Mortgage Companies Looking for Home Occupancy Inspectors

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					                                                             C      H      A      P      T   E   R   3
                        Helping Your Clients Shop for a Home



Overview

By this time, your clients will have spent a great deal of time planning and thinking
about their criteria for the ideal house and neighborhood. Now they are ready to
begin serious house hunting, perhaps working with a real estate agent, to find the
house that they want to buy. During this phase, you will guide your clients through
the process of evaluating houses, making an offer, negotiating the purchase price,
and obtaining a property inspection.



Finding the “right” house


Sources of leads
Your clients should check out as many leads as possible about houses that are for
sale. This may include the following:

Word of mouth
Your clients should let their friends and acquaintances know that they’re in the mar-
ket for a house.

“For sale” signs
Driving or walking around in search of “for sale” signs may be
worthwhile, particularly if your clients have a good idea of
what neighborhood they are interested in. This is a particularly
good way to find houses being sold by the owners.

Newspaper ads
Classified ads in local newspapers are another good source of
leads. “Open houses” also are announced in the real estate
section, and your clients can do some initial shopping and com-
parative pricing by spending weekend afternoons looking at
houses being shown by real estate sales professionals.

Shoppers’ guides
Home finders’ directories featuring pictures and brief descriptions of houses current-
ly on the market may be available at supermarkets, convenience stores, and news-
stands.


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                           The Internet
                           There are several Web sites that show property listings. One of the most popular is
                           www.realtor.com, which is maintained by the National Association of Realtors. Your
                           clients can search by location, property types, and specific features.

                           Foreclosure sales
                           When homeowners fail to pay their mortgage, the lender may foreclose and resell
                           the house in order to recover the unpaid loan amount. Often such homes are sold for
                           a below-market price. Your clients can contact lenders in your area to obtain a list
                           of foreclosed properties.

                           State disability organizations
                           Many states have established programs to help people with disabilities purchase
                           homes. Many of these programs are affiliated with the National Home of Your Own
                           Alliance, a technical assistance center that offers advice and training to organiza-
                           tions around the country. In addition to providing direct assistance to people who
                           want to purchase homes, these organizations can make referrals to real estate bro-
                           kers and housing counselors who are experienced in assisting with the unique
                           issues of people with disabilities.

                           Your clients can learn more about these programs by contacting the independent liv-
                           ing center in your area or the state developmental disabilities council. Further infor-
                           mation also can be obtained by contacting Fannie Mae’s Consumer Resource Center
                           at 1-800-7FANNIE (1-800-732-6643).


                           Using a real estate sales professional
                           Although these sources will help your clients get started, usually the most efficient
                           method of shopping for a house is to consult a real estate agent. It is important that
                           your clients understand the relationship between a home buyer and a real estate
                           agent. The buyer typically pays nothing for the agent’s services. Instead, the agent
                           is paid by the seller (usually a commission based on the sales price of the home)
                           and therefore represents the seller’s interest in the transaction.

                           It may be to your clients’ advantage to find a real estate professional who will act
                           as a buyer’s agent — that is, who will represent their own interests. They should
                           know in advance how the buyer’s agent is paid. Will they be charged a commission?
                           Or will the buyer’s and seller’s agents split the commission paid by the seller?

                           A real estate agent can provide your clients with an array of services, including the
                           following:

                           •   help determine how much they can afford to spend on a house;
                           •   generate computer printouts of houses that meet your clients’ specifications;
                           •   show your clients houses that meet their requirements;
                           •   provide information about communities and neighborhoods, including the
                               prices and features of houses in the area, location of schools, property tax
                               rates, unusual building code regulations, and availability of community ser-
                               vices;
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Helping Your Clients Shop for a Home
• present your clients’ purchase offer to the seller; and
• provide referrals to mortgage lenders, settlement agents, professional home
  inspectors, and title companies.

