FAQs – Part 5 (Value Range Marketing)

What is Value Range Marketing (VRM)? How will I know when a home is priced this way, and why is it?

Sellers and buyers often have a price range in mind when they are looking to sell or buy. Here in Southern California (and other areas as well) it is becoming more common for sellers to state a range of price when listing their homes, at the urging of their REALTOR, in order to more effectively market the home, say proponents of the method. For example, a home may be listed at $575,000 – $625,000 and the listing will state that the sellers will entertain offers in that range. VRM stands for the numbers on the dial pad of your phone that correspond to these letters, and it is fairly common to see the last three digits of the price range be 876 ($625,876), especially if the MLS will not allow you to put a range in the price data field. Sometimes the range may be very broad, especially for higher-priced homes, while other ranges may be quite narrow. You will often see a spread of about 10 – 12% but there seems to be no agreement on how it is done.

There is no guarantee that an offer in the range WILL be accepted, however, since the contingencies may not be satisfactory to the seller. And the final offer that is acceptable to the sellers may be near the top of the range or closer to the bottom. And buyers can, if they wish, submit an offer lower than the range, which may or may not be acceptable. Proponents of the technique say that, because it opens up a wider range of buyers due to the broader price range, homes priced this way sell faster and for more money. But there are studies that suggest this may not be so.

While more common in this market, this method remains somewhat controversial both with consumers and agents, and many do not understand nor agree with it. But now you know a bit more and will be better prepared when searching for a home. Talk with your REALTOR so you will know how to proceed.

Why You Should Think About Buying Now!

Are you a little gun-shy about buying in this market?

I just posted an article you should read about some reasons to buy now rather than later. Here’s the link.

Choosing the Right Agent to Help You! – Part 2

Here are some more things to think about when choosing a REALTOR to assist you.

1. It is important to feel a level of comfort in speaking with the person you are interviewing, and a personal chemistry, but that’s not all. Do you feel that they are truly interested in helping you? How do you know? What are the specific services they provide first time home buyers? How well do they know the community (ies) you are interested in? What can they tell you about the community as well as the state of the market there – is it a buyer’s or a seller’s market? Are they willing to screen properties for you, based on YOUR criteria, not just set you up on a website (while it is important that you have access to on-line properties in the area you are moving to, YOU don’t know the area and the Realtor should help you screen properties as s/he learns more about what you want and need). Can the Realtor provide you with resources for you to do your OWN research (e.g., schools, crime).

2. Understand their responsiveness (see note above in #4) and their ability and willingness to help you late at night, on the weekend, etc. You will likely have lots of questions and it’s nice to not get frustrated because you can’t talk to the person you are working with. Find out how the agent likes to communicate (email, phone, face to face) but also discuss what works well for you. Do they get emails forwarded to their cell phone? Can they provide you with all the numbers to reach them quickly if you need to (believe it or not, some agents do not give out their cell phone numbers and expect you to leave voice mail in their office – how often do they check?). What about email – just because they HAVE an address does NOT mean they use it, and I know this from personal experience. You both need to agree on the most effective means to communicate and what works best for you.

3. You will want to look at houses, of course, and at times will want to schedule a tour of a number of properties, especially when you are getting started, so you will quickly gain a feel for the market and what is available to you in your price range. Find out how your Realtor will handle that. Will they set up an effective and substantial tour of homes and neighborhoods for you? Will they show you properties YOU want to see (as well as those that they feel, based on their knowledge, are important for you to see as well)? Do they provide an itinerary in advance? Do they keep you posted on any changes (e.g., the home you fell in love with on-line and planned to see now has an accepted offer)? Are they comfortable and willing to make last minute changes based on your schedule, change in the housing that is available, ruling out areas you find you don’t like, etc. so you don’t waste time?

