The Housechick Blog

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!

A typical home buyer in Tucson goes through two rounds of negotiations with the Seller.  The first decides the price and terms, like how long of an inspection period, the closing date, and who will pay for certain fees.

Round two of negotiations is the fun part.  Once a buyer is done inspecting a home, or when their time runs out, the buyer gets to open negotiations anew and ask for repairs to be made to the house.

Actually, the buyer has a couple of choices at the end of their inspections:

• They can walk away from the deal with a refund of their earnest money, at their sole discretion (as long as timelines are met).
• They can decide to buy the house and proceed with the deal without any repairs
• or they can ask the seller to make repairs to the house.

What kind of repairs can a buyer ask for?  Well, pretty much anything.  The only two no-nos are asking to reduce the purchase price or asking for money.  There’s a loophole for that though: you can ask a Seller to do a list of repairs OR to give you money towards your closing costs, but you can’t just ask for the money and not the repairs.  Okay?

Okay.  So the buyer fills out a form (fondly known as the BINSR, pronounced ben-zer), and asks for repairs.  What now?

Typically, the Seller has 5 days to respond, although that timeline could have been negotiated to a different number in the original contract.  Default is 5 days though.  The Seller has three options:

• They can agree to do all the repairs, having them done in a “workmanlike manner“
• They can say, heck no, I’m not doing any repairs,
• They can come back with a counter-offer to the repair request.  Maybe the Seller will do 3 of 5 repair items, and give a $400 credit to have something else done yourself. 

Once the Seller responds, the Buyer has 5 days to decide if the Seller’s response is good enough for them.  If the Buyer is unhappy with the Seller’s response, they can cancel the contract, and walk away with their earnest money (typically).  If the Seller’s response is acceptable, then the deal moves forward toward closing.

By the way - the Seller has to have any agreed upon repairs completed 3 days prior to close of escrow.  Don’t procrastinate if you’ve got to get repairs done!  If you’re a Buyer, you better be in there at least 3 days prior to closing, checking to make sure the work was done properly.

(As always, the rules and timelines depend on your individual situation and contract.  What I’m describing here is typical, but if you’re under contract now to buy or sell a home here in Tucson, you should go ask your agent for more specific advice!)

Photo via Flickr by marchenland

In the past month, I’ve either used or referred:

• a landscape clean up crew
• weed control services
• pool service guys
• carpet and tile guys
• concrete floors and countertop guys
• countertop and cabinet providers
• termite services
• pest and packrat control services
• painters
• roofers
• electricians
• plumbers
• sewer camera inspections
• home inspectors
• home cleaning services
• handymen
• licensed contractors
• dumpster providers
• property managers
• wall and fence builders
• window and glass replacement

After being in the business for a while, and having remodeled a couple of homes on my own, it’s amazing the number of quality resources that one accumulates.  Most of those folks know me by name, and I know that I can send them to a client’s house, and the job will be done impeccably, that they’ll show up on time, do what they say they’ll do, and clean up afterwards.

You need a dumpster?  Jack’s your man. 

Weeds need to be pulled, and the plants trimmed?  Alberto and Iscela do the best work I’ve ever seen in that department.  Send in Ron afterwards to make sure those weeds don’t come back.

Plumbing gone askew?  You need Wayne.

Feeling good about picking a Realtor who can help you with the house after the sale?  Well… maybe not priceless, but pretty darn close.

In a typical home purchase in Tucson, a buyer gets to inspect the house thoroughly, and then can ask the Seller for repairs.  Something to consider is who will make those repairs.

According to the contract, the Seller is to complete the repairs, in a workmanlike manner. 

Consider this: If you need a couple of GFI outlets installed in the house, do you trust the Seller to know what he’s doing or do you want to call in a licensed electrician?  Did you talk to the Seller about his plumbing skills before you asked him to fix that leaky water heater pressure release valve?

If you don’t specify who will do the work, then the Seller gets to pick.  Maybe the Seller rewires the panel himself, maybe he calls Uncle Bob over to rewire it - Bob was an excellent electrician before the “accident.” (Okay, that’s just silly.)

Often, I see worked called for by a “licensed handyman.”  In Arizona, a handyman may have a license to do business, but that’s it.  They can do business.  There’s no governing board that will enforce a standard of practice for their work. 

The Registrar of Contractors, on the other hand, regulates licensed contractors - people who have been tested and have demonstrated knowledge in their field.

Are there competent handymen?  Oh yes.

Are there incompetent licensed contractors?  You betcha.

But with which do you have recourse if the work they have done is no good?

Do you always need to request the work be done by a licensed contractor?

Well, to give yourself the most protection?  Yeah, especially for the major house systems.  Maybe not if we just need the air filter changed, but for most moderate-to-major repairs, yeah.

In my own home, do I always used licensed contractors instead of handymen?  Well, no.  But that’s my choice and my risk to take!

Got a call from my brother-in-law, who is buying his first house in Wisconsin.  He’s a little nervous, and a lot excited about the whole thing.  He calls me occasionally to get my Realtor-opinion.

Like a lot of first time buyers, he’s learning how to judge a house: figuring out what he really needs and what is important to him in a home.  Given that I’m not familiar with Wisconsin Real Estate, we speak more generally about his options.

Option one is closer to the university where he’ll be spending a lot of time, in a popular neighborhood, and is completely rehabbed.  However, it feels almost too nice, too adult, I think we decided.  The entire second floor is the master suite which huge bathroom, which would leave potential roommates to share the smaller rooms downstairs, which feels a little unfair to him.  This is also the more expensive option.

Option two is in an up-and-coming neighborhood, and needs some work, but is larger and he seems to like the floorplan better.  I’m told the furnace is original to the house, built in the late 1800s.  He’s more excited about the area, but the house would need some renovation.  He was told it would be $20k-30k to do the renovation, which (having fixed old houses) I told him to double immediately.

So let’s play First Time Buyer: which one do you choose and why?  What thoughts do you have that my brother-in-law should consider?

(go make your comments, then come back for my answers…  I’ll wait)

(still waiting… aaaaaaand…….)

Here’s what we discussed:

• Lifestyle.  Are you willing to live in a construction zone for several months?  Can you manage a renovation project at the same time as being in a new city with a new job? 
• Skills: Can you fix little things that may go wrong with an older house?  Learning home repair can be an adventure and at least some fun, is that something he wants to tackle?
• Big Master Bathrooms: Scores points with the ladies…
• Location: how fast is the up-and-coming neighborhood up-and-coming?  His agent should be able to give him some indicator of how quickly prices are rising (or falling) in that area, compared to other parts of the city.
• Big Picture: In 5 years, what’s the plan?  Will you sell it?  Rent it?

What’d he decide?  No idea.  He’s in no hurry, that was just his first house hunting trip.  Which would you pick?