Buyer Information By Glenn Wisenbaker Sales Agent A Statement of My Policy I am committed to meet your expectation of excellence. High professional and ethnical standards have contributed to my success. My ―Customer First Attitude‖ and attention to detailed follow-up enhance my ability to be of benefit to you in your real estate transaction. Any other personnel such as loan officers, insurance companies or home inspectors, that I may refer you to, are individuals I have selected for their professionalism, integrity and share in my ―Customer First Attitude‖. However, you are free to choose whom you want to assist you in any of these areas. I sincerely want to make the purchase of your first home as stress-free and as pleasant as possible. I am not satisfied until you are. It is my pleasure to assist you with your pending move and transition. The material in this booklet will provide information for you about the home buying process. If you have any questions or specific needs please let me know. Thank you for this opportunity. I look forward to helping you. Sincerely, Glenn Wisenbaker RE/MAX Greater Atlanta The Home Buying Experience For the First Time Home Buyer purchasing a home can be an exciting and frighten process all at the same time. In actuality, the process can be broken down into 3 major steps which I have outlined as followed: 1. Pre-Qualification for a mortgage 2. Searching/Previewing Homes 3. Presenting the Purchase and Sale Agreement 4. Closing Pre-Qualification Unless you will be paying cash for a home, you will need to obtain the services of a good mortgage loan officer to obtain a loan. Within the last year, most loan officers now have to be licensed by the state of Georgia. In my fifteen years of representing buyers, I have aligned myself with a few select mortgage loan officers who share my ―customer first‖ attitude. Any of the individuals I will refer you to will make certain you understand the process and guide you to the loan best suited for your specific purchase. You, of course, are free to choose anyone you desire and whomever you choose will require the following information before pre- approving you for a mortgage. a. Your Credit Scores b. Employer and Income c. Savings/Investments Accounts d. Checking Account Information e. Debt (Rent, credit cards, student loans & auto loans) Once the loan officer has accumulated this information, he or she will determine how much of a mortgage you are qualified for and provide you with detailed information outlining interest rate, closing cost and down payment you will be required to provide on various loan programs available to you. Once the parameters of your loan are established, the loan officer will provide a pre-approval letter to me to use along with the purchase and sale agreement in presenting an offer to prospective sellers. If your purchase will be an ―all cash‖ transaction, a letter from your banker or a copy of your bank statement showing the funds are available to close, will be submitted along with the Purchase and Sale Agreement. Searching and Previewing Homes Once the prequalification process has been completed I will begin to assist you in finding the home you desire. Working together we will establish key points such as areas, type of home, specific features you desire and price range. As a realtor, I am members of both listing services – First Multiple Listing Service (FMLS) and Multiple Listing Service (MLS) – where all properties listed with real estate companies will be displayed. Both of these systems update their listings every 24 hours. There has been a substantial change in the real estate market due to the economic downturn over the past few years. This economic slump has fostered the growth of the number of many ―distressed‖, foreclosed or pre-foreclosure (short sale) properties on the market today. Many are being sold well below the original price of the property and there has been an increased demand by buyers for these homes sold below ―market value‖. Foreclosed Properties The ―Sellers‖ of these properties will be the financial institution who held the loan on the properties. The homes have been vacated by the owners who could not continue to pay their mortgage and have been forced to leave the property. The mortgage lender usually turns the properties over to ―Asset Managers‖ who assign the listing real estate agents to market the property for sale. There are several points to remember when considering these types of homes: 1. The home is offered for sale in ―as in‖ condition meaning that any repairs to the property will be made by the buyer following the closing. 2. Many times the properties do not have appliances, need new carpets, re-finished floors, exterior and interior painting as well as other repairs to roof or systems. 3. Prior to closing on a foreclosed property, it is the seller’s responsibility to remove all liens from the property such as back taxes, association fees and any other liens the property may have. Until this is completed, the property cannot close. 4. It can take anywhere from 30 to 60 days to close. 5. You will have the right to inspect the property, at your expense, to determine the repairs needed. 6. Most asset management companies will provide at no expense to buyer a ―buyer’s title insurance policy to protect your home from any title defects or claims that might me made in the future. Short Sale or Pre-Foreclosure Properties Properties advertised as ―short sales‖ are distressed properties but different than foreclosures in the following ways: 1. The owner is still living in the home and he along with the listing agent is working with the financial institution to sell the home at a reduced price than the mortgage owed on the property. The goal is to sell the property before it is foreclosed upon. 2. Offers made on ―short sale‖ properties are first presented to the owner of the home and once that negotiation is completed it is then sent to the financial institution for approval. Because financing or mortgage institutions are inundated with these types of properties, the approval or rejection process can take anywhere from 60 to 90 days. Let me once again point out that the owner of the property may accept you offer, however, the mortgage institution does not have to accept you offer and can counter the offer. 