Closing the Best Deal

Working with a Real Estate Agent

Are buyers protected against housing discrimination?

By law, real estate agents may not discriminate on the basis of race, color, religion, sex, disability, familial status, or national origin. They also cannot follow spoken or implied directives from the home seller to discriminate. If you suspect you have been discriminated against, a complaint may be filed with the local Department of Housing and Urban Development (HUD) office nearest you. You may call HUD’s toll-free number, (800) 669-9777, or visit its web site at www.hud.gov/complaints.

Can I use an agent to purchase a newly built home?

Yes. In fact, some builders pay agents to find prospective buyers. But you also can use a buyer’s agent to help negotiate the price and upgrades on a new home. An agent can be particularly valuable directing you to newly built developments that match your needs, as well as helping you select reputable builders who are financially sound and respond promptly to buyers’ concerns.

What can I expect from a good real estate agent?

Competence, efficiency, and ethics. According to the All America’s Real Estate Book by Carolyn Janik and Ruth Rejnis, good agents take the time to qualify buyers and show properties in their price range. They plan showing routes carefully and have pre-inspected most properties. They have a thorough knowledge of financing options, are up on the latest housing trends, and share with prospective buyers data on the local housing market and home sales. Good agents also adhere to a strict code of ethics. They avoid high-pressure sales tactics, refrain from showing properties that do not fit your needs or goals, and alert you to problems about the condition of the property. And they show respect for other agents and real estate firms by not “bad mouthing” them.

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What is the best way to find a real estate agent?

Begin by asking someone that you know. Friends, relatives, co-workers, or neighbors who have recently purchased a home can give you a firsthand account and attest to the agent’s professional abilities. Sometimes an agent you contact will refer you to another one who works more closely with buyers and sellers in your neighborhood. Once you have a list of names, interview at least three agents and ask questions about their community knowledge, professional experience, and commitment – some agents work full time; others only work at nights and on the weekends.
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Why do I need an agent if I can find a home by myself on the Internet?

While more buyers now use the Internet to gain access to listings, or available properties for sale, it is still a good idea to use an agent. The agent brings value to the entire process: he or she is available to analyze data, answer questions, share their professional expertise, and handle all the paperwork and legwork that is involved in the real estate transaction.

Home Inspections

Do I need to be at the inspection?
No, but it is a very good idea to be there. Following the check-over, the home inspector can answer your questions and discuss problem areas with you. This is also an opportune time to get an objective opinion about the home from someone who does not have emotional or financial ties to the property.
 
How do I select a home inspector?
Begin by only hiring one who is qualified and experienced, someone who belongs to an industry trade group, such as the American Society of Home Inspectors (ASHI). This organization has developed formal inspection guidelines and a professional code of ethics for its members. Also, membership in ASHI is not automatic; members must have demonstrated field experience and technical knowledge about structures and their various systems.
Should I hire a home inspector?
By all means. Buying a home without getting expert advice is risky. Once a home inspector uncovers major plumbing and electrical problems, for example, you may decide you do not want to spend several thousand dollars on repairs.

Always include an inspection clause in your written offer. This clause gives you an “out” from buying if serious problems are detected. It also gives you another chance to negotiate the purchase price if repairs are needed. The clause can even specify that the sellers fix any problem that is uncovered before you settle, or close, on the home.

You also may want to consider hiring experts to inspect the home for a number of health-related risks like radon gas, asbestos, or possible problems with the water or waste disposal system.
What does a home inspector do?
A home inspector is a paid professional – often a contractor or an engineer – who checks the safety of a home. Home inspectors search for defects or other problems that could become your worst nightmare later on. They focus particularly on the home’s structure, construction, and mechanical systems.
It is not the inspector’s job to determine whether you are getting good value for your money. He does not establish value, only whether the home might collapse in a storm or if the roof might cave in.
A home inspection typically takes place after a purchase contract between the buyer and seller has been signed.
Property Taxes

Property Taxes

Are impound accounts required for all mortgage loans?

They can typically be waived on a conventional loan if the loan amount is 80 percent or less of the purchase price. But the lender might charge you an additional 1/4 point for this option to waive the escrow. One way to avoid an impound account on an owner-occupied mortgage is to raise your down payment amount slightly. The exact amount necessary to avoid the escrow will vary with the lender.

