REAL ESTATE FREQUENTLY ASKED QUESTIONS
COMMON BUYER QUESTIONS
(c) 2009 - The Connor Law Firm, PLLC
www.connorlaw.com
E-mail: gc@connorlaw.com
2. How much does a Real Estate Agent normally cost and who pays for it?
3. Can you recommend some Real Estate Agents or Agencies in the area?
4. What is the difference between a Home Inspection and a Pest Inspection? Do I need both?
6. Who prepares and completes the Offer to Purchase Contract?
8. What exactly does the attorney’s fee cover?
9. Will I know before the closing how much the closing costs all come to?
10. Isn’t it true that some Sellers offer to pay all the closing costs?
11. What is an Escrow Account and how does it work?
1. Can the Seller’s Real Estate Agent also represent me and/or assist me in completing paperwork, or do I need to get my own Real Estate Agent?
It is customary for Buyers to have their own Real Estate Agent. If the reason you think you may want to do without a Real Estate Agent is to cut down on closing costs, remember that the Seller actually bears the cost of both real estate commissions at closing.
But most importantly, Real Estate Agents are beneficial because they a) help negotiate the purchase price between you and the Seller, b) prepare and/or help you complete the necessary paperwork to close the deal, and c) see you through all tasks before, during, and after the closing, including repairs, inspections, insurance policies, and much of the loan process.
2. How much does a Real Estate Agent normally cost and who pays for it?
The Seller actually bears the cost of both real estate commissions at closing, which is usually 5% or 6% of the final purchase price. The reason the Seller pays for your Real Estate Agent in addition to its own is because your Real Estate Agent helped the Seller find a Buyer (you). The Seller hired its own Real Estate Agent to help find her a Buyer for the home she was selling. On the Seller’s behalf, the Real Estate Agent then “listed” the Sellers’ home with a Multiple Listing Service (MLS). MLS is a service through which all Sellers’ Real Estate Agents publicize and advertise their client’s listings. Then your Real Estate Agent, who also subscribes to the MLS, saw this particular listing and presented it to you. Since your Real Estate Agent’s efforts contributed to the sale of the Seller’s home, then the commission that the Seller’s Real Estate Agent receives from the Seller at closing will be split with the Buyer’s Real Estate Agent.
3. Can you recommend some Real Estate Agents or Agencies in the area?
Although we cannot guarantee any results from these agents, they are agents that we have worked with successfully in the past.
DURHAM [Make this a link to the info below]
• Fonville Morisey
Mark Heizer: 402-1269
Sheree Rainbow: 416-2288
Herman Mathews: 493-4434
• Prudential Carolinas Realty
Dawn Grasty: 210-5418
•
CHAPEL HILL/CARRBORO [Make this a link to the info below]
• York Simpson Underwood
Nikki Rice: 960-8950
• Terra Nova Global Properties, Carrboro
Eric Miller: 929-2005
• Prudential Carolinas Realty
Tracy Wright: 913-2530
Wendy Tanson: 913-2520
RALEIGH/CARY [Make this a link to the info below]
• Coldwell Banker Advantage
Diane Starrett: 469-6202
• Coldwell Banker Howard Perry & Walston
Brenda Dubbelman: 388-4859
• Ammons Pittman GMAC
Sandy Ferguson: 847-5555
4. What is the difference between a Home Inspection and a Pest Inspection? Do I need both?
Some Buyers mistakenly use Home Inspection and Pest Inspection interchangeably, or at least assume, incorrectly, that one inspecting the home could simultaneously search for termites as well.
A Pest Inspection specifically concentrates on inspecting the home for wood destroying insects, namely termites.
A Home Inspector specifically concentrates on inspecting the home for physical defects or other problems that could potentially cause the house to deteriorate or cause problems in the future that lead to substantial damages. The goal is to prevent damages that would require costly repairs, such as electrical, roofing, and plumbing problems. This inspection is much more involved and covers more ground than the pest inspection. Therefore, the home inspection costs more money and requires the work of a specific professional such as a contractor, engineer, or architect. It is also recommended to select a home inspector who is a member of the American Society of Home Inspectors (ASHI), which requires the home inspector to have years of experience in the field as well as technical knowledge of structures, systems, and appliances.
It is customary for the Buyer to have both types of inspections done prior to the closing. If the home is being built just for you, these inspections are unnecessary and the Builder will usually complete a warranty or affidavit attesting to the condition of the home.
5. If the Sellers still have a copy of the Land Survey from when they bought the house, can I just use that one or should I order a new survey?
Banks used to require the Buyer to obtain a new survey at closing, but now that most title companies will insure the bank without exception to survey coverage even if there is no survey, most banks no longer requires the Buyer to obtain a survey.
However, even if the bank does not make a survey a requirement of the loan, it is strongly recommended for your own protection to ascertain what your true boundaries are and to make sure the land does not encroach on a neighbor or vice versa. Obtaining a new survey will cost you approximately $300-$600 depending on the size of the property, if there are any unusual or difficult obstacles near the boundary lines, and what company you choose to do the work.
6. Who prepares and completes the Offer to Purchase Contract?
Real Estate Agents as well as the closing attorney have a standard fill-in-the-blank template for the Contract. Usually one of the Real Estate Agents will have it completed and then you and the Sellers will sign it. The Contract includes, among other things, the parties names, the property address, the names and contact information of the Real Estate Agents, deadlines for inspections and repairs, conditions that must be satisfied before the Contract is deemed accepted, and breach of contract provisions.