3. Due to recent laws passed by the State of Georgia, Real Estate Agents cannot negotiate short sales. Most are now turned over to attorneys to handle the negotiations. 4. Short Sales are the most time consuming and difficult to complete. Regular or Non-Distressed Properties These are properties that are ―For Sale‖ usually by other Real Estate companies. In the majority of cases, the owner still occupies the home and wants a prospective buyer to preview the home and hopefully result in a sale. Once you have found the home of your choice I work with you to complete a Purchase and Sale agreement with your offer. Your offer will include the following: 1. Purchase Price 2. Amount of Earnest Money and which Real Estate Company will hold your funds in their Trust Account. The Earnest Money demonstrates your willingness to complete the necessary steps to Purchase the Property. Usually, it is 1% of the Purchase Price. If the process is completed, the Earnest Money will be applied to your Down payment or Closing Cost. 3. Closing Cost—You can request that the Seller pay a portion or all of your cost in obtaining a loan. With certain loans, like FHA Home Loans, there is a limit that the Seller can provide. Another point to remember when asking for any seller concessions is that the seller is paying all marketing cost in addition to paying off the mortgage or mortgages on the property. In most cases if asking for a huge reduction in the Purchase Price and wanting the Seller to pay the closing cost may prove to be un-realistic for the Sellers to accommodate. 4. Due Diligence Period—In 2008 all Residential Purchase & Sale contracts by the Georgia Real Estate Commission were changed to become more like ―commercial properties‖ contract. The contract now spells out that buyers can request to accept the property in ―as is‖ condition or request a ―Due Diligence‖ period of a certain number of days to have any inspections of the property prior to closing. Most of these inspections require the services of a certified home inspector, who will check the home’s systems and structural components and provide you with a report listing the defects found in the home. Working with the inspector, you and I will determine which of the defects we will present to have the seller repair. All of this must transpire during the prescribed ―Due Diligence Period‖ as outlined in the Purchase and Sale Agreement. If an agreement cannot be reached, you have the right to either cancel the contract and receive a refund of all Earnest Monies or extend the due diligence period to further negotiate. If no action is taken, the contract spells out that after the last day of the Due Diligence period expires, then the buyer has accepted the property ―AS IS‖. 5. There are other items specified in the contract and on the following pages, I have included a copy of the Purchase and Sale Agreement for you to review. Typical Sales Contract Timeline Finding a House (One week to one month) Negotiating Contract (24 to 72 Hours) Inspection (Complete within 2 to 5 days of binding contract date) Negotiating Due Diligence (Within 5 days of binding contract date) Closing Date (Within 30-45 days of binding contract date) Move-in Date (1 to 3 days of closing date) Long Term Relationships My goal is to be your real estate consultant for life. This is what you can expect me when I assist with your real estate needs: Fair and honest treatment Disclosure of any property defects known to agent Willingness to provide information of special interest to you Financial knowledge Explanation of the purchase agreement Showing homes within your price range Work within the guidelines of your employer’s relocation policies, if applicable Special attention to children’s needs, if applicable Writing, presenting and negotiating the Purchase Agreements Maintaining contact with lender until the sale is closed. Repair and maintenance personnel to help with your new home Continued contact to help insure happiness with your new home and serve all your real estate needs. How I Work With You On January 1, 1994, the Brokerage Relationships in Real Estate Transactions Act (BRETA) became law in the state of Georgia. This Act clarifies relationships between brokers, buyers and sellers. It provides full disclosure of the working relationship and legal obligations between agents and their clients or customers. For your review, a copy of the ―Exclusive Buyer Brokerage Engagement‖ is included. It is my practice to establish an exclusive working relationship with all purchasers with whom I do business. I have found this to be the most productive method of working through the home buying process. Your objectives can best be met by making me a member of your team. Please review the sample agreement and let me know what questions you may have. I will ask that you sign this at the end of your first appointment. After finding your new home, I will draft the ―Purchase and Sale Agreement‖ for your review and signature and provide advice through the negotiation. I will assist you in obtaining financing, refer you to a home inspector, draft amendments as necessary, assist in locating the services that you may require, recommend repairmen if needed and be available to assist in all phases including reviewing the settlement statement and attend the closing. I am available to you by phone from 8:00 a.m. until 8:00 p.m. daily. In short, your understanding of the home buying process, satisfaction with your real estate purchase and searching for the property through the closing is my priority. Next, you will find a copy of the Buyer Brokerage and the Purchase and Sale Agreement. Please look over and ask me any questions regarding either of these documents. Having the Home Inspected As you will see when you review the ―Purchase and Sale Agreement‖, a section of the contract allows the purchaser to have the home inspected by a qualified inspector. It is my recommendation that you have this inspection performed if the home is a re-sale (not new). Most general home inspectors do not inspect swimming pools, septic tanks or plumbing (from the house to the sewer connection at the street), stucco and synthetic stucco, etc. If you need these types of inspections, they will probably need to be arranged separately. Please pay careful attention to the inspector as he