Good Faith Deposit ? Real Estate Transactions
April 12, 2009
In a real estate transaction, a touchy issue is how much trust the seller has in a buyer. The existence of a good faith deposit helps put a seller at rest.
Good Faith Deposit
If you are selling your home, condominium or other real estate, you should always require a buyer to make a good faith deposit. The good faith deposit simply establishes that the buyer is serious and, to some extent, has the financial capacity to follow through on the purchase.
The amount of the good faith deposit is dependent upon the agreed sale price of the real estate. Although percentages vary from state to state, a cash deposit equal to three percent of the sales price is typical. For instance, the deposit would be $9,000 for home selling at a price of $300,000. As with most transactions, this percentage is negotiable. I don’t recommend that you accept anything less than two percent.
Once the buyer and seller agree to the amount of the good faith deposit, you have to figure out what to do with the deposit. Importantly, the seller should not hold the deposit as doing so could make the buyer very uncomfortable. Instead, the money should be deposited with a third party and held “in trust.” Potential third parties include escrow and title insurance companies as well as an attorney if your state requires their involvement.
Real Estate Appraisal - Rental Properties
April 11, 2009
Real estate appraisal for rental properties isn’t the same as for single family homes. If you were looking at a 24-unit building, it would be difficult to find similar ones nearby that have recently sold. Therefore, a market analysis using comparable sales isn’t normally used.
It is also not ideal to use replacement costs either. How do you figure replacement cost if there is no land for sale nearby with proper zoning? This is used as a secondary method, though, and can tell you if maybe you should be building instead of buying.
Real Estate Appraisal Using Capitalization
Investors buy rental properties for the income. Therefore it is the income that is used to determine value. The rate of return expected by investors in a given area gives you the capitalization rate, and this is what you use to accurately appraise an income property.
Start with the gross income. Subtract all expenses, but not including loan payments. If a building’s gross income is $82,000 per year, and the expenses $30,000, you have a net before debt-service of $52,000. Now apply the capitalization rate to this figure.
4 Simple Tests To Find Good Real Estate Investment Properties
April 10, 2009
You’re driving along the road when you spot it. There in the middle of a shaggy lawn sits a disheveled property. It may need a good coat of paint, or a shutter straightened out, but it’s easy to see that with a little work it could be a little gem of a property. Best of all, sprouting in the middle of the unkempt grass is a For Sale by Owner sign. It looks like the perfect fixer-upper, but how do you know for sure?
First, consider your reason for buying. If you’re looking for a property to ‘flip’ - to buy low, fix up and sell for a profit - there are a number of things you’ll want to take into consideration. If your intent is to buy it as rental property, there’s a different set of consideration, and if you’re looking for a home of your own, there’s yet a third. Let’s assume, for the sake of this article, that your intent is to flip the property for profit.
Test 1: The Neighborhood Test
Do You Have the Correct Home Buyer Mindset to be Buying a Home?
April 9, 2009
By learning what you need to know and preparing how to purchase a home ahead of time, you will be less likely to become so enamored with a particular property that you fall into the traps and the pitfalls that are so often the result of IDM, or Irrational Decision Making.
Do not allow your emotions to come before sound and rational reasoning when making the decision to purchase a home.
Let’s face it; if you’ve been out house hunting, you know the feeling you get when you finally think you’ve found a house you really like.
You’re like a kid in a toy store, excited about the possibilities that this dream house could really be yours.
When you go to see the home, you’re herded through it like sheep in a predetermined pattern.
- You’re not encouraged to spend as much time as you need in any one place.
- You’re not able to ask as many questions as you would like.
- You’re not asked if you would like to set up another time to come back and go through the house again.
The option to sit down and have a good conversation with the owner is not available to you.
Understanding Title Insurance
April 9, 2009
Title to a property is a record detailing the owners of the property and rights associated with the ownership. Title typically shows a progression of ownership from the first owner to the current one. Title is a fairly simple concept, but when it goes wrong it is a nightmare. That is where title insurance comes in.
Title Insurance
Title insurance guarantees that the title on a property is marketable when you purchase the home, condo, land, etc. You should always pay for title insurance. It typically costs a few hundred dollars and will save you a bundle if problems arise.
When you buy title insurance, a title insurance company researches the title for the property. The insurance company will look to see if the title is clear. "Clear" simply means that the seller is truly transferring title to you and no other person can claim ownership. While this sounds fairly simple, rest assured that title problems arise all of the time.