4. You should also take time to visit open houses in your own – the more you see the better you will understand the market. Find out if your agent would like to accompany you and how to stay in touch about the properties you see (especially those you like). Once you are committed to working with someone, ask them how they should handle open houses, since the agent at the open house will almost always ask you if you are working with someone. Having a stack of your agent’s business cards is a good idea.

5. Make sure you and the agent you decide on discuss Buyer Agency. Will the agent represent you as a buyer client (like having an attorney) or not? What does this mean to you (ask about confidentiality and assistance with developing an offer strategy).

Are you going to be relocating and buying your first home? Check out Relocation A to Z for lots of information about the entire process.

Need help figuring out what to buy? You can visit my website and download a form entitled “What’s Important to You.”  This form will help you focus on the things that really matter.

Another First Time Buyer Loan Program

I’ve learned about another great loan program for first time buyers (or if you have not owned a home for 3 years or more) that I wanted to share.

If you are on the West Coast (LA and south) you may contact Maureen Thorpe , who is independent (310-383-2262) and please tell her I referred you. For other locations, send me an email, let me know where you are and I will get the right contact information for you via email – no need to call me, unless you want to  

• Available in many states
• Must be owner-occupied housing
• Housing may be a single unit or up to 4 units, a townhome/PUD, a condo, or a co-op (NY adn CT only)
• Purchase price varies by type of housing (1,2,3 or 4 unit as well as manufactured)
• Income guidelines are generous (examples: LA County $78,680; San Diego County $90,860). If income exceeds these levels, applicant must buy in the areas designated by the government as low income census tracts (LICTs), othewise they may buy anywhere in the county.
• NO credit score is checked
• May be 100% financing
• NO mortgage insurance is required (a big savings)
• Rates are VERY COMPETITIVE.

This is just a brief summary, and there are a number of other things you should inquire about (refinancing, pre-payment, appraisal requirements, etc.) when you call.

FAQs – Part 4 (Mello-Roos)

What are Mello-Roos?

Well, what the heck is that? First time I saw this in the MLS when I started my California home search back in Boston, and it said “no Mello-Roos.” I wondered what was missing? Was this a good or bad? I had never seen a Mello-Roos before; was it unique to Southern California? Do they import them? Or do they grow wild?

Mello-Roos is a fee you sometimes have to pay in newer subdivisions (often in undeveloped areas) where a Community Facilities District (CFD) has been created. The CFD allows for financing to cover the costs of certain improvements (e.g., streets, sewers and other basic infrastructure, police and fire protection, ambulance services, schools, parks, museums, etc.). The Mello-Roos, a special tax, is collected from each resident in order to pay off the financing; the tax is not based on the value of the property. And these fees can be in addition to a Home Owner’s Association (HOA) fee, so keep this in mind when you are calculating your budget for your new home. The good news is that the Mello-Roos will stop in the future once the bond (if issued) is paid off, although sometimes a reduced fee may be levied to cover the cost of maintaining the improvements.

BTW the name comes from the co-authors of the Mello-Roos Community Facilities Act of 1982, Senator Henry Mello and assemblyman Mike Roos.

FAQs – Part 3 (downpayments)

What is a downpayment? How much money do I have to put down as a deposit? Can I submit an offer without a deposit?

When you submit an offer to a seller you are expected to provide a downpayment (a.k.a. earnest money, deposit), which is an amount of money (typically, but may be other consideration that is acceptable) that is used to secure the offer and demonstrate good faith on your part that you are serious. Normally this must be submitted at the time of the offer – your REALTOR may submit a copy of the check with the actual offer, then submit the funds themselves once the offer has been accepted (practices may vary from state to state).

The amount of the deposit will vary according to local custom, the price of the house, the type of market you are in (competitive or not), what you can afford, among other factors. For example, in the Boston area it was common for deposits of 5 – 10% of the offer price; here in California you often see amounts of 3% or less (the law normally precludes a seller from retaining more than 3% of the purchase price as liquidated damages when 4 units or less are involved). Check with your REALTOR to see what makes sense.