describes what his inspection covers. You should plan approximately 3 hours for the general home inspection. It is a good opportunity for you to ask questions, learn about the home’s systems, etc. Your inspector should be ASHI and CABO Certified and have a lockbox key to enter the property. Cost for an inspection usually range from $250 to $375. Prices vary according to the size of the home. You will need to arrange payment with the inspector. Title Insurance What is title insurance? Answer: Title insurance is just like any other insurance except that the risk it protects is against defects in titles to real estate. Some question why buyers need to obtain title insurance if a title search is in process on the property prior to its purchase. The answer to this question is that many title problems are not revealed by a title exam. Defects in title can arise from acts of fraud, including forged signatures on deeds, wills and other legal instruments; false claims of ownership; or illegal acts of parties such as trustees, guardians, administrators and attorneys. Another source of defects in title is human error, such as mistakes in copying, recording, or indexing deeds in the land records. Other defects can relate to improper wills and/or deeds, including deeds made by minors or persons not of sound mind, invalid or erroneous will, unsettled estates and missing heirs. Defects in title can also arise as a result of liens for unpaid federal, state inheritance and gift taxes; spousal rights, homestead rights and defective foreclosures. Finally, the title examiner can simply miss defects. One benefit of the title insurance that is overlooked is that it pays the cost of defending title claims, even when they are without merit. Since attorney’s fees can be substantial, this protection can be significant. How is title insurance different from other forms of insurance? Answer: The biggest difference between title insurance and other forms of insurance is that other forms of insurance protect only against loss from events that may happen in the future whereas title insurance has traditionally only protected against loss from title defects that are in existence on the effective date of the policy. This basic difference has begun to erode somewhat as some title companies are now offering protection for specific events that may occur after the policy has been issued. Another difference is that the title insurance company charges a one-time premium upon issuing the policy rather than the periodic premium payments, which other forms of insurance require. This is because the title insurance company is able to identify and to reduce or eliminate the risk. This benefits both the insurance company and the policyholder. It allows the insurance company to reduce the risk it assumes in issuing the policy, while at the some time reduces the chances the policyholder will be subjected to a loss or disruption of his/her use of the property. The Property Survey The January 2002 issue of Real Estate Executive Magazine published an article written by Clara Fryer entitled, “And the Survey Says” A Recent Change in Lender Requirements May Leave Homeowners Unprotected. The following is a portion of that article. Not long ago, when a person bought a home (and borrowed money from an institutional lender for the purchase), the lender required that the property be surveyed as a condition of the loan. A survey is created using information contained in county land records and is a drawing of the lot based upon physical inspection and measurement of the property. A survey indicates the size of the lot and any easements, encroachments, or dimension discrepancies affecting the property. A survey confirms for the buyer that their visual assumptions about the property boundaries are correct. Furthermore, a survey may alert the buyer to legal description discrepancies, encroachment issues or easement violations that could affect the value of the home. For example, if a house is built over a sanitary sewer line with an easement violation in favor of the city or county, the city or county has the right to require the removal of the home. Generally, removal is not necessary, but the city or county will charge the homeowner the costs of the rerouting the line. Beginning in 1993, lenders sought to reduce closing costs by waiving the requirement of a new survey for consumers who were refinancing their home loan and already had a survey of their lot. This savings was accomplished by negotiating with title insurance companies for protection for the lender in the ―lender’s title insurance policy‖ from the expense of correcting problems such as those described above. Although this practice was originally designed to apply only to those properties where the consumer already owned their home, the distinction in coverage gradually expanded to include a new home purchase, as well. Consequently, today’s residential lender will be protected from survey matters by lender’s title insurance coverage. Consumers should know that a title insurance company would not offer this same coverage in an owner’s title insurance policy without a new survey. Further, the lender’s title insurance policy will not protect the homeowner, since this policy only comes into play if the bank foreclosed on the property. Unfortunately, since lenders are covered by title insurance, they no longer automatically require surveys for their borrowers, so the subject is often overlooked by the purchaser as an issue. The Property Survey Page 2 In today’s real estate market, homebuyers must become proactive to ensure their property is surveyed. Upon the purchaser’s request, most residential real estate law firms will order surveys as part of the closing process. We review hundreds of surveys a year in our office and discover items of concern for the buyer in approximately 20% of our files. The average cost of a survey is $350.00. The Additional coverage and peace of mind afforded by an owner’s title insurance policy is well worth the investment. Clara Fryer is a residential real estate attorney in Atlanta. She is a graduate of the University of Alabama and has practiced law for over 17 years Homeowners Insurance A home is probably the most valuable asset your client will ever own, so it must be protected with adequate insurance. Your mortgage