Tuesday, April 28, 2009

How earnest money works in real estate

What is earnest money deposit?
It’s a good faith deposit but no to be confused with a down payment. When buyer execute a purchase contract, the contract specifies how much money the buyer is initially putting up to secure the contract, to show “good faith”, and how much money all together will be deposited as a down payment. The balance is generally financed as a mortgage or a combination of mortgages. An earnest money deposit says to the seller: “Yes, I am serious about buying your house”.
How much earnest money?
Buyers always ask how much of an earnest money is required. Typically, there is no set amount required. The laws in every state may vary. It will primarily be driven from your marketplace and local custom. The amount of the earnest money depends on the type of property you are interested in. A bank owned may want 1%. A HUD property depends on the offer accepted, it could range any where from $500-$1500. If a seller is involved unless they request a certain amount of earnest money your realtor will advise you.
Who gets the earnest money?
Here are a few points to remember! The money is typically held in the escrow account with your agents broker. If it is a bank owned property, they may ask for the earnest money to be held with the title company that will be used for closing.
1. Never give an earnest money deposit to the seller
2. Make the deposit payable to a reputable third party such as a well known real estate brokerage, legal firm, escrow company or title company
3. Verify that the third party will deposit the funds into a separately maintained trust account.
4. Obtain a receipt
Is your earnest money deposit refundable upon cancellation?
First, read your contract. Laws vary from state to state. you may also ask your agent they may advise you to speak to an attorney. If there are contingencies in the contract and you are cancelling because one of them it is a possibility you may be refunded all of you money. Upon cancellation, the sellers and buyers are asked to sign mutual release instructions. Make sure your realtor advises you on these procedures.
How to protect yourself
Things can happen, right? If you pull out of the deal for some unforeseen reason - one not included in the contract - you’ll lose your deposit. However, the seller could also sue you for additional damages or even force you to buy the home. To protect yourself, have a clause in the offer that specifies the earnest money as “liquidated damages” if you are in default. Your real estate agent can help with the language, but this basically means that if you need to default on the contract, the seller can’t ask for more than what you have already included as earnest money.

Should I be concerned about radon in a home?

