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Chapter 5: In This Chapter

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Chapter 5: In This Chapter Listing Real Estate Offers and Contracts Mechanics of Making an Offer Common Contract Points Disclosures Between Contract and Closing – PowerPoint PPT presentation

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Title: Chapter 5: In This Chapter


1
Chapter 5 In This Chapter
  • Listing Real Estate
  • Offers and Contracts
  • Mechanics of Making an Offer
  • Common Contract Points
  • Disclosures
  • Between Contract and Closing
  • Due Diligence
  • InsuranceTitle, Mortgage, and Property
  • Providing Lists of Other Professionals
  • What Happens at Closing
  • Closing Costs
  • Financing
  • Foreign Clients Should Expect To

Page 88
2
Listing Real Estate
  • Know your market
  • Ask questions
  • Have excellent listing presentation
  • Have testimonials, sample marketing materials,
    and marketing plan
  • Demonstrate how you are different
  • Explain global marketing
  • Explain Web marketing strategies
  • Conduct CMA and price realistically
  • Commercial real estate
  • High level of market, property,
    financial analysis

Page 88-90
3
Offers and Contracts
  • Advise buyer and provide guidance, but buyer is
    ultimate decision maker
  • Factors to consider
  • Price of similar properties
  • Property condition
  • Length of time on market
  • Supply and demand
  • Sellers motivation
  • Terms
  • Return on investment

Page 91
4
Important Points About Offers
  • Verbal promises not enforceable
  • Offer is first step in negotiations
  • Multiple counteroffers not productive
  • Keep negotiations on friendly, win-win basis
  • Once seller accepts, offer becomes binding
    contract
  • Buyer and seller cannot take back accepted
    offers/counteroffers
  • Offers combine price, terms, and conditions
  • Move quickly when right property is found
  • Exchange of funds
  • Attorney review is standard procedure
  • Pre-closing walk-through

Page 91-92
5
Mechanics of Making an Offer
  • Standardized contract form
  • All parties must agree to changes
  • Earnest money in escrow
  • Agent presents offer
  • Buyer does not participate
  • First step in negotiations
  • Avoid negotiations fever

Page 92-93
6
Common Contract Points
  • Date of execution
  • Parties
  • Property description
  • Purchase price
  • Provisions covering zoning and so forth
  • Fixtures and personal property
  • Apportionment of property expenses
  • Date and location of closing
  • Name of broker who brought sale
  • Person to whom and how contract contingencies
    will be sent
  • Sellers right of cancellation
  • Signatures
  • Time is of the essence
  • Contract contingencies

Page 93-94
7
Multiple Offers
  • Consider what makes an offer attractive
  • Flexible timing
  • Financially qualified buyer
  • Few or no contingencies
  • Large earnest money deposit
  • Individual or group presentation
  • Seller not required to disclose
    multiple offers

Page 94-95
8
Disclosures
  • Property disclosure requirements differ by state
  • Legal consequences for failure to make
    disclosures
  • Lead-based paint
  • Megans Law
  • Asbestos
  • Radon
  • Other hazards
  • Stigmatized properties

Page 95-97
9
Fourteen Points for Disclosure
  • Defects in roof
  • Defects in electrical system
  • Defects in plumbing, water heater, septic
  • Defects in heating and A/C
  • Defects in swimming pool
  • Defects in foundation or basement
  • Defects in appliances
  • Disputed boundaries
  • Pending changes in zoning and assessments
  • Pending liens
  • Easements
  • Presence of hazards
  • Infestations
  • Location in floodplain

Page 97-98
10
Between Contract and ClosingSeller
  • Escrow agent
  • Condo or homeowners association documents
  • Preliminary title report
  • Satisfaction letter from lender
  • Appraisal and inspection (make property
    accessible)
  • Final utility readings and payments
  • Home warranty policy
  • Contingencies
  • Deed
  • Transfer taxes
  • Final walk-through (make property accessible)

Page 98
11
Between Contract and ClosingBuyer
  • Earnest money
  • Mortgage
  • Contingencies
  • Home appraisal
  • Property survey
  • Property inspections
  • Verification of employment, financial information
  • Homeowners and hazard insurance
  • Title insurance
  • Loan approval
  • Utility accounts
  • Final walk-through

Page 98-99
12
Due Diligence
  • Vetting the deal
  • Examination of property and relevant documents
  • Evaluation of information provided by seller
  • Attorney, property inspectors, other specialists
    involved
  • Commercial real estate due diligence involves
    high levels of market, property, and financial
    analysis