In some states, lenders let buyers set up separate accounts in which they place specific funds and then pay the insurance and property taxes themselves. These are called pledge accounts, and they must be set up before you close on the home. An impound account can usually be dropped on an owner-occupied loan once the loan-to-value ratio equals 80 percent or less. But restrictions apply: payments will have to be current and your record of making on-time payments pretty solid. Contact your lender if you meet these requirements and want to drop your impound account.

Are property taxes deductible?
Yes. Like the mortgage interest paid on a home loan, property taxes are fully deductible from your income. You may deduct them every year on your primary residence, second home and other investment properties.

However, escrow money held for property taxes cannot be deducted until the money is actually used to pay the property taxes.
Can I contest my property taxes?
Many people do, mainly because determining value can often be tricky. This is especially true in a changing market when local prices either take off dramatically or plunge precipitously, like during the Texas oil bust of the 1980s.

While it is up to a professional assessor to evaluate property value for tax purposes, property owners are usually allowed to contest their assessment until a certain date after they are made public.

Once you contest, you will have to prove why you think your property is worth less – few homeowners contest hoping to pay more taxes! The two most popular ways for determining value are an appraisal and a comparative market analysis. With an appraisal, a professional estimates the property's market value based on recent sales of comparable properties. A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents will offer free analyses to win your business.

Contact your local tax assessor's office for procedures on appealing your property tax assessment.
How are individual tax bills figured?
Unlike the income tax and the sales tax you pay, the property tax is not based on how much money you earn or how much you spend. It is based solely on how much the property you own is worth.

The real property tax is an ad valorem tax, or a tax based on the value of property. Ideally, the owners of property of equal value pay the same amount of property taxes, and the owners of more valuable property pay more in taxes than the owners of less valuable property. The tax is calculated using a variety of formulas and is based on a property’s assessed value – its full market value or a percentage thereof – and the tax rate of the taxing jurisdiction, minus any property tax exemptions, such as those offered for the elderly or veterans.
What is an impound account?
It is a special bank account held by the lender to collect monthly payments from the borrower to pay property taxes, mortgage insurance, and hazard insurance. These accounts also are called escrow or reserve accounts.

Lenders like to set up impound accounts to ensure the property taxes and insurance will be paid on time. They typically also collect a two-month cushion for taxes and insurance at the closing. A few states require the lender to pay interest on funds held in these accounts.
Why do homeowners have to pay property taxes?
Property taxes are assessed by city and county governments to generate the bulk of their operating revenues. The taxes help pay for such public services as schools, libraries, roads, and police protection.

Re-valuations of the tax are often done periodically, although the time interval varies from state to state or, in some states, from town to town, and can range from annual reassessments to periods of ten years or more.

Where & What to Buy

Condominiums, new homes & vacation homes.

Buyers Info

Learn how to buy.

Tax Matters

Are fees and assessments owed a homeowner’s association deductible?

Generally not because they are considered personal living expenses. But if an association has a special assessment to make capital improvements, condo owners may be able to add the expense to their cost basis when the property is sold. Another exception may apply if you rent your condo – the monthly condo fee is deductible every year as a rental expense.
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Are there tax credits for first-time homebuyers?

Yes, thanks to the many city and county governments that offer Mortgage Credit Certificate (MCC) programs, which allow first-time homebuyers to take advantage of a special federal income tax write-off. The credit reduces the amount of federal taxes paid by the buyer each year, if he keeps the same loan and lives in the same house.

An MCC also makes it easier for eligible buyers to qualify for a mortgage loan. The lender can reduce the housing expense ratio – the percentage of gross monthly income applied toward housing expenses – by the amount of the tax savings. Normally, lenders reject loans if the housing expense ratio is too high.

Program requirements for MCCs vary, although most adhere to the following guidelines:

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Are up-front fees and closing costs deductible?

Many of the costs paid at closing are not immediately deductible. The exception is the points you pay to purchase your home loan. They are deductible for that year. Points paid when you refinance an existing mortgage must be deducted over the life of the new loan. Some fees including loan application, appraisal, document preparation, and recording fees that are assessed when purchasing a home can be recouped by adding them to the adjusted cost basis, the starting point for figuring a gain or loss when selling the home. Significant home improvements also can be calculated on your cost basis.