What is radon?
Radon is an invisible, radioactive gas created from natural deposits of uranium and radium in the soil. Radon gas can be drawn into a building and accumulate to concentrations that can increase the potential for developing lung cancer. Although there are rare cases where the source of the radon has come from building materials created from spent-uranium processing plants, the major source of radon in Colorado homes comes from the natural deposits of uranium commonly found in Colorado geology. High levels of radon are seldom caused by human intervention like other environmental concerns.
Why should I be concerned?
It has been shown in carefully controlled studies on animals, and on hard-rock miners, and most recently confirmed in residential case-control studies, that the effects of the radon decay products (due to prolonged exposure to elevated levels of radon) can significantly increase the potential of lung cancer. Radon is regarded as a Group A carcinogen; that is, it is known to cause cancer in humans with prolonged exposure. Many buyers are concerned about their health risk, as well as property resale value and want to test for and correct radon concerns. The United States Environmental Protection Agency and Surgeon General recommend that people not have long-term exposures in excess of 4.0 pico Curies per liter (pCi/L).
If I find a home with a radon problem should I look for another home?
The presence of high levels of radon should not keep you from buying the home of your dreams. If a properly performed test indicates an elevated level of radon in the home you wish to purchase, it is likely other homes in the same area will have elevated radon. So, if you like the house, consider taking a reasoned approach that will confirm levels and reduce the radon. Perhaps the best news about radon is that radon can be reduced, either before you buy the home, or after you buy it and move in. Of all the problems a house may have, radon is one of the easiest to identify and fix!
How do I test for radon?
Over the last 15 years, reliable testing devices and methods have been developed to determine indoor radon exposures. When using approved measurement devices, you can either determine the radon potential over a short period of time, or an average of radon exposure over a longer period of time.
Radon Potential: This is a short-term test, typically 2-5 days. It is conducted under closed building conditions 12 hours prior to and all during test. The test device is deployed on the lowest occupiable level of the home. This is commonly used at time of resale.
Occupant Exposure: This is a long term test, at least 91 days, up to one year. It is conducted under normal lived-in conditions without special closed building conditions. The device is deployed on lowest occupied level of home. It is commonly used outside of a real estate transaction, or used as the basis of escrow fund release, especially if a short-term test has shown results between 4 and 10 pCi/L.
More Information on Testing
Could there be radon in my water?
Yes, radon can dissolve in the groundwater and be released into the air of the home when it is used for showers, laundry, and other purposes. The concern with radon in water is not widespread and is primarily associated with homes whose water supplies are from wells or public water supplies that use groundwater. The major concern is not with drinking the water, but rather with the additional amount of radon added into the breathing space beyond that which comes from the soil. Normal radon in air tests will measure this contribution, if the house is occupied during testing. It takes a lot of radon in the water to have a measurable effect on the indoor radon concentrations. As a rule of thumb, it takes 10,000 pCi/L in the water to add one additional pCi/L of radon in the air. So always test the air first, before testing or becoming concerned with radon in the water. Your radon testing professional should be able to provide guidance.
How do I treat radon?
Radon is mitigated by installing a system that will draw the radon-laden soil gas from beneath the foundation and exhaust it outside of the building, far enough away from windows and other openings that it will not reenter. A mitigation system typically consists of a plastic pipe connected to the soil either through a hole in a slab, via a sump lid connection, or access beneath a plastic sheet in a crawl space. Attached to the pipe is a quiet, continuously operating fan that discharges the radon outdoors.
The type of mitigation system is a function of the construction of the home, rather than the radon concentrations that exist. A home with more than one foundation can present challenges to collecting the soil gas from under all portions of the building. However, talented mitigation contractors typically can connect multiple systems together so that only one fan system is required. Crawlspace foundations can be more costly, since the contractor needs to install a high density plastic sheet over the soil, seal it to the walls and then route the piping to the fan. However, the added benefit of reducing moisture in the crawlspace, in addition to reducing radon, can be a real plus.
Average U.S. installation cost: $1,200
Expected life span of fan: 11 years
Fan replacement cost: $145-300
Periodic maintenance: none
More information on Mitigation
What impacts the cost of mitigation?
The cost of a mitigation system is a function of the extra effort taken by the contractor to conceal the system and to maintain the aesthetic value of your home. Although a system routed up the outside of the house will reduce radon quite well, it may not be as aesthetically pleasing as one that was routed through the interior of the house with trim installed to conceal it. An increasing number of buyers are getting involved in how these systems will be installed, or waiting until they occupy the house to better control the manner in which their system will be installed.
How do I find qualified radon measurement and mitigation contractors?
Most states recognize qualified credentialing organizations that certify radon measurement and mitigation professionals as well as analytical laboratories. Lists of these trained individuals can be found on the websites indicated below. In addition, your state may also have a listing on the state public health department website. Homeowners should also ask for references; require proof of certification, including agreement to follow protocols and codes of ethics; ask for proof of insurance including workers' compensation; and ask for a clear contract with details of guarantee and warranty

Monday, April 27, 2009

Pickerington Residents and Realtors listen up!!!!

On April 22,2009, The city of Pickerington imposed a fee that you need to be aware of. Starting at the end of May, Pickerington homeowners will pay an across-the-board $25 fee for city inspections of water heaters, furnaces, windows and similar home improvements. Inspections are free now. The city will notify residential property owners about the fee in utility bills being mailed this month. The new inspections bring the city in line with a statewide residential building code that took effect three years ago. Big alterations -- such as room additions, decks and refinished basements -- already required a city building-code permit, which costs $85 in Pickerington.The city building department began the new inspections Feb. 1 and was prepared to charge $85, but some City Council members said that was too high. Pickerington is broadening the list of what home modifications require an inspection permit because it wants to conform to the state residential building code that took effect in 2006.Before, Ohio didn't have a statewide, standardized residential building code. Now, inspectors in communities across Ohio will check for the same things in new and remodeled homes. The new code establishes minimum standards for the construction and installation of major components. Any local government that wants to enforce building standards must use the state's code, which requires inspections for certain home improvements that didn't require them before. Columbus and Groveport are among the central Ohio communities that have already added to the list of what must be inspected, said Don Phillips, who became Pickerington's chief building official last year and began reshaping the city building code to fit the state code. Inspections for minor modifications in Columbus cost $75; the fee is higher for more-complicated jobs.

Tuesday, April 7, 2009

Should I buy a home warranty? What exactly is it?