A good way to find a real estate agent is by asking for referrals from people who
have recently bought a house. Your clients should try to find an experienced agent
or broker who works primarily in the area in which they are interested. The agent
should have access to the Multiple Listing Service (MLS), which can be used to gen-
erate a computerized list of houses that meet your clients’ specific requirements.
The MLS printout includes comprehensive information about each house:

•   asking price;
•   year built;
•   number of rooms;
•   size of each room (in square feet);
•   type of siding, windows, roof, foundation, wiring, plumbing, heating system,
    water supply, and septic system (if applicable);
•   amount of annual property taxes;
•   appliances included with house;
•   date the house will be available for occupancy;
•   lot size; and
•   type of zoning.

The MLS sheet may also include additional comments from the sellers about the
neighborhood, special features of the house or lot, newly installed appliances, or
recent renovations.

Advise your clients of these tips for working successfully with real estate agents:

• If specific accommodations (such as a portable ramp) are required to enable you
  to look at houses, be sure the real estate agent knows this in advance.
• Look at as many houses as possible, but be sure the agent knows the criteria you
  are trying to match.
• If you feel you are being “steered” by your agent to (or away from) particular
  neighborhoods, report this to the local HUD field office. HUD is in charge of
  enforcing the Fair Housing Act, which prohibits discrimination on the basis of
  race, religion, age, national origin, receipt of public assistance funds, sex, marital
  status, or disability. You may also want to file a complaint concerning the agent
  responsible with your local Board of Realtors.

Above all, your clients should feel comfortable with their real estate agent. They
should feel free to ask questions of the agent and the owners, and they should get
satisfactory, straightforward answers. If they do not feel their needs are being met,
they should contact another agent.


Comparison shopping
Home buyers typically look at as many as 15 houses before choosing one.
Recommend that your clients always have someone they trust accompany them
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                                                                                 Helping Your Clients Shop for a Home
                           when looking at houses. A second person may be more objective and will see fea-
                           tures the home buyer might otherwise overlook. This person can also help your
                           clients take notes and remember details about each house. Comparison shopping is
                           a necessary part of the home-buying process; therefore, your clients should
                           approach it objectively and consider the following tips.


                           Keeping records
                           After your clients have looked at a number of houses, their memories of each will
                           begin to blur unless they keep a written record. Using a form such as Worksheet 2,
                           Housing Evaluation Checklist, can help your clients compare features and prices of
                           houses they see and will help remind them of details about each house.

                           Suggest that your clients make a note of their observations about the exterior and
                           interior of each house, including their first impressions. Advise them to judge the
                           house itself and not the seller’s taste in decorating or housekeeping habits. Taking
                           photographs or videos also helps with the at-home comparisons.


                           What to look for
                           You can encourage your clients to look critically at each house by asking questions
                           such as these:

                           • Is the house located in your ideal neighborhood?
                           • Does it have most of the features you are looking for?
                           • Will you have access to the types of assistance you need if you buy this house?

                           Physical details
                           Suggest that your clients start with what they can see from the outside: the size
                           and age of the house, its general condition and outside upkeep, the lot size, and
                           landscaping. Inside, they may want to make a quick sketch of the floor plan. How
                           many rooms and baths are on each floor? Is there enough storage space? Is the
                           basement finished? Are there built-in appliances? Is the kitchen designed to be a
                           functional work space? Could the house easily be made accessible? Is there central
                           or room air conditioning? Does the basement flood or the roof leak? Are there water
                           stains on the ceilings or walls? Is the paint (or wallpaper) in good repair? Does the
                           flooring appear to be in good shape? Do the toilets flush properly? Is the shower in
                           working order? Are the faucets dripping? Is there evidence of pests, such as ant or
                           mouse traps or other poisons to kill insects?