7. I’ve heard that most of the closing costs are paid by the Buyer. What kind of fees should I expect to pay?
• Attorney’s fee (see question below for what this includes)
• Title search fee (this fee is often included in the attorney’s fee, but may be extra if an extensive title search is required)
• UPS fee to overnight the executed loan documents back to the Lender
• Title Insurance premium (one-time fee)
• Homeowners/Hazard Insurance premium
• Recording Fees
• Prorated amount of Homeowners Association dues for the current month or quarter that you do not need to pay because the Seller already paid it in advance
• Property Taxes for the current year, prorated for the period of time you are responsible for the property (i.e. the day after closing through December 31st of the current year). This is only the case if the Seller has already paid the taxes for the current year, prior to closing. But that is rare because, although the tax bills come out and are “due” around August of each year, the tax bill is not late/delinquent until January of the following year.
• Invoices for recent work done (e.g. Pest Inspection, Survey, Home Inspection, Repairs
• Bank fees, which may include but are not limited to:
*Loan origination fee and/or discount points
*Application fee
*Appraisal fee
*Credit report fee
*Commitment fee/underwriting fee
*Document fee
*Flood Certification fee
*Tax Certification fee
*Interest on the loan from the day of closing until the 1st day of the
next month)
*Deposit into Escrow Account
8. What exactly does the attorney’s fee cover?
The attorney’s fee includes the time spent to do the following>>>
• Conduct the title search (unless said search is hired out to our title abstractor service) and prepare a Title Opinion in order to obtain from the Title Insurance Company a Title Policy on your behalf
• Coordinate and communicate with all parties (Buyers, Sellers, Loan Office/Broker, Lender, Real Estate Agents, Homeowners Association, and those doing repairs/work/inspections on the home)
• Organize the Lender’s loan documents and prepare the closing package for the closing
• Conduct the closing
• Record all necessary documents at the Register of Deeds Office
• Assuring that all invoices and parties are paid for repairs, inspections, insurance premiums, and all other closing disbursements and payoffs.
9. Will I know before the closing how much the closing costs all come to?
If you are applying for a loan(s) to help fund the purchase price, the loan officer will provide you with a “Good Faith Estimate” that estimates what you should expect to pay at closing after subtracting the loan amount and estimated closing costs from the purchase price. Closing costs tend to range from $3000 to $4500, but can certainly be lower or higher than that—it depends of course, on the purchase price and the loan amount.
10. Isn’t it true that some Sellers offer to pay all the closing costs?
Some Sellers agree to cover all of the Buyer’s closing costs. Sellers usually do this if they are desperate to make the sale and the Buyers are strapped for cash. Often, the Seller will offer to pay a specified amount of the closing costs if you agree to increase the purchase price by the same amount. This means that you are ultimately still paying the closings costs. However, with these costs being rolled into the purchase price, if you are able to get a high enough loan amount, then you avoid paying those fees now (which was your initial goal if you were strapped for money) and rather pay those fees over the course of your loan.
11. What is an Escrow Account and how does it work?
This is an account that the Lender sets up to which you pay monthly installments in order to cover the annual Homeowners/Hazard Insurance payment and the annual Property Taxes payment. These monthly installments are collected as part of your monthly mortgage payment. For example, you might pay $1000 every month on your mortgage, but $875 goes towards Principal and Interest of the loan, $50 goes towards Homeowners Insurance, and $75 goes towards Property Taxes. When those annual payments become due, the Lender will release the funds from that account and pay those bills on your behalf so that you do not have to.
12. Do I have to get an Escrow Account or can I waive it?
Some Lenders and types of loans require you to have an Escrow Account, but may do not. For example, FHA and VA loans require the borrower to have an Escrow Account. But the majority of loans are conventional and do not require it, but you must usually sign a waiver at closing acknowledging your responsibility to make the Homeowners and Property Tax payments on your own, and if you do not, you could be considered in default.
13. What is the difference between Title Insurance, Homeowner’s Insurance, and Private Mortgage Insurance (PMI)?
Title Insurance protects your equity in your property by insuring against future title disputes based on defective titles, encumbrances, or adverse claims against your title. Specifically, the Title Insurance Company will: a) pay any person with a claim to your title that was missed due to errors in title examination or recording; b) pay any loss from hidden defects in title and defects not of public record; and c) pay all legal fess associated with defending your title and adjudicating such claims in order to eliminate defects to your title. The Lender has its own policy, but that only insures up to the loan amount, which is often less than the value of the property.
Homeowners/Hazard Insurance protects you and the Lender against loss due to damage by fire or other natural disaster. Unlike Title Insurance, which just protects your title to the land itself, Homeowners Insurance covers the improvements on the land (namely, the house) as well as the personal property contents inside.
Private Mortgage Insurance (PMI) is insurance to protect the Lender in case you default on the loan. Usually you make a down payment on the house at closing. The Lender normally requires you to put down 20% of the property’s value so that the Lender only needs to loan you 80%. That way, if you were to default, the Lender would most likely obtain the amount owed on the loan at the foreclosure sale.
However, many Buyers cannot afford to put down 20% at closing—instead they want to put less down and obtain a higher loan. To protect its investment, the Lender obtains insurance from a private insurance provider, called Private Mortgage Insurance (PMI). If you default, the PMI Company pays off the debt to your Lender and then comes after you for reimbursement. You usually pay part of the PMI premium at closing and then monthly over several years until you have 20% equity in your home.
With conventional loans (as opposed to VA and FHA loans), PMI is usually not required if you make a down payment of at least 20% of the property’s value.
(c) 2009 - The Connor Law Firm, PLLC
www.connorlaw.com
E-mail: gc@connorlaw.com