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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Other Types of Insurance

• Mortgage insurance
• Home warranty
• Property insurance
• Flood insurance
• National Flood Insurance Program
• Windstorm insurance
• Wind mitigation

Page 101
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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
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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
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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
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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
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Buyer and Seller Responsibilities
Page 104
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Filing of Deed

• Filed by title company with Recorder of Deeds
• Buyer should obtain official copy after it has
  been filed

Page 104
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Exercise Matchingtransaction terminology
Page 112-113