                           Construction details
                           Whether the house is new or old, the quality of the building materials and the
                           craftsmanship, as well as its condition, are important considerations. Is the house
                           well insulated? Are the windows energy efficient? Is the roof in good condition?
                           Does the house appear to be well maintained? Most home buyers will not be able




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Helping Your Clients Shop for a Home
to answer these questions themselves. Before your clients purchase a house, they
will want to have a qualified home inspector examine the house and give them a
detailed report on the condition of the house.

Major systems
Are the plumbing, heating and cooling, and electrical systems in good working
order? Or does the house need to be rewired and re-plumbed and a new furnace
installed? What type of fuel is used for heating, and what is the approximate cost
per month and year? How much do utilities cost per month?

Owner financing
Is the current owner’s mortgage assumable? If so, is the owner offering to finance
the remainder of the purchase price?

Accessibility
Your clients should consider what modifications will be required to make the house
accessible, how long they will take, and how much they will cost: Some additional
issues to consider are these: Must the work be done before the move-in date? Will
there be areas of the house that are impossible for your clients to access? If so, is
that acceptable to them?


Narrowing the field
As your clients look at houses, they will begin to have a better idea of the types of
homes available in various neighborhoods and which areas they prefer. The more
houses they look at, the more knowledgeable they will become and the better able
they will be to judge whether the asking price is high or low.

When your clients find a house in their price range that they like, advise them to
proceed cautiously and calmly. No matter how perfect the house may seem, they
shouldn’t make a snap decision without going back at least once to take a closer,
more critical look at the house. Recommend that they visit the neighborhood at dif-
ferent times on different days. Are weekday evenings as quiet as Sunday after-
noons? Have they talked with any of their prospective neighbors?

Suggest that your clients have others whose opinions they trust look at the house
before they decide whether to make an offer on it. These may be people from your
clients’ planning group or someone else who is knowledgeable about housing con-
struction. Although it may be tempting, your clients should not jump into making an
offer out of fear that another buyer will grab the house while they’re investigating.
Advise them to never sign papers or put a deposit down on a house without careful
consideration and discussion with their planning group.




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                                                                               Helping Your Clients Shop for a Home
                           Negotiating the purchase

                           When your clients have found a house they want to buy, the next step is to make a
                           purchase offer.


                           Deciding how much to offer
                           Most buyers do not offer the full asking price, at least initially. As your clients con-
                           sider how much to offer, they may want to confer with and seek advice from their
                           planning team. Although the real estate agent that showed them the house will be
                           happy to advise them and guide through the process of making an offer, they need
                           to remember that the agent’s loyalty is to the seller (unless your clients are using a
                           buyer’s agent).

                           Some of the things your clients should consider in determining their offering price
                           are discussed here.

                           What your clients can afford
                           Remind your clients not to offer more than they can afford to pay. They should know
                           what their total monthly housing costs would be including the cost of utilities, prop-
                           erty taxes, and homeowner’s insurance. Advise them not to be tempted to offer
                           more for a house than they can comfortably afford.

                           Market value of the house
                           How does the asking price compare with the market value of the house, based on
                           recent sales of comparable homes in the area? The listing agent should be able to
                           provide a comparative market analysis upon request. Your clients should also check
                           the prices of similar homes that are for sale in the same neighborhood.

                           Condition of the house
                           Before making an offer, your clients should be fairly confident that they are aware
                           of any major problem areas in the house as well as how much it will cost to fix
                           these problems.

                           Circumstances surrounding the sale
                           In deciding how much to offer, your clients should try to determine how anxious the
                           owners are to sell. It is to their advantage to know how long a house has been on
                           the market and whether the asking price has already been reduced. How much did
                           the seller pay for the house, and when? And how much equity does the seller have
                           in the property? (Real estate agents can usually provide this information.)

                           Financing terms
                           The terms of the sale may be as important (or more so) than the price. For example,
                           if the seller is offering attractive financing terms, including paying for the title
                           search, the home inspection, and other settlement costs, your clients may be more
                           willing to accept the price.