Submitting an offer without a deposit may be tricky, even if the law or common practice does not require it, and is probably not going to be viewed favorably by any seller, since there is nothing that shows good faith…and it is much easier for the buyer to walk away from the deal. If you are in a position where you do not have the cash, or will be getting 100% financing (remember, the offer deposit counts as part of the overall downpayment that you may be providing and is subtracted from the purchase price to determine how much financing is required), you may be able to submit a deposit using borrowed funds that then gets returned to you at closing.

How do I choose a Home Inspector

You will want to have the home you have selected inspected by a licensed home inspector. This is not required, but is prudent for any buyer so you know what you are buying, and it can save you from purchasing a home in need of costly repairs and maintenance.

If possible, select a licensed inspector that has been recommended to you by someone you know and respect – a good friend, family member, neighbor, and someone who has actually used that person (don’t just pick a family friend who does inspections.) Find out what they liked and what, if anything, they didn’t about their inspection and the inspector.  Your REALTOR may also be able to recommend some names to you if s/he is representing you as a Buyer Agent.

Research the inspectors on-line (each state has a licensing board, and there are national accreditations as well) and check on their credentials and licensing. Find out what they charge (each inspector is different and prices can vary quite a bit depending on the size and type of property). Ask about the report that is provided (hard copy, emailed, on-line) and request to see a sample before you decide. A report that is too brief and informal is not in your best interest.

If you are buying a unique home (historical, “green,” manufactured) I advise making sure the inspector you are interested in is comfortable with that type of housing and has direct experience in their inspections. Some inspectors are also contractors or have been in the licensed trades, which can be helpful.

Check on the availability. During busy times and with short deadlines finding an inspector can be more challenging. You may not get your favorite is s/he is tied up with other inspections. But don’t delay your inspection for days and days simply to get the one you want because you will need the time to take in all the information and make a decision about proceeding with the sale or not. And delaying the inspection could cause a problem with the seller’s willingness to proceed; keep in mind you probably have agreed to do the inspection within a certain period of time in your purchase agreement, and you need to abide by that deadline.

FAQs – Part 2 (making an offer)

I want to make an offer. Who does that and how does it work?

When you have decided on a home you will want to make an OFFER to the seller to purchase the property. Your REALTOR will help you construct an offer that lays out all the terms and conditions on the standard paperwork required by the State of California (each state has different paperwork – the agreement in CA is 10 pages). Sometimes people ask if they can make a verbal offer – legally, an offer has to be in writing and, once agreed on, signed by both parties to be binding. A verbal offer essentially is meaningless and carries no weight. The offer will consist of a monetary amount (the purchase price) as well as a proposed date of closing, and a series of contingencies (i.e., the offer may be contingent upon a home inspection, getting a loan, and reviewing all the statutory and other disclosures). You will also need to decide how long you will give the sellers to consider your offer and provide you with a response (typically 24 – 48 hours).

Your REALTOR will review all the paperwork with you and once you are satisfied, you must sign it. Then your REALTOR will present the offer to the sellers through their listing agent. The offer may be faxed to the agent or the original version delivered personally, but some REALTORs prefer to present the offer verbally to the agent and the sellers if they are open to this.

The sellers can essentially do one of 3 things – Accept the offer, Reject it, and Counter it. How they respond will depend, in part, on how realistic your offer is and the terms and conditions you are proposing. If the offer is countered, you may counter back, and the process continues until such time that the parties reach agreement, or decide to not pursue the discussion any further. Once everyone agrees both parties must have signed the offer to have a contract, and each gets a copy.

FAQs – Part 1 (pre-approval)

First time buyers generally have lots of questions about the buying process – what happens, what can I expect, who does what, and so on. I thought it might be helpful to have a series on FAQs that buyers ask. I won’t cover everything, but try to hit the biggies. And, of course, if you have specific questions, please feel free to post them here and I will answer them in a subsequent post.