As a home buyer, should you buy a home warranty?Home warranties cover repair and replacement costs for appliances and other systems associated with a home. They can be purchased by either the home buyer or seller, and are often paid for at closing. If you're constructing a new home it's likely your builder is required to provide a one year builder's warranty for problems you might encounter after closing. The warranties we're talking about here are a little different, since they cover any home no matter what its age. Home Warranty vs. Insurance CoverageDon't confuse a home warranty with a hazard insurance policy. A warranty replaces items that fail on their own. Your hazard insurance takes care of items damaged in fires, by wind, or other covered events. What Does a Home Warranty Cover?Standard coverage differs quite a bit by provider, so be sure to study each policy carefully before selecting one.
Many standard home warranties cover plumbing, appliances, and the heating and cooling units.
Some policies cover the roof.
Coverage for a a private well, septic system, and other items can often be purchased by paying an additional fee. Warranty coverage is sometimes different for buyers and sellers.For instance, a standard policy might not pay a seller's repair bill if the furnace dies before closing, but it will cover the buyer if that happens after the sale. Look closely at the coverage offered for your particular situation. If you're working with a real estate agent, ask for literature from warranty providers. If they cannot give you information about more than one company, follow the links in the box above right to research different providers yourself. How Long Is The Home Covered?The typical home warranty policy is effective for one year with an option to renew coverage upon expiration. The renewal cost might be higher than the fee paid for the initial policy. How Much Does A Home Warranty Cost?Cost varies, but a standard policy is typically $350 to $450. Which items are included in the standard home warranty coverage? Which items must be added on as separate policies? How much extra will it cost to add them? What's the co-payment? This is the amount you'll pay when a repair person comes out to fix a failed system. Similar to a health insurance co-payment, it generally covers the entire cost of the repair. Co-payments vary but are often in the range of $50 to $70 per visit. Has the warranty company been around long enough to show you a good track record for customer service? How Does A Home Warranty Benefit Sellers?A warranty makes your home more attractive to potential buyers, especially if appliances and other items are aged. If two homes are equally attractive to a buyer, the one that offers a home warranty might come out the winner. Buyers shouldn't come knocking on your door after closing if something fails, but that doesn't mean they won't, especially if they feel you didn't disclose a defective item. Providing a warranty offers a little peace of mind. The price of a home warranty is minimal, and since the policy can be paid for at closing you're not out any cash until the home sells. How Does A Home Warranty Benefit Buyers?You may be somewhat cash-shy after coming up with the funds required for closing. All you need is to replace the refrigerator two months later. There are no rules that state who must pay for a home warranty. A seller can offer it as part of a marketing package. A buyer can purchase it or ask the seller to pay for the policy. Both parties can agree to share in the cost at closing. Take a look at several home warranty companies if you think a policy will enhance your home purchase

Monday, April 6, 2009

What are HUD homes and what is the process to buy one?

Department of Housing and Urban Development (HUD) residential foreclosures are available throughout the United States. The sales process for purchasing a HUD home isn't quite the same as you'll encounter when buying a home from an individual, so take a few notes before you go home shopping.
What is a HUD home?The Federal Housing Administration (FHA) is a part of HUD--the part that provides federal mortgage insurance. If a foreclosed home was purchased with a loan insured by the FHA, the lender can file a claim for the balance due on the mortgage. FHA pays the lender's claim, then transfers ownership of the property to HUD, which sells the home.
Why should I consider a HUD home?
These homes are typically well below market value. They are a great investment to consider and most are in good condition and need very little work. Ask your realtor for detailed information on the properties you are considering.
How much do HUD homes cost?HUD homes are appraised, then priced at fair market value for their location. The price of a home in need of repairs is adjusted downwards to reflect the investment the new owner must make to improve the home.
Will HUD make the repairs?HUD homes are sold as-is. The new owner is responsible for all repairs and improvements.
How do I find a HUD home?You can view HUD listings by contacting a real estate agent, or visit http://mollyhay.yourkwagent.com
When you've located a home you would like to see, any HUD-approved real estate office can show you the property. HUD employees do not work with home buyers--you must use an agent.
Do I simply make an offer to purchase a home?HUD foreclosures are sold using a bidding process. There's an Offer Period, during which sealed bids are accepted from your agent. At the end of that period, all offers are opened. HUD will generally accept the highest bid, or the bid that brings them the highest net.
If the home remains unsold after the initial period, bids are opened as received.
If your bid is accepted, your agent will be notified within a day or two. You will be given a settlement date, usually 30-45 days from the date of your accepted contract.
HUD will pay the real estate agent you are working with. The agent that submits the online bid will be the agent getting the commission.
Will HUD finance the home?HUD does not finance homes. You'll need to arrange for conventional or other financing prior to placing a bid on a HUD property. If your bid is accepted, and you do not close on the house, you may lose the earnest money deposit you submitted with the offer.
Should I have a professional home inspection?Home inspections are recommended for any home purchase. You should inspect a HUD foreclosure before you make the offer to purchase. It will help you determine a bidding price, especially if repairs are required.
Homes build prior to 1978 may contain lead paint, so learn more lead paint hazards before making an offer. Other items to consider are asbestos content, buried storage tanks, and other environmental hazards.
Can I buy a HUD foreclosure for investment purposes?During the initial offering, HUD homes are usually available only to those who wish to live in the home. If an owner-occupant does not bid on the home, investors are allowed to enter the bidding process. Your real estate agent will be able to find properties on daily bids that are open to investors.
Does HUD offer other programs?If foreclosures are not sold within six months, HUD will sell them for $1 each to approved nonprofit organizations and government agencies. Homes must then be used create housing for families in need or to benefit neighborhoods.
HUD offers special home purchase programs for teachers and full time law enforcement officers.
For a limited time on HUD homes in Ohio, there is an incentative with only $100 down and HUD will assist you with $2,500 towards closing costs, prepaids, etc.
This is a great time to look at HUD properties if you do not have 3.5% down!!!