                           Accessibility and renovation needs
                           If the house requires extensive accessibility modifications, your clients need to
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Helping Your Clients Shop for a Home
know what modifications are required, what they will cost, and how long they will
take. Advise your clients to get an estimate from a qualified architect or contractor
who has experience with accessibility design and has made similar modifications.
They should ask for referrals from others who have made similar modifications or
from local human service agencies, independent living centers, or rehabilitation
facilities. After the sale has been finalized, your clients will want to get written esti-
mates from at least three contractors before selecting a contractor to do the work
(see Chapter 6 for details).


Purchase and sales agreement
Once they have settled on an initial offering price, your clients are ready to submit a
“purchase and sale agreement” to the real estate agent. This is a signed offer to
purchase the house for a given price under specified terms. Your clients should be
sure they understand all the terms of the contract before they sign it and submit the                   before
offer. Real estate agents are required by law to deliver all offers to the seller, even
if an offer is far below the seller’s asking price.

The purchase and sale agreement is a legally binding offer to purchase a property. It
should include at least the following:

• complete legal description of the property;
• amount of the deposit accompanying the offer;
• offering price;
• size of the intended down payment and how the remainder of the purchase will
  be financed (including the maximum interest rate your clients are willing to pay);
• personal property included. To avoid any misunderstandings or surprises, the con-
  tract should list everything that the owner has said will stay with the house or
  that your clients want the owner to leave behind. Advise your clients not to rely
  on the seller’s verbal agreement that specific appliances or personal property are
  included in the sale;                                                                                 after
• proposed closing date and occupancy date. The contract may include a provision
  that the seller will pay rent on a daily basis in the event they haven’t moved out
  by the agreed-upon date (usually the closing date);
• closing costs to be paid by the seller (see Chapter 5 for details);
• clear title. The contract should state that the purchase is subject to the buyer
  receiving clear title to the property. Clear title means there are no legal questions
  as to who owns the property. The title search and title insurance are discussed in
  Chapter 5;
• all systems in working order. Your clients may want to stipulate that the sellers
  are responsible for ensuring that the plumbing, heating, mechanical, and electri-
  cal systems are in working order at closing;
• length of time the offer is valid (generally three to five days); and
• any contingencies.
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                                                                                  Helping Your Clients Shop for a Home
                           Contingencies
                           In addition to the basic terms of the sale, buyers generally include certain contin-
                           gencies in the sale and purchase agreement. These are conditions that must be met
                           in order for the contract to take effect. Following are some common contingencies:

                           Financing terms
                           The contract should state the purchase price, the amount of the down payment, the
                           total loan amount, and the exact financing terms your clients will accept, as well as
                           how long they have to find the agreed-upon financing. A financing contingency
                           states that if the buyers are unable to get a loan with the specified terms, the con-
                           tract will be canceled and their deposit refunded. In turn, the seller may insist that a
                           clause be included requiring the buyer to make a “good-faith effort” to obtain the
                           mortgage.

                           Appraisal contingency
                           Mortgage lenders require a professional appraisal of the market value of the proper-
                           ty before they approve a mortgage. If the appraised value of the house is lower than
                           the agreed-upon purchase price, the lender may deny the loan. An appraisal contin-
                           gency gives the sellers the right to withdraw their offer or renegotiate the purchase
                           price in this situation.

                           Satisfactory home inspection
                           The sales contract should be contingent on a satisfactory report by a professional
                           home inspector. If a major problem with the structure or systems of the house is
                           uncovered, your clients then have the right not to go ahead with the purchase or to
                           renegotiate the purchase price. The buyer almost always pays for the home inspec-
                           tion, whereas the fees for other inspections may be negotiated between the buyer
                           and the seller.

                           Te r m i t e a n d o t h e r i n s p e c t i o n s
                           It is standard practice to require the seller to pay for a termite inspection and to
                           require a written certification stating that the property is free of termite infestation
                           and that any damage from past infestation has been repaired. Other inspections
                           that may be included as contingencies include the following:

                           Water inspection. If the property is not attached to a municipal water supply, the
                           buyers may request a contingency stating that the water must be tested and
                           deemed suitable for drinking.