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How can owning a home pay off at tax time?

A home provides many tax benefits, literally from the time you buy to the time you sell. The mortgage interest paid on a home loan up to $1 million for a primary residence or second home is tax deductible every year, as is the local property tax. Other mortgage costs – including late-payment charges and early-payment penalties – are also deductible. And if you use a portion of your home for business purposes, you can take a depreciation deduction as well. Many federal tax benefits are also available from local and state tax agencies. Contact your local tax agency for more information.

Negotiating & Closing the Best Deal

Are low-ball offers a good idea?
Any offer can be presented, but a low-ball one that is substantially less than the asking price can dampen a prospective sale and prevent the seller from negotiating at all. Unless the home is overpriced to begin with the offer will probably be rejected. Do your homework before making an offer. Compare prices of recently sold homes and new listings in the neighborhood. It also helps to know something about the seller’s motivation. A lower price with a speedy closing, for example, might motivate a seller who must move, has another house under contract, or must sell quickly for other reasons. Also recognize that while your low offer in a normal market might be rejected at once, it might motivate the seller in a buyer’s market to either accept it or make a counter-offer.
Can you negotiate interest rates?
A few lenders will negotiate the mortgage rate and number of points on a loan. However, this is more the exception than the rule with established lenders. As always, shop around and know the market before you enter a lender’s office. Rates are often published in local newspapers and on Internet Web sites. You may have more luck when dealing directly with a seller who has agreed to finance your loan. He is likely to be more open to negotiation, particularly when motivated to make a quick sale.
Do I need an attorney to buy a home?
A lot depends on the state where the property is located. Some require an attorney, others do not. Most homebuyers can generally handle routine real estate purchase contracts as long as they read the fine print and understand all the terms. But pay close attention to any clauses, contingencies, and other special considerations that will allow you or the seller to back out of the contract. When in doubt, consult an attorney. Ask relatives and friends, or your real estate agent, for recommendations. Call to inquire about their fees and to check their level of experience. Expect that more seasoned attorneys will cost more.
Does the seller take the furnishings once the home is sold?
Normally. This is because the fixtures – personal property that is permanently attached to a home, such as built-in bookcases or a furnace – automatically stay with the house unless noted otherwise in the sales contract. Anything that is not nailed down is negotiable, including appliances that are not built-in, such as washers and dryers.
Is it possible to buy a home below market price?
Certainly, but do not hold your breath. It takes a lot of determination and time to find a real bargain. But if you are adamant, here are some likely targets to pursue:

  • foreclosed property
  • a fixer-upper
  • hard-to-sell new homes in a housing development
  • tenant-in-common partnerships.

With the latter, you may be able to buy a partial interest in this form of title to property owned by two or more individuals because the partners often sell at a discount. However, bargains are easier to come by in a soft real estate market, when the economy is in a recession, and when homeowners, and builders and sponsors of condominium conversions, are desperate to move unsold units.

What are some negotiating tips?
Know the seller's motivation to sell. This will enhance your negotiating position. Sellers who must move quickly due to a job transfer, divorce, or contract on another home, are more inclined to accept a lower price to speed the process along. Remember, too, that the listing, or asking, price is what the seller would like to receive for the home. It is not necessarily what the seller will settle for. So know value. Before you make an offer, check recent sales and listing prices of comparable neighborhood homes and compare them to the seller's asking price.

Other tips:

  • Be flexible. Never say, “take it or leave it.” That can sour negotiations and ruin the deal.
  • Never show your hand or reveal your next step.
  • Each time you increase your offering price ask for something in return, such as repairs, appliances, even lawn furniture.
  • If you plan to pay cash or have a tentative commitment for a loan, use your strong financial position as a negotiating tool.
  • Don’t let emotions such as pride, fear, love, and anger get in the way of negotiating the best deal. Leave irrational feelings at home.

Work With Eva

Eva helps busy consumers in or near the city find homes in the suburbs. She offers information about the local real estate market and tips and tricks to help home buyers and sellers achieve their real estate goals.

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