Should I use a realtor when purchasing a new home from a builder?

A lot of buyers are unaware that they can have their Realtor represent then for a new construction.Another common Myth that the buyers have is that Builders offer lower price if the buyer buys directly rather than having a realtor in the deal. This is totally a Myth. Infact a realtor might be able to get you a better price than what you can negotiate with the builder. All builders have a realtor commission built into every home rather or not you use a realtor!! It is important to have a realtor that is representing you as the buyer.Here are a few advantages of using a realtor when shopping for new homes:
Purchase contract is a legal document and most of the buyers never pay close attention to what they are signing. There is no standard contract for new construction. Every builder has their own version of purchase contract. The buyers realize a problem only after they get into a dispute during the transaction. A realtor would explain the contract to you upfront and be able to negotiate changes to the contract to your advantage.Buyer is buying a house that will be delivered in future ( A few months later). Most of the buyers go directly to the builder and try to negotiate from the list price based on guess work and end up paying to the advantage of the builder. A realtor has more insight into what is going on in the specific market and can write up a contract that would protect you in a falling market when you are ready to takeover/close.The builders usually keep a considerable amount as upfront deposit. If you ever get into a dispute situation you have the Realtor as your professional advisor ro guide you through the situation and possibly resolve the situation by negotiating with the builder. It is always your Realtor's priority to protect your deposit.The sales offices of builders are staffed with "realtors/Real estate Agents" selling houses for them. If the builder is using a realtor/Agent to sell. Why not you ?Last but not the least. It does not cost you anything to have a Realtor represent you. It is time the buyers start realizing this free benefit and use it to their advantage.

What is this $8,000 tax credit everyone is talking about?

Buying a home is one of the smartest purchases you can ever make. One reason is that homeownership has many positive tax implications. The three most important sources of tax savings for home owners are the:
deductions for mortgage interest
deductions for real estate taxes
capital gain exclusion for the sale of a principal residence
The deductions for mortgage interest and real estate taxes reduce the annual cost of homeownership by reducing the home owner's tax liability each year. For example, a home owner with $10,000 in annual mortgage interest payments and real estate taxes and who falls in the 25 percent tax bracket could realize up to $2,500 in tax savings each year. Home owners who itemize their taxes can deduct from taxable income interest allocable to a first or second home for up to $1 million of mortgage debt and $100,000 of home equity loans. And most state and local taxes paid on homes are also deductible.

When the home is sold, the capital gain exclusion can again provide home owners a tax benefit. Under present law, sellers of a principal residence can exclude from taxation profits from the sale of a home, up to $500,000 for married taxpayers and $250,000 for single taxpayers. With capital gain tax rates expected to increase from 15 to 20 percent in coming years, these tax savings can be substantial.

Research by NAHB economists has estimated the tax savings for home owners for certain income and mortgage amounts. For a married couple with an income of $80,000 per year and an initial mortgage amount of $250,000, the tax savings from the mortgage interest and real estate tax deductions are estimated to save the couple more than $11,000 in the first five years of homeownership. Assuming the couple owns the home for twelve years, these savings grow to more than $25,000 over the time period. Combined with the capital gains exclusion, the total tax savings for the entire period of ownership exceeds $52,000.

For a couple with an income of $60,000 and an initial mortgage of $180,000, the five years tax savings total more than $6,000 and the total savings over a twelve year period are estimated to be more than $33,000.

Combined with the current $8,000 first-time home buyer tax credit (www.federalhousingtaxcredit.com), available for qualified purchases on or after Jan. 1, 2009, and before Dec. 1, 2009, the tax savings from homeownership make buying a home today a rewarding financial decision.