Title Problems
You might be wondering how you could possibly have title problems. Here are a few examples:
Closing Costs When Buying A Home
April 8, 2009
Closing costs are often the last thing a person thinks of when buying a home. While closing is the joyous moment the home becomes yours, the costs can be surprisingly aggravating.
When you purchase a home, condo or other property, you will go through a period known as escrow. During escrow, various issues related to the property transfer are worked out. The last day of escrow is known as the closing day and you are going to be paying closing costs.
Closing costs come in many forms. Some involve significant dollars while others are relatively painless. Here’s a list of typical costs:
Escrow Fees
An escrow agent is essentially a third party that works with the seller and buyer to finalize the transaction. For this assistance, the escrow agent will charge a fee. Depending on your area and the agent, you can expect fees from a few hundred dollars to around a thousand or so. Make sure you find out the fees before picking an escrow agent.
Home Loan
How to Use the Internet to Help Your Apartment or House Hunting
April 7, 2009
So you are looking for an apartment to rent or a house to purchase. One of the most important steps is researching the neighborhood to decide if you really like to live in that area. The best way to do this is driving around that area to see if you really like that neighborhood. You should pay attention to traffic, available stores, available transportation, noise level etc. Also, you should try visiting the neighborhood during different times of the day.
Do you know you can get help from the Internet for your apartment or house hunting?
You can view interactive maps on the Internet. The best tools I’ve seen so far are Google Maps (http://maps.google.com) and MSN Virtual Earth (http://virtualearth.msn.com). With these online tools, you type in the address of the place you are interested in and a map centered at that address will show up. You can zoom in, zoom out and drag around the map to see what other streets are close and how close this place is to the highway, etc.
Real Estate Appraisal - Do It Yourself
April 6, 2009
For single family homes, there are two basic methods used in real estate appraisal. They are replacement cost analysis, and using comparable sales. A third appraisal method, based on capitalization, is used for income properties, and is covered in another article.
In figuring replacement cost the question is: What would it cost to buy this land and put this house on it? If the land (improved) would cost $40,000, and the house could be built for $150,000, the value indicated would be around $190,000 - if the house is fairly new. If it has used up 10% of its useful life, you can deduct $15,000 for depreciation.
Replacement cost is not really a very useful measurement. It is difficult to say what the land is worth in a city center where none is left for sale, for example, and tough to gauge depreciation. It is used as a secondary method, and for unique homes that can’t be compared easily with others. The primary method of real estate appraisal used for homes is a market analysis using comparable sales.
Real Estate Appraisal 101
Buying A Home ? Rain, Sun, and Weather Issues
April 5, 2009
When buying a home, it can be easy to overlook year-around weather issues. You may think you are purchasing a home in a sunny area, but come to find there is always a heavy cloud cover. This is just one of a number of weather issues to consider when selecting your dream home.
Clouds?Rain?Floods
If you must have a sun deck as part of your new home, you better make sure it is going to be sunny! Just because a general geographic area has a lot of sun doesn’t mean your home will. Things to look for include fog and heavy cloud cover for a home in a valley. If the home is located on the side of a hill or valley, make sure you know when it will get sun and shade. Temperatures can be radically different depending upon the amount of sun you get.
When it rains, it really pours! One potential nasty surprise for new homeowners can be the condition of a neighborhood after it rains. In San Diego, for instance, the total rainfall averages roughly 12 inches a year. Despite this low total, there are certain beach communities that grind to a halt because of flooding issues. Even an inch of rain can flood streets to the point that you can’t drive at all. Make sure you stop by a gas station or local store to ask about flooding problems in the area.
Buying A Home ? What Is That Noise!?!
April 4, 2009
You’ve found the perfect home, closed escrow and just finished moving in. As you happily fall asleep, all seems well in the world. An hour later, you bolt up in bed to an ear splitting sound. All is no longer well in the world.
An Unholy Racket
If you saw the movie "My Cousin Vinny", you know what I’m talking about. For those that haven’t, the movie centers on a lawyer, Vinny, who comes to the south to defend his nephew against criminal charges. Every evening, Vinny goes to sleep only to be awoken by some blasting noisy. When house hunting, you need to make sure you don’t get "Vinny’d."
When you find an area or home you like, make absolutely sure you drive the area looking for any potential noise producers. Roll down the window, turn off the radio and just listen. You might be surprised at what you hear.
If you run across railroad tracks, you better figure out how close they are to your prospective home. Make sure you are near the house when a train goes by, so you can get the full effect. While trains and plains are obvious sources of noise, you also need to consider more subtle situations.