What is a pre-approval? Is this something I should do? A pre-approval is when a bank or ortgage officer reviews your financial status to determine ifyou can get approved for a loan. This is a MUST DO step for all buyers (unless you are paying cash) so you will know what you can afford to spend on a home. This is also a good time to find out if there are issues with your credit that need to be fixed before you actually apply for a loan. The mortgage person will look at your credit report and FICO scores (there are 3 major credit reporting agencies, and typically the middle of the 3 scores is used), and gather information from you regarding your assets, debts, and income, in order to determine how much you can afford based on your monthly expenses (loans & credit cards are the big things they consider, and a debt ratio that is too high will preclude you from getting a loan). They will also consider projected taxes, homeowner’s insurance, condo or HOA fees. The loan officer can issue a pre-approval letter to your Realtor and you are ready to start looking. Some buyers only get pre-qualified (where the credit is not reviewed). I wouldn’t waste your time with this, since many feel pre-quals are worthless, and any agent who is getting an offer from a buyer will request a pre-approval letter.

“Everyone hears what you say.  Friends listen to what you say.  Best friends listen to what you don’t say.” – Unknown

Due Diligence – Part 2

A little more detail is in order on this subject, since it is such a critical part of the home buying process. Not doing your job as a buyer can lead to serious problems, such as ending up with a home with significant and costly repair or maintenance issues. There really isn’t anyone who can do this due diligence for you. While your Realtor can provide a wealth of information, and the Home Inspector will answer your questions, it is up to you to decide what information you need, then to review and consider it before making a decision on how to proceed, as well as to review everything that is state or federally mandated to disclose. After all, it’s going to be YOUR home, and no one else can decide if it’s the right home or wrong home.

A few pointers about disclosures. Disclosures here in California are numerous, regardless of the type of home you buy, and it is important to read each of them thoroughly so that you understand what is being disclosed. Most of the disclosures (some are state forms, others unique to the HOA or subdivison, and some are federal such as lead paint) will require that you sign the form to acknowledge that you have read it. Just signing the disclosures without reading them is foolish; later on if a problem arises in your mind but the matter was disclosed and you signed off on it, it will be very difficult to make your case that you were not aware of the issue since your signature is on the form. Read your disclosures, and keep a copy of everything you sign. If there are questions about anything that is disclosed, it is your responsibility to ask the questions and get the answers you need, or to conduct further investigation yourself.

An important disclosure you will see from sellers is the TDS (The Sellers Disclosure). This is a written statement from the sellers about the condition of the house. This is NOT a substitute for your own home inspection, but it will tell you about some issues that may be important and things you should know about the house. You will see disclosures about MOLD, LEAD PAINT, the HOTWATER HEATER (it must be secured appropriately in the event of an earthquake), and a series of NATURAL HAZARDS that are specific to where your home is located. There are standard areas of disclosures, such as presence of an active fault, and a company such as Property ID will issue this Natural Hazards Report specifically for YOUR home, and you should read and understand this thoroughly – you can’t change anything, but you need to acknowledge your awareness of the issues mentioned, and you might decide that these are important enough so that you may decide to not move forward with the purchase.

The other important point to remember is that there is a defined period of time in which to review and acknowledge all the disclosures. This time period can be negotiated as part of your offer (the default is 17 days), but once everyone agrees, you must adhere to the time frame for the due diligence period. Failure to acknowledge things that are required to be reviewed during this period can put your deposit at risk, or the seller could decide to not move forward. At the same time, however, the seller is required to provide their disclosures to you within an agreed-upon time frame, and you can require that they do so or not move forward as well (but read the terms and conditions of the purchase agreement carefully to understand your rights and obligations and those of the seller). There will be more on this topic later.

My best advice? Talk to your Realtor in advance, who can provide you with information about the disclosures and answer your questions. After the fact is too late!