company will require you to have a Homeowners Insurance Policy as a condition of your closing. Homeowners insurance policies should help pay for replacing or repairing damaged, destroyed or stolen property and belongings. Likewise, it should protect against liability resulting from an injury or property damage around the home. As some homeowners unfortunately learn, earthquake, hurricane and flood damage are not necessarily covered by their policy, and may need to be purchased separately. “Actual cash value” coverage pays the value of property or belongings at the time they were lost, taking into account their age, depreciation, etc. “Replacement cost” coverage provides enough money to replace lost or damaged property or belongings with new ones. Usually there are replacement limits to certain expensive items, such as furs, jewelry, etc. When selecting a policy, homeowners ought to calculate the cost of rebuilding their house after a major calamity. That amount is probably more than what they consider their home’s current market value. It is wise to keep a record of a house’s contents, noting their value, date of purchase and description. Valuables can also be photographed or video taped. This will help determine their replacement amount later on. Finally, a policy needs to be checked every year. Have any additions or improvements been made to the house? Has the home increased in value? If so, more insurance may be required. What to Expect at Closing Residential real estate closings are handled in several different ways among various states. In some states, title companies handle the process; escrow companies predominate in others. In Georgia, most closings occur with the assistance of an attorney who specializes in real estate transactions. 1. Representation The closing attorney represents the lender (mortgage institution). Because of ethical considerations due to a possible conflict of interest among the various parties to a closing, an attorney representing the lender should not represent any other party to the closing. Therefore, if representation is desired by the borrower with respect to the closing or contract of sale, independent counsel should be obtained. Of course, if a lender is not involved in financing the transaction, the purchaser will select an attorney to represent his or her interest. 2. Functions An attorney selected after signing of the contract of sale to handle the closing will customarily examine the title to the property, prepare the sale and loan closing documents, conduct the closing, arrange for the recording of the closing documents, issue the lender’s and, if desired, owner’s title insurance, and disburse the lender’s and/or purchaser’s funds. Today most closing attorneys require that buyer’s funds for down payment and closing cost be sent by bank wire. A few will accept cashier’s check for the purchaser’s net purchase proceeds 3. Closing Costs Initially, payment of and limitations on the amount of closing costs are determined by the contract of sale. If a lender finances the transaction, the purchaser will be responsible for negotiating the precise amount of closing costs Nearly all lenders will be subject to certain federal regulations governing disclosure of a ―good faith estimate‖ of settlement charges to be given to the borrower within three business days following loan application. In order to prevent unpleasant surprises at the closing, the purchaser should become more familiar with and understand the limitations of such an estimate. If a purchaser requires more certainty than an estimate, it should be requested at the time of a loan application since the good faith estimate is the limit of the federal requirements. What to Expect at Closing Page 2 Closing costs are collected at the time of closing, usually by payment of a net purchase figure that includes the purchaser’s equity, the closing costs, prorations and other adjustments. Closing costs and their individual components will vary among lenders and closing attorneys. For example, certain items included in a lump-sum quote by one lender may not be included in another’s quote. Thus, a purchaser should at least inquire whether the initial quote includes all of those cost, which can reasonably be expected to be paid at closing. Closing costs do not include escrows for property taxes and insurance. Furthermore, closing costs quoted by a lender usually don not include the cost of an owner’s title insurance policy. 4. Owner’s Title Insurance Owner’s title insurance is designed to insure the owner against loss suffered because of claims made against the title to the property. The policy typically insures against those matters that were not or could not have been discovered by a proper title examination of the property, subject to specific exemptions to coverage detailed in the policy. As with all types of insurance, deciding to purchase is only part of the job; determining, for example, whether certain exceptions to coverage are acceptable or in accordance with the contract of sale, takes additional consideration, and an attorney’s advice may be helpful in such a decision. In some states, owner’s title insurance is required to be purchased by the seller on behalf of the purchaser; in others, its purchase is customary. In Georgia, however, owner’s title insurance is purchased at the option of the purchaser at his or her expense unless otherwise agreed in the contract of sale. 5. Property Taxes Property taxes are based upon forty percent of the county’s assessment of the fair market value of your property as of January 1st of each year multiplied by a rate per thousand established by the county each year. The Closing Real estate purchases in Georgia are typically closed in the office of an attorney who specializes in real estate and represents the lender. The buyer and seller and their agents, your loan officer and the closing attorney attend most closings. You can expect your closing to take approximately an hour depending on the complexity of the situation. In the Georgia Purchase and Sale Agreement real estate contract, the closing attorney is to be specified. Talk with your agent regarding who and why he or she recommends a particular firm. Usually the agent will select a firm that has demonstrated their ability in making the closing run smoothly.