Are you a serious home buyer? If you are, get ready for the best time of the year to purchase.
Between now and New Year's Day, or even Super Bowl Sunday in many communities, you will have little or no competition from other home buyers. Sellers who have their houses and condos listed for sale during this season are usually highly motivated to sell and are willing to make good deals because most buyers are tied up with holiday events.
Purchase Bob Bruss reports online.
PLAN YOUR HOME PURCHASE. November, December and January are ideal times to purchase a home. Realty agents and home sellers will treat you like royalty because there are usually few other buyers around.
However, before shopping for a home, shop for a mortgage and get pre-approved in writing by an actual lender. The lender's mortgage pre-approval letter or certificate will help narrow down your home price range and finance alternatives.
But never accept a lender's statement you are "pre-qualified." That means, "We think you can probably get a home loan but we really haven't checked out your credit qualifications."
Before actually applying with a lender in writing, it pays to check your credit reports with all three major credit bureaus: Trans Union, Equifax and Experian. The easiest place to check your three credit reports and obtain your three credit scores is on the Internet at www.myfico.com. If all three of your credit scores are above 700, you should have no problem obtaining a mortgage pre-approval.
Below 700, be sure to study your three credit reports, especially if you have a low FICO score barely above 600, to check for errors.
Reportedly, about one-third of credit reports contain errors. Be sure to ask each credit bureau to "verify" any items you think are incorrect. If the disputed item cannot be verified within 30 days, by law, it must be removed from your credit report. Ask each credit bureau for a copy of your corrected credit report.
A BUYER'S AGENT CAN HELP AVOID OVERPAYING. After you have your written mortgage pre-approval from an actual lender, the next home buying step is to find a buyer's agent to look out for your best interests.
Ask friends, relatives and business associates for names of trusted realty agents who work primarily with home buyers. Although any licensed agent can be your buyer's agent, not all agents work with buyers; some specialize in only listing properties.
A buyer's agent usually costs buyers nothing extra. The reason is your buyer's agent will usually split the sales commission paid by the home seller to the listing agent.
However, an exception could occur if your buyer's agent shows you a "for sale by owner" house that you purchase but the seller refuses to pay your buyer's agent the customary 50 percent of a normal sales commission. Thankfully, that rarely happens.
ASK YOUR BUYER'S AGENT FOR A "CMA." When you narrow your search to one or two homes, before making a purchase offer, ask your buyer's agent to prepare a written CMA (comparative market analysis). This valuable form will show recent sales prices of nearby similar homes, the asking prices of comparable neighborhood listings, and even the asking prices of recently expired nearby homes.
After you have this CMA information, your buyer's agent can help you make a reasonable purchase offer for the house or condo you want to purchase. The CMA will help avoid offering too much for the home. Also, your buyer's agent will use that CMA to show the home seller why your purchase offer is fair and should be accepted.
ATTACH A REASONABLE GOOD FAITH EARNEST MONEY DEPOSIT. After you decide on an offer price, as your buyer's agent guides you through the process of making a home purchase offer, a significant issue is the amount of your good faith deposit.
If you make an offer substantially below the seller's asking price, a large deposit can often convince the seller to accept your low offer.
For example, I still recall offering the full asking price for a nine-unit apartment building (which was a "good deal") but with only a $100 deposit check. To my shock, the highly motivated seller accepted.
As a very general rule, a serious home buyer's deposit should be at least 1 percent of the offer price. A 5 or 10 percent deposit shows serious buyer motivation.
The reason savvy home buyers usually don't offer larger deposits is to avoid tying up a large amount of cash in case a sales dispute arises and the seller refuses to refund the buyer's deposit.
KEY CONTINGENCY CLAUSES TO INCLUDE IN YOUR PURCHASE OFFER. As a long-time investor in rental houses, my best advice to home buyers is keep the purchase offer as simple as possible. However, I always include at least two key contingency clauses:
1. INSIST ON A PROFESSIONAL INSPECTION CONTINGENCY. Home sellers are supposed to disclose in writing all known defects in their property which materially affects the market value or desirability. Although it's hard to believe, some sellers "forget" to reveal significant home defects. Can you imagine that?
Well-meaning home sellers often obtain professional home inspections at the time of listing the home for sale and expect their buyers to accept such reports. While smart buyers read and consider such reports, it's best for home buyers to include a professional home inspection contingency clause in the purchase offer.
After the seller accepts the purchase offer, the buyer should hire his or her own professional inspector at the buyer's expense, typically around $300.
Buyers and their realty agents should always accompany their inspector for the two to three-hour inspection. The reason is the inspector will gladly discuss any defects discovered, whereas the inspector's report usually just reports the facts.
The toughest professional home inspectors are members of the American Society of Home Inspectors (ASHI). ASHI members must have completed at least 250 inspections, pass a tough exam, and meet continuing education requirements. Local ASHI inspectors can be located at www.ashi.com or phone (800) 743-2744.
If the home inspection reveals previously undisclosed defects, the home buyer can then (1) cancel the sale and ask for a full-deposit refund; (2) negotiate a repair credit from the home seller; or (3) if the seller refuses to renegotiate, go ahead with the home purchase anyway.
In addition to a professional home inspection, home buyers should ask their buyer's agents about other customary local inspections. Examples include inspections for termites (pest control), energy efficiency, radon, building code compliance, well water quality, roof, plumbing, and electrical components. Often, the professional inspector's report will recommend further inspections, which are beyond the inspector's expertise.
2. INSIST ON A PROFESSIONAL APPRAISAL CONTINGENCY. Most mortgage lender pre-approval letters or certificates are contingent on the lender's satisfactory appraisal of the home. Buyers should be sure to include such an appraisal contingency clause in their purchase offers just in case the lender's appraiser doesn't value the home as high as the buyer's purchase offer price.
If the home doesn't appraise for the offered price that was accepted by the seller, the buyer then can either (1) increase the cash down payment; (2) renegotiate the purchase price; or (3) cancel the sale and receive a full refund of the good faith deposit.
SUMMARY: This is the best season to be a home buyer if you can tear yourself away from holiday events. However, savvy home buyers take advantage of the situation by protecting themselves to obtain the best purchase price and terms by safeguarding against paying too much or buying a home with undisclosed defects.
More details are in my special report, "Vital Terms Smart Home Buyers and Investors Include in Their Purchase Offers," available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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