a similar price range with a lower turnover rate, but didn’t have much luck.  In that price range, homes just change owners more frequently.

This is a story that starts with a Buyer using a family friend to originate their FHA loan, and ends with complete chaos, including a potential $900 fine and me rescuing an appraiser with my special water main valve opening tool.  And no close of escrow - yet.

Let’s start with the Seller being a bank - this is a lender-owned home, it has been foreclosed.  This means my Buyer must sign 11 pages of contract amendments, sign away some rights, various things.  The upside is that he’s buying a house for $20k less than the appraisal.

Being a lender-owned home, it also means that any documentation that must be signed by the Seller will take days, if not weeks, to get signed. 

The family friend, whom my Buyer chose to use, hasn’t originated an FHA loan in a very long time.  He neglects sending out the FHA real estate certification form to be signed by all parties until the day after we are scheduled to close.

This form, of course, must be signed by the Seller - so let’s hope to get that form back by the end of next week.

Remember those 11 pages of amendments?  There’s a $100/day penalty for not closing on time.  And we can’t close without the Seller’s signature on that certification form.  Hello, $900 penalty for my Buyer. 

Pleading on my Buyer’s behalf with the Seller, we have a good chance of getting the fee waived, as we are starting to convince them that the delay is not directly my Buyer’s fault.  No guarantee there yet.

Here’s the lesson - don’t use a family friend in such an important thing as buying a house just because they are a family friend. 

Oh, and the appraiser?  The lender/family friend’s choice?  Was told twice he would have to turn the water on at the street in order to perform the appraisal, and didn’t take any tool out there to help him accomplish that.  And so walked away from the appraisal without completing it.  And now the water service has been canceled as inspections are over.  And he still needs to check the water inside the house.

Luckily, there’s one person involved in this mess that knows how to turn on a water main.  I’ll be running out there with my tool Monday to get this thing done with.

Question from the audience: Why should I work with only one real estate agent?

Answering the Question with a Question: Do you want to go on 100 blind dates or do you want to develop one relationship that works? 

I say shop around until you find someone that you click with: where you believe in the agent’s abilities, can discuss your ideas with them comfortably, and generally find your time together productive, if not also enjoyable.  Be up front that you are shopping.  As in any profession, there are good real estate agents, there are bad agents, and there are average agents.  And there’s a lot of them.  You can’t swing a stick in this city without hitting at least 2 real estate agents.  I think you should find yourself a good one.

And then once you find that person, stop shopping.  If you commit to the right person, it should be a productive and rewarding experience for all involved.  It takes time to really get to know a Buyer’s needs and the why behind all those ideas.  Sometimes, we may need to see how you react to a different type of house, or experiment showing you different sizes or styles.  If you keep switching agents, you have to re-do that part over and over again. 

I think if you tell 5 agents the same criteria, and see 5 houses with each agent, you’re unlikely to find the right home with any of them.  But if you let one agent show you 8 or 10 houses, you’ll find the right one a lot faster, because the agent knows more about you, how you react in homes, and understands why you want the things you do and which houses can fulfill those needs.

So I say shop.  Speed-date, if you will.  And then commit to the best.

When you buy a house in Tucson - or just about anywhere - there are lots of people that provide services to you, from the lender and the appraiser to the tile insurer and the guy that carries the documents down to the city to be recorded.  Naturally, all of these people want to be paid to help you complete your house purchase.  If you add up all those payments to service providers, that’s what we call closing costs.

Closing costs is money paid at the very end of the home buying process.  In Tucson, you’ll probably bring a cashier’s check to the Escrow officer when you come to sign your closing documents.  That’s the check that pays for your down payment and your closing costs.

I’m not going to address your down payment here - it will vary widely depending on what loan program you’ve chosen.  But keep in mind as you read on that the closing costs described here are in addition to your down payment.  Also bear in mind that is is incredibly common to ask a Seller to assist you in paying your closing costs. 

A fast and dirty rule of thumb is that closing costs are roughly 2-3% of the purchase price.  Your agent should be able to provide vastly better estimates than that.

Okay.  So traditionally when you buy a home in Tucson and you get a loan, you pay for all of your own loan costs.  A Seller will typically expect a Buyer to pay for their own appraisal, the secondary title policy (that’s coverage especially for the lender), any origination fee, or discount points paid, things like that.  This is the most difficult part of your closing costs for your agent to estimate, because lenders charge vastly different things!  When you talk to lenders to get pre-approvals, make sure you get Good Faith Estimates, so that when you and your agent start to estimate your closing costs, you can be as accurate as possible by looking at the numbers on the Good Faith Estimates.

Next, the title insurers and the escrow officers want to be paid for providing those services.  Their costs are based off of the purchase price and the loan amount.  Around here, the escrow portion of that fee is usually split 50/50.

