FAQ
Buyers
What if a property is damaged during escrow?
Assuming that the buyer has not taken legal title nor has taken possession of the property, the seller would be responsible for repairing the damage back to the condition of the property when the offer was made. An alternative may be for the seller to adjust the selling price down, assuming the damage does not affect the buyers ability to obtain a loan against and insure the property and that the buyer agrees to the new terms.
At what point am I committed to the buyers agent? Can I drop my agent at any point and get a new one?
Unfortunately the answer is not necessarily straight forward. Real estate law defines the agent worthy of obtaining the commission as the one who generated the procuring cause. In other words the agent that made it possible for you to purchase or the one who caused the purchase to go through. Generally, the agent that is the procuring cause is the one who submits the offer on your behalf and then returns the seller signed offer back to you. The second part is very important. What it is saying is that just because an agent submitted an offer on a house with you does not entitle them to the commission unless that offer is ultimately accepted. Thus until an offer is actually accepted, you can switch out your agent with another. However, keep in mind that an agent can always contest the commission with your new agent believing that they are in fact the procuring cause. This can then lead to a legal action between the two agents with whom you dealt.
I’ve heard of sellers paying for closing costs. How can I get that?
Any offer to purchase can include terms for the seller to pay for the buyer’s closing costs, usually a percentage of the sales price with a not to exceed clause. However, depending on market conditions, the property’s desirability and motivations of the seller, requiring a seller to pay for closing costs may not be the optimal strategy for negotiating a sale. For example, in times of increased competition to purchase (as was the case in the early 2000s), there may not be a counter-offer opportunity and therefore a prospective buyer may choose to submit their strongest possible offer, neglecting a closing cost request. However, in other instances it may be appropriate to request concessions from the seller including closing costs. Like most aspects of real estate, it depends on all of the market forces and where you choose to position your offer within those forces. But the short answer is, any buyer can request closing costs to be paid by the seller.
What is a seller carry back?
A seller carry back refers to a loan given to a buyer by the seller. The seller is carrying back some of their equity in the form of a note or loan given to the buyer in the event the buyer wants or needs to put down less of their own capital for the purchase. As an example a buyer purchasing a $1,000,000 property has 20% or $200,000 as a down payment, but the bank will only finance 70% or $700,000. In order to qualify for the financing in this situation, and assuming the seller has enough equity to do so, the seller may offer the buyer a loan of $100,000 to make up for the capital needed to satisfy the banks requirement. Here are the numbers for this transaction:
Price: $1,000,000 Buyer down: ($200,000) Note from seller: ($100,000) Bank loan: ($700,000)
Sellers
What if a property is damaged during escrow?
Assuming that the buyer has not taken legal title nor has taken possession of the property, the seller would be responsible for repairing the damage back to the condition of the property when the offer was made. An alternative may be for the seller to adjust the selling price down, assuming the damage does not affect the buyers ability to obtain a loan against and insure the property and that the buyer agrees to the new terms.
What is the difference between a Real Estate Agent, Broker, Realtor?
There are two levels of licensure in the state of California. The first is the real estate salesperson license. Most agents that deal with the public in transacting real estate hold only a salesperson license. Qualifying for the license involves a few real estate courses and a Department of Real Estate (DRE) commissioned examination. The broker license requires 8 college level real estate courses, equivalent to a minor in real estate, a DRE commissioned examination, and either a bachelors degree or 2 years of licensed real estate experience. You can research more at www.dre.ca.gov.
A Realtor is simply a broker or salesperson who has paid into a membership with the association of Realtors. Realtors are provided access to the Multiple Listing Service (MLS) as part of their membership.
How does escrow work?
Escrow is a neutral third party in a real estate transaction. Their job is to follow instructions as outlined in the escrow instructions (usually the purchase agreement acts as joint escrow instructions) which includes keeping track of all the paperwork, making sure the title will be recorded how the buyer wants to hold title, keeping an accounting record of all the credits and debits for each party, making sure money comes in from the appropriate sources (buyer’s down payment, lenders loan), making sure all forms are received and organized, and trying to keep all parties on task in order to record the new ownership and transfer possession on time as outlined in the purchase agreement.
What is being referred to with “buyer’s agent”, “seller’s agent”, “listing agent”, “selling agent”?