                           Radon inspection. Radon is a naturally occurring, odorless gas that can seep into
                           houses and cause health problems. If your clients have concerns about radon, they
                           can require a radon inspection as a contingency in the contract. For more informa-
                           tion about radon in your area, your clients may want to call the state or county pub-
                           lic health department. Or they may contact the U.S. Environmental Protection
                           Agency (EPA) at 1-800-438-4318 or via the Internet at www.epa.gov.

                           Lead-based paint inspection. For older houses, buyers may want a professional
                           inspection or risk assessment of lead-based paint hazards. A lead paint inspection

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Helping Your Clients Shop for a Home
will indicate what surfaces are coated with lead paint. A risk assessment will iden-
tify any lead hazards — such as peeling paint or contaminated dust — and what
steps are needed to correct them. The sale may be made contingent on this evalua-
tion. For further information about the dangers of lead-based paint, suggest that
your clients contact the federal lead information hotline at 1-800-LEAD-FYI (1-800-
532-3394).

Guardian or probate court concurrence
If your clients have a court-appointed guardian or conservator to help them manage
their financial affairs, the guardian is probably required to sign any legal agreement
or business transaction (such as the sales contract) into which your clients enter.
Your clients should check the laws in their state before making an offer to buy a
house. In some states, approval of a probate court judge may also be required. If so,
the sales contract should state that the sale is contingent on the approval of the
probate court.

State certification
If your clients receive financial or other assistance from an agency, the state may
require that their home pass an inspection. In this situation, state certification may
be an important contingency in the contract.


Earnest money (deposit)
Home buyers are usually expected to submit a “good faith” payment with the offer
to show the seller that they are serious about buying the house. There is no set
amount, and what is customary differs by location. The deposit check should be
made out to the real estate firm that is handling the sale, not to the seller. The
earnest money is deposited in an escrow account to be returned to your clients if
the seller does not accept their offer within a specified number of days. Make sure
your clients understand that they may forfeit this money if their offer is accepted by
the seller and they then decide to back out of the deal.


Negotiating the final purchase price
The seller may respond to your clients’ purchase offer in one of three ways: by
accepting it, by rejecting it (in which case your clients must decide whether to make
another offer), or by making a counteroffer. If the seller makes a counteroffer, advise
your clients to take their time in considering it. They may respond to a counteroffer
with another offer — for an amount somewhere between their original offer and
the seller’s counteroffer.

Generally the real estate agent presents the buyer’s offer to the seller and relays
the seller’s answer back. The agent continues to act as the liaison between the
buyer and seller throughout the negotiating process. Buyers may be expected to put
a larger deposit down (again, to be set aside in escrow) once the seller has signed
their offer to buy. However, they are not required to put down the entire amount of
their intended down payment as a deposit.

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                                                                                Helping Your Clients Shop for a Home
                           The home inspection

                           If your clients’ purchase offer is accepted, they should have the house inspected by
                           a qualified home inspector. Although the buyer must pay for this inspection (approxi-
                           mately $250 to $400), the resulting peace of mind is well worth the expense.


                           Finding a qualified inspector
                           Your clients should try to get a referral for a home inspector from a satisfied home-
                           owner. If necessary, they can find firms listed under “Building Inspection Service” in
                           the Yellow Pages. They should ask for and check references from three recent cus-
                           tomers. They can also check that the inspector is a member of the American Society
                           of Home Inspectors (ASHI), a nonprofit organization that sets rigorous standards for
                           its members. ASHI’s Standards of Practice are the most widely accepted home
                           inspection guidelines in use today and include all the home’s major systems and
                           components.

                           To obtain the names of local members of ASHI, your clients may call 1-800-743-2744
                           or access the Web site at www.ashi.com.