Then there are your taxes and impounds.  Impounds are easier to explain.  Your lender wants to make sure that your homeowner’s insurance and your real estate taxes are paid and paid on time, so they’re going to collect a portion of that from you up front.  Usually, you’ll pay one year plus a 2 month proration of your homeowner’s insurance cost as part of your closing costs.  Due to the way lenders calculate and collect interest, you’ll also pay the interest due on your loan from between the day you close and the last day of the month (this is why many people want to close at the end of the month!).  For example, if you close escrow on the 15th of November, then there are 15 more days left in the month, so the lender will collect 15 days worth of interest up front.

The real estate tax costs are sometimes hard to understand, and really deserve a post to themselves.  For now, let’s say that the amount of real estate taxes that are collected up front will depend on the month that you close.  You may have to bring in anywhere from one to 5 months worth of real estate taxes up front.

Finally, there’s some miscellaneous costs.  If you’re buying a house with a Homeowner’s Association, then there might be some fees associated with that.  The Recorder’s office charges to record your documents.  There’s a courier that takes all your signed documents downtown, and there’s some FedEx charges to send your documents back to your lender.

It is important to budget for closing costs when thinking about buying a home.  Gather up your Good Faith Estimates when you talk to your agent, and have them run some estimated costs sheets for you.  No one wants surprises at the end!  Better know what you’re getting into up front.

One last thing - on the Good Faith Estimates, your lender has probably estimated your closing costs.  These aren’t necessarily accurate.  Your agent probably has the best idea of costs for your specific situation, but will need to see your Good Faith Estimates to glean the lender’s costs and add that to their calculations.  Don’t be surprised if you find very different closing cost numbers on your agent’s estimations than on your lenders.

Earlier, we discussed the second round of home buying negotiations: Repairs.  Let’s go back and look at the first round: Price and Terms. 

There’s over 20,000 words in an Arizona Resale Purchase agreement.  There are dozens of possible clauses and contingencies that we may need to include or negotiate with, based on your individual situation.  Negotiating for a home involves a wee bit more than just filling in the blanks on a form.

Let’s look at some of the major items.

• Price.  Obviously, this is a biggie.  However, there’s price, and then there’s terms.  Sometimes good terms make up for a worse price, and vice-versa. 
• Earnest Money.  Earnest money is one sign of a Buyer’s commitment to the deal.  Sometimes, a Seller gets to keep a Buyer’s earnest money, so usually a Seller wants lots of it, and a Buyer wants to give as little as possible.  There’s a balance here to be found, with consideration to the rest of the terms.
• Closing Date.  A typical closing is 30-45 days, but I’ve done them as fast as 10 days or as long as several months.  Sometimes a Buyer or Seller has specific requirements for a close date.  The person with the most flexibility might be able to give the other party what they want here in trade for something else we want more.
• Inspection Period Length.  The boilerplate on the contract says 10 days, but we can negotiate for more or less time.  If you’ve got a demanding job and will have trouble attending inspections, then we need a longer inspection period.  If we’re trying to close fast, then we need a shorter inspection period.  Sellers normally want a shorter inspection period so that they get to repair negotiations faster - if we can’t successfully negotiate repairs and a Buyer walks away, then the Seller can put their home back on the market faster. 
• Who Pays Loan Costs.  Traditionally, a Buyer pays all of their loan costs, but it is becoming more common to ask for the Seller to make a contribution to those (and other) costs.  There are several ways to frame a request for closing and loan cost assistance, so discuss this carefully with your agent, with Good Faith Estimates from your lender in hand.
• Home Warranty.  Some people want ‘em, some don’t.  Built into the contract is the ability to negotiate for one.
• What Stays and What Goes.  Just because the MLS printout says the refrigerator stays, it doesn’t necessarily bind the Seller to leaving it.  Make sure you specifically ask for the appliances.  I’ve had some clients ask the Seller to leave appliances that were not included on the MLS print out.  Just remember that it’s all a balance between give and take. 

There are lots of extra clauses or contingencies that we might need to add, depending on the situation.  Is this a 1031 exchange?  As-is sale?  All cash?  Contingent on another home selling?  Do we need to move in earlier than closing?  Is there a well?  A septic tank?  A Homeowner’s Association?  Is there FHA or VA financing?  Is this a short sale?  Corporate or Bank owned?

When you put pen to paper to sign an offer to purchase a home, you’re making a myriad of commitments.  Make sure you understand the terms and agreement by having an open discussion with your agent!  After all, we’re here to make it all work out well for you.

Image via Flickr, byTT IN THE DESERT

Sometimes people ask me how long it’s going to take to write an offer.  That’s a question I can’t really answer.  It could be 20 minutes, it could take 2 hours.

The typical purchase contract we use in Tucson has over 20,000 words, with dozens of clauses and contingencies that we may need to include or negotiate for, depending on your individual situation.

It’s a little more involved than just filling in the blanks.  It takes some skill and strategy to craft an offer that will protect and promote your interests, while getting us to the goal of mutual agreement with the Seller.

When you put pen to paper to sign an offer, you’re making a huge set of promises.  I need to make sure you understand the obligations and commitments you’re making.  If this is your 10th house, you’re probably already familiar with everything.  If this is your first time buying a home in Tucson, we probably need to take our time and have some discussions along the way.

I guess the real answer is - It takes as much time as you need!