FAQ
Here are a few questions that are commonly asked by sellers and buyers during the process of buying/selling a home. If you have a question about Real Estate or need some further elaboration on the responses below, don't hesitate to contact me.
What is the difference between a Realtor and a Real Estate agent?
All Realtors are Real Estate agents, but not all agents are Realtors. Realtors are certified and dues paying members of the National Association of Realtors and, in Boston, members of the Greater Boston Real Estate Board and the Massachusetts Association of Realtors. Realtors will typically honor a higher level of professional standards and business ethics.
When is it appropriate for a seller to keep my deposit?
In Massachusetts especially, the purchase process is laden with protective measures for the consumer, in this case, the buyer. Through the course of the process, there are several dates/deadlines and contingencies laid out in the offer and then the Purchase & Sale contracts. Failure to perform according to these deadlines without incorporating an extension could enable the seller to keep the deposit. This rarely happens. Your agent, attorney and lender will work together to make sure that if you're contingencies aren't satisfied, the necessary steps are taken to protect your deposit. Another reason to make sure your supporting team is experienced and engaged in your transaction through every important step.
What other expenses will I incur as a buyer through the course of the transaction?
Once you have an accepted offer and before you reach the closing table, you can expect a few expenses along the way. A home inspection can run anywhere from $200 to $1000 (largely depending on the scope of the inspection and the inspector him/herself.) If your inspection reveals an unforseen issue or if you'd like a contractor's estimate in place before you purchase, you may need to offer a the contractor a fee (which is usually applied toward an eventual balance owed to the contractor should they do the work) somewhere between a case of beer and $100 depending on how extensive their estimates would be. If you're applyiing for a mortgage, you can expect the lender to charge you for an appraisal ($250-$600). At the closing table, the fees, in addition to your first mortgage and the remainder of the deposit, are going to differ depending on your lender, the type of loan and what you have negotiated with the sellers previously. In general, it's a good idea to have close to $1000 set aside (in addition to your offer and P&S deposit) for these expenses.
When I am selling my property, what are the expenses I can expect to have?
When you're selling a property, until you reach the closing table, any expense are largely dependant on what repairs or improvements you'll make either before marketing the property or after a home inspection. In the weeks prior to closing, you'll have a smoke and carbon monoxide detector inspection done as well--if your property doesn't require any updated detectors, the cost for the inspection is typically around $50--your Realtor will fill you in how/where/when you'll ready this payment. Chances are you'll hire an attorney to represent you through the Purchase & Sale and the closing. Also, there is a fee (usually $150) to prepare the title and a stamp tax on the actual sale ($4.56 per $1000 of the sale price). Brokerage fees will typically run 5-6%. Taxes will differ depending on the balance and how you plan to allocate the funds (i.e. if you're going to be investing the money into another property, you can use a 1031 Exchange to avoid paying the capitol gains tax).
How long from offer to close?
Typically, you can expect the 6-8 weeks from accepted offer to close. For buyers, much of this time is consumed with the loan application process. Sometimes sellers or buyers have special circumstances that will prolong or shorten the timeline.
What is Cap Rate?
A cap rate is a rate of return for those who own commercial or investment property. Simply put, it's the percentage derived when the property's annual net operating income is divided by the costs to own it. This number is independant of the costs of the mortgage itself. In Boston, for rental income properties, you could expect anywhere from 4-8% on average. Usually, the better the neighborhood and higher the rents, the less risky the investment. Hence the safer the investment, the lower the cap rate would normally be.
Can anyone perform a home inspection, or must they be licensed?
Anyone can perform a home inspection HOWEVER the home inspection contingency incorporated into an offer almost always requires that the person inspecting be licensed by the Commonwealth of Massachusetts. It makes little to no sense not to have a licensed home inspector performing the inspection your home.
When is it fair to ask a seller to renegotiate the price?
There is no clear cut answer to this question. If, during the home inspection or due dilligence period between the offer and the Purchase & Sale, something that was previously undetected or undisclosed by the listing side, turns up that could cost the buyer money, time or effort in the short or long term, it's fair to approach the seller and re-evaluate the orignally agreed upon price. Which is why it is really important to learn as much about the property BEFORE you get entwined in the offer process and spend money and time on a home inspection. It's impossible to see everything that could be problematic, but it happens too often that a buyer will exuberantly overlook something that may have been an easy catch before the offer process.