                           What the inspection includes
                           The home inspection is not the same as an appraisal. The inspection is meant to
                           evaluate the structural and mechanical condition (not the market value) of the prop-
                           erty. The inspector’s report is based on observable, unconcealed structural condi-
                           tions. The inspector will not guarantee or warrant the condition of the home or
                           determine whether it is in compliance with local building codes.

                           Urge your clients to accompany the inspector on his or her rounds. They will pick up
                           valuable maintenance tips along the way, have a chance to ask questions, and learn
                           more about the extent of possible problems. They will also be in a better position to
                           understand the inspector’s written report.

                           A pre-purchase home inspection should include an evaluation of at least the
                           following:

                           •   foundations;
                           •   doors and windows;
                           •   roof and siding;
                           •   plumbing and electrical systems;
                           •   heating, ventilation, and air-conditioning systems;
                           •   ceilings, walls, and floors;
                           •   insulation;
                           •   septic tanks, wells, or sewer lines; and
                           •   common areas (in the case of a condominium or cooperative).



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Helping Your Clients Shop for a Home
The home inspection professional should also check for the following environ-
mental hazards (in addition to radon and lead-based paint, which were discussed
previously):

Asbestos
Asbestos was used as insulation in homes and businesses for many years before it
was found to cause health problems. If the house is more than 20 years old, your
clients may want to hire a qualified professional to inspect the home for asbestos
and recommend corrective action, if called for.

Formaldehyde
Formaldehyde is a colorless, gaseous chemical compound that was a common ingre-
dient in the foam used for insulating houses until the early 1980s. It can cause irri-
tation of the eyes, nose, and throat and is suspected of causing cancer. A qualified
building inspector can examine the home for formaldehyde-emitting materials.
Home monitoring kits are also available. For a new home, check with the builder to
see whether construction materials containing formaldehyde were used.

Hazardous waste sites
Generally, testing for hazardous waste involves skills and technology not available
to the average homeowner or home remodeling contractor. The EPA has identified
more than 30,000 potentially contaminated waste sites nationwide. Advise your
clients to contact the nearest regional office of the EPA for information on the loca-
tion and status of hazardous waste sites.


Using the inspection report
An inspection report serves the following purposes:

• identifies problems before the purchase and prevents unpleasant surprises later;
• enables buyers to cancel a purchase agreement (and get their deposit refunded)
  if serious problems are identified;
• helps buyers negotiate an adjustment in the purchase price if they want to buy
  the house in spite of the problems;
• may influence the seller to agree to pay for needed repairs, either before the
  sale or after the sale using escrowed funds; and
• gives the buyers confidence about going ahead with the purchase.


The inspector’s report will not include a recommendation as to whether or not your
clients should buy the house, nor will it evaluate the purchase price. If major flaws
are uncovered, the report should give your clients some idea of what it will cost to
repair or replace the problem. Warn your clients that a reputable home inspector
will never offer to perform the needed repairs and should not refer them to a con-
tractor to perform such repairs.




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                                                                               Helping Your Clients Shop for a Home
                           Home-buying checklist

                           This checklist will help ensure that your clients find a suitable house and successful-
                           ly negotiate the purchase price:

                           _____ Identify the features you want in your ideal house and neighborhood.

                           _____ Choose a real estate agent who knows the neighborhood.

                           _____ Find a house that meets your needs and submit a carefully considered offer.

                           _____ Include all relevant contingencies in the purchase contract.

                           _____ Negotiate the final purchase price.

                           _____ Obtain a home inspection.



                           Summary

                           With your guidance, your clients should meet with success in working with a real
                           estate agent, shopping for a house that meets their needs, presenting their offer to
                           the seller, negotiating a final purchase price, and obtaining the services of a profes-
                           sional home inspector. If the home inspection and other contingencies included in
                           the contract have been resolved, the next step is for your clients to obtain the
                           financing they need. Shopping for a mortgage is the subject of the next chapter.




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Helping Your Clients Shop for a Home

				
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