The buyer’s agent and seller’s agent are just that, they’re the agent that is working on behalf of their principal, the buyer or seller. The agent representing the seller is also known as the listing agent as they are the agent that lists the seller’s home on the MLS and other sources. The buyer’s agent is also referred to as the selling agent. This is because they are the agent responsible for actually selling the home to the buyer given that typically the buyer and listing agent don’t interact. Therefore the agent that is actually “selling” the house to the buyer is the buyer’s agent. Here at Jim Post’s brokerage we understand that obscure conflict of interest, which is why we do our utmost to maintain a no pressure environment and focus on being an asset to our buying clients by providing answers to all of their questions and giving helpful advice without the sales pitch. In fact, feel free to let us know if we ever cross the line and suggest that “your couch would match perfectly with the hard wood floors”.
Why do other Brokers charge 6%, regardless of how long it takes to sell? Is that a law or something?
It’s no law. It’s just how the industry evolved over the years. Brokers’ commissions are negotiable between themselves and the seller. Whatever is agreed to (6% or otherwise) will then be usually split equally with the selling broker (a.k.a. the buyer’s agent). Thus 3% for the listing broker and 3% for the selling broker. Again the 6% is an industry standard but it is by no means a law or a requirement. The broker can charge whatever they can agree with a seller to charge.
Escrow and Closing
How does escrow work?
Escrow is a neutral third party in a real estate transaction. Their job is to follow instructions as outlined in the escrow instructions (usually the purchase agreement acts as joint escrow instructions) which includes keeping track of all the paperwork, making sure the title will be recorded how the buyer wants to hold title, keeping an accounting record of all the credits and debits for each party, making sure money comes in from the appropriate sources (buyer’s down payment, lenders loan), making sure all forms are received and organized, and trying to keep all parties on task in order to record the new ownership and transfer possession on time as outlined in the purchase agreement.
What does falling out of escrow mean?
Falling out of escrow basically means that the transaction to buy and sell was cancelled and the third party escrow service was no longer required. The conditions under which a property falls out of escrow, however, are in-numerous. A few simple examples of why a property could fall out of escrow include a buyer not being able to secure financing, or the buyer discovered a defect during the inspection that was either irreconcilable or didn’t meet the buyers expectations. More complicated and rare circumstances a property falls out of escrow are if one or both parties breached the contract or if the property was significantly damaged or destroyed during escrow. Because of the broad variation in possibilities for a property falling out of escrow, it’s important to find out why the contract was cancelled before making any judgments on the property itself.
Loans and Lenders
What is the difference between interest rate and APR?
In an effort to protect consumers shopping for home loans, the government enacted rules which require prospective lenders to disclose the APR along with the interest rate. The interest rate is what most people are familiar with, that is to say it is the rate used to calculate the mortgage payment. Annual percentage rate (APR) on the other hand is an aggregate of all costs of the loan including the interest rate as well as upfront fees charged by the lender. That way a consumer can simply scan a variety of lenders’ APRs and compare the rates as “apples-to-apples”.
How do I calculate mortgage payment?
The mortgage payment calculation can also be used to calculate the payment of any loan, including auto loans, credit card payments, etc. Generally referred to as the Capital Recovery Factor, the formula is given as:
A = P(i*(1+i)^n)
((1+i)^n)-1
It’s much easier, however, to simply use a mortgage calculator like this one!
How much should I put down as a down payment?
We’ve heard many well known investors encouraging folks to put as little down as possible. Doing so will increase your cash-on-cash return, they claim. This would be true, and only true, if all costs were constant and not dependent on the down payment. This isn’t the case however. In most instances, by putting less than 20% down you’ll need to either pay PMI or have a second mortgage with a higher interest rate. Also, the less you put down the higher the mortgage payment, one of the largest expenses in a real estate investment. To determine what’s really going on we’ve developed an algorithm that determines the optimal down payment. In almost every case it was determined that an investor’s return is optimized once the 20% hurdle is crossed. In that instance the investor has put down the least amount possible without paying PMI or an increased interest rate on a second mortgage. In some cases we’ve also seen the return increase with an ever increasing down payment. That is, putting down all cash gave the highest return. With that said, it is still possible to get a good return with less than 20% down it just may not be the optimal return for that property.
Jim Post Real Estate Broker is a local
Long Beach Realtor specializing in making the buying and
selling process simple, smooth, and inexpensive. Working in
Long Beach Real Estate for over 10 years, we can provide
valuable representation for any transaction.
Long Beach Realtor specializing in making the buying and
selling process simple, smooth, and inexpensive. Working in
Long Beach Real Estate for over 10 years, we can provide
valuable representation for any transaction.