Is there a difference between a foreclosure and a short sale?
Yes, most certainly. A short sale property is still in the possession of the seller, whereas a foreclosure is owned by the bank that foreclosed.
Foreclosure
A property that has been foreclosed, also known as an REO (Real Estate Owned), is a property that mortgage holder has rightfully (in most cases anyway) taken back from the owner. The title is now the possession of the foreclosing bank. When you see an REO property, it means that the listing agent is representing a bank or lender. When an REO property comes "on market" through MLS it usually means that it's already gone through an auction process during which the bank decided that none of the auction bids warranted its sale and thus decided to 'buy back' the title and market it themselves. It's safe to say that most bank don't want to own property, however the process of negotiating with a bank can be protracted and often subject to their rules. Sure it can be a great deal, but not always and not always something that happens quickly. Plus with the Ibanez ruling in Massachusetts, ensuring a clean title on a foreclosed property is almost never a cut and dry thing.
Short Sale
A short sale is when a seller owes more to the bank than the property is worth. And even if the seller accepts your offer, the bank still needs to approve the offer--you'll often see the phrase "subject to third party approval" on short sale listings. Buying a short sale requires much more patience than buying a normal property or even a foreclosure. As the buyer, it's important to ask the seller or listing agent just how far along in the short sale process with the bank they are before engaging the property with an offer. Too many sellers and/or listing agents will blindly represent a short sale without any real confirmation from the bank that they would even consider a short sale. Many times, there is more than just one loan-holder making a 'third-party approval' a very complicated and sometimes costly affair. I've worked with several buyers who have successfully purchased short sale property, but I also have a good sense of knowing when any efforts are likely to be in vain.
Are there cycles for sales during the year (like the rental cycles of May/June and August/September)?
Yes indeed. Typically, with the residential sales market, the Springtime represents the years' most robust housing market. Many times, folks are selling and buying property and strategically it makes sense to get this started in the Spring time so you can have the summer to make the transition. There is a Fall market too, but it usually measures around 50-60% of the activity for a normal spring market. Depending on your circumstances, it could make sense to get your property on the market ahead of the activity curve or closer to its peak.
What are 'condo docs'?
When you going to purchase a condominium, unlike a single family or multi-family property, you are going to be sharing common ownership of land and Real property with others. One of the aspects of this type of property ownership the shared expenses and chores for maintaining the property and its common spaces. There are also guidelines set up for all its members, and some rules that are effectively attached to the deed.
When you invest in a condominium, you're investing in more than the brick and mortar, you're investing in the infrastructure that has been created to keep in functional and thriving. During your due dilligence process between an accepted offer and the Purchase & Sale, you'll have the opportunity to "open the books" and see just how efficiently (or poorly) an association is operated.
Typically, you'll want to see: The master deed, the master trust, your unit's deed, rules and regulations (if available), the association's annual budget (from last, this and next year), a statement from the bank on the savings (known as the 'reserve'), a list of improvements or any future plans for improvements and how they will be funded, and minutes or note from association meetings.
Many associations, because they are small (2-3 units) haven't been terribly meticulous about keep records. If you encounter one of these associations, it doesn't necessarily mean they are bad investment, but you should look a little more closely on how they operate.
What is the difference between a Purchase & Sale and the offer to purchase?
It can work differently in different States. In Massachusetts, the purchase process is typically a two-step process: an offer to purchase (in writing and with a deposit) and a Purchase & Sale agreement that happens usually 1-2 weeks after the offer. The offer is set up almost as a thumbnail for the eventual Purchase & Sale. An offer, for example, may be 1-3 pages wherease the Purchase & Sale could be 20-30 pages. Once the P&S is executed, the offer page has served its purpose and can be discarded. The P&S is the 'meat and potatoes' of any agreement and it will outline virtually every peice of the agreement. It's never advisable to negotate a Purhase & Sale without the assistance of a Real Estate attorney.