Page 99
13
Title Insurance
  • Protects against
  • Obstacles in obtaining clear title
  • Losses if title defects make property unsalable
  • Covers some legal expenses to defend against
    claims
  • Owners Title Policy
  • Lenders Title Policy
  • Required for mortgage
  • Premium is one-time fee at closing
  • Cost varies but ranges 0.5-1 of
    purchase price

Page 100-101
14
Other Types of Insurance
  • Mortgage insurance
  • Home warranty
  • Property insurance
  • Flood insurance
  • National Flood Insurance Program
  • Windstorm insurance
  • Wind mitigation

Page 101
15
Loss History Report
  • History of insurance claims in preceding five
    years, regardless of ownership
  • Important pre-closing step
  • LexisNexis C.L.U.E. report
  • ISO A-Plus report

Page 102
16
Providing Lists of Other Professionals
  • Provide list but do not make specific
    recommendations
  • Some firms provide ancillary services but
    consumer is always able to choose
  • RESPA prohibits kickbacks and undisclosed
    referral fees
  • Finding the right attorney

Page 102-103
17
What Happens at Closing
  • Buyer completes walk-through 1-2 days before
  • Date and location of closing specified in
    purchase/sales contract
  • Parties meet to finalize transaction

Page 103-104
18
Parties Present at Closing
  • Buyer
  • Seller
  • Attorneys for the buyer and seller
  • Buyers and sellers real estate representatives
  • Lender representative
  • Title company representative

Page 104
19
Buyer and Seller Responsibilities
Page 104
20
Filing of Deed
  • Filed by title company with Recorder of Deeds
  • Buyer should obtain official copy after it has
    been filed

Page 104
21
Closing Costs
  • Buyer
  • Seller
  • Mortgage fee and points
  • Credit report fee
  • Inspection and appraisal fees
  • Plat sketch
  • Homeowners insurance premium
  • Transfer tax (if shared)
  • Title exam and recording fees
  • Title insurance policy
  • Escrow fees
  • Attorneys fees
  • Closing fees
  • Prepaid interest
  • Abstract or title search fee
  • Loan payoff fees
  • Deed preparation
  • Sales commission
  • Title insurance
  • Repairs or cash payment for repairs as agreed
  • Transfer tax
  • Attorneys fees
  • Closing fees

Page 105
22
HUD-1 Settlement Form
  • Shows breakdown of costs paid by buyer and seller
    at closing
  • Required for transactions that involve federally
    insured financing
  • Published by U.S. Department of Housing and Urban
    Development (HUD)

Page 105
23
Closing Delays
  • Missing paperwork or errors
  • Down payment source changes
  • Incorrect information
  • Title defect
  • Pending judgment or lien
  • Lack of property insurance
  • Lack of approval by condo or homeowners
    association
  • Incomplete contingencies
  • Required inspections not made
  • Invalid powers of attorney for those acting on
    behalf of parties
  • Property defects
  • Sellers move-out date changes
  • Foreign funds not transferred or exchanged
  • Lender rejections or requirements
  • Property appraisal below loan value

Page 105-106
24
The Hurricane Box
  • Insurers suspend issuance of new policies
  • Gulf States affected
  • Closings delayed

Source U.S. Geological Survey Woods Hole Science
Center
Page 107
25
Types of Mortgages
  • Interest-only loan
  • Buydown mortgage
  • Graduated payment mortgage (GPM)
  • Convertible adjustable rate mortgage (ARM)
  • Fixed-period ARM
  • Two-step mortage
  • Option ARM

Page 107-108
26
How to Make a Mortgage Payment
  • Monthly installments
  • Portion of principal, interest, property tax,
    mortgage insurance
  • Taxes held in escrow and paid by lender to taxing
    body
  • Borrowers receive statement or coupon book

Page 109
27
Method of Property Purchase
  • Foreign buyers less likely to finance
  • Difficulty obtaining mortgage
  • Unable to avail themselves of MID tax benefits
  • Pooling family money

Source 2010 NATIONAL ASSOCIATION OF REALTORS
Profile of International Home Buying Activity
Page 109-110
28
Foreign Clients Should Expect To
  • Divulge financial information
  • Transfer funds
  • Make payments by wire or cashiers or bank check
  • Obtain Taxpayer Identification Number (TIN)
  • Obtain proper immigration and/or visa documents
  • Complete all transaction process
    steps
  • Act quickly when property found

Page 110-111
29
Foreign Clients Should Expect To
  • Understand purpose and scope of disclosures
  • Confidentiality
  • Understand due diligence process
  • Expect involvement of other professionals
  • Plan ahead on how to hold title
  • Confer with tax planner in home country
  • Commercial investors should
  • Consider letters of recommendation
  • Find a qualified commercial practitioner

Page 110-111
30
Exercise Matchingtransaction terminology
Page 112-113
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