In the Commonly asked Questions – TREC Contract Explained Part I, I covered about property type and Earnest money items in the first page of the contract. Let me try to talk about few other important items in the other pages.
What is Title Policy and Who pays for it?
Title policy is an indemnity insurance to cover the buyer against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. It is the only insurance which covers the defects and damages happened in the past not the future. It is usually paid by the Seller but needs to be requested by the buyer’s agent when making an offer in the contract Item 6 shown below:
If you are buying a new home, builders usually pay for it only if you close with their lender otherwise buyers need to pay for it. There is no written rule that seller should always pay for it. You can try to negotiate with the builder to pay it no matter which lender you go with.
Survey
Next comes Survey, another important document which is part of the every contract at least essential when buyer financing the loan. Lenders needs the survey to finance the loan to make sure it’s part of neighborhood and easements are properly marked. Lender request the buyers to provide the survey as part of loan process. Buyer agent should be mark the contract Item 6C (shown below) to either get it from seller or either seller or buyer needs to pay and order through the title company.
If it’s a sale by owner, seller should be able to provide the survey which can be used by the buyer to accommodate the lender request. During the initial negotiation process, agent should be able to check with seller and agree upon accordingly. Otherwise Buyer will be responsible to order through the title company and they will order the surveyor company to do the survey and provide to the lender.
Property Condition
Last thing, I will cover in this post will be the property condition section in the Contract Item 7 shown below:
The Item 7B talks about Seller’s disclosure notice which should be part of any listing other than foreclosures and REO properties. Your agent should be able to provide to you either before or after your property showing. The purpose of the notice is to disclose the condition of the property by the seller to the prospective buyers. Whether there is any damage or any known issues, they should mention it in the notice. It is to inform that buyer should aware of any repairs made earlier and items the house has properly has and don’t have, what’s working and not working. The section Item 7B should be selected properly while making an offer if the notice wasn’t received earlier to make sure buyer receives or they can terminate the contract and get their earnest money refunded. In foreclosure or REO property sales, they are not required to provide Seller’s Disclosure notice.
Item 7C is the section which creates confusion to many buyers. Let me try to explain it. First, if you are buying a foreclosure or REO properties, most banks don’t do repairs so you have no choice than selecting 7D(1). In other cases, you can select 7D(1) to accept the property as is condition and should be able to do an addendum at later point if anything discovered during the inspection period. You only need to select 7D(2) when you already know certain repairs which needs to be fixed even before inspection. In normal situation, agent should select 7D(1) and able to put an addendum later to request seller to repair any issues found during inspection. Don’t worry about that you will be stuck with the property with issues by selecting 7D(1). You still have till option period to get out of the contract and get your refund and no one can force you to purchase it. Hope its clear now.
I was able to cover three important items in the contract in this post, Title policy, Survey and Property Condition which usually triggers lots of question from buyers. Don’t hesitate to ping me or add a comment if you need more clarification. I will continue more about the contract in future posts.
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Commonly asked Questions by Home Buyers – TREC Contract Explained – Part II
Buyers – Home Prices are expected to increase upwards more…
I have been reading articles talking about various reports and surveys which all point to one thing in common, increase in Home prices are happening all throughout the nation. Let’s look at few of them.
A report published by Fiserv(which used data from the Federal Housing Finance Agency for its projection), Home prices are expected to continue their trajectory upward, projected to rise 3.7 percent between the third quarters of 2013 and 2014.Following the third quarter of 2014, Fiserv predicts home prices to rise an average 3.3 percent annually over the next three years.
“Although some recent real estate activity has been speculative, it seems as if buyers have more realistic expectations about housing market returns after having lived through the largest housing market crash in U.S. history,” says David Stiff, Fiserv’s chief economist. “2012 was the first year since 1997 that the housing market has resembled something recognizable as normal. For the past 15 years, home-price changes and sales volumes have either been boosted by a bubble mentality or crushed by crash psychology.”
In 1997, home prices grew at a 3 percent rate, Stiff says, but from 1998 to 2006, prices started soaring above 5 percent and even saw double-digit increases in some of those years.
By the end of 2013, Fiserv expects that home prices will increase in nearly every U.S. metro area, while some markets may see short-term double-digit price increases. Read full article here.
According to another National Housing Survey conducted by Fannie Mae in Feb 2013, number of consumers who believe home prices will increase over the next year rose to record highs, It polled more than 1,000 Americans to assess their attitudes toward housing.
42 percent of consumers surveyed say they believe home prices will rise in the next 12 months, and 10 percent of consumers say they believe home prices will inch down, a survey low.
25 percent of those surveyed say they believe it’s a good time to sell a house, also the highest level ever recorded in the survey’s history.
41 percent say they expect their personal financial situation to improve over the next two months — a drop of 2 percentage points from January.
31 percent say they have significantly higher household expenses than a year ago.
38 percent of respondents say the economy is on the right track.
Overall, the survey showed that consumers are optimistic about the housing recovery, but that optimism isn’t carrying over to the direction of the overall economy or household finances. Read full article here.
In Texas, especially Houston is already experiencing the increase of new and resale home prices in many local markets like Woodlands, Sugar land, parts of Katy & Cypress. It may be hard to swallow for many prospective Home Buyers but that’s the truth. The days were buyers ruled the market is history. It’s now Seller market in many areas around Houston or at least sellers are not willing to budge. They don’t want to come to table for any kind of negotiation. They want to stick to their price and willing to wait longer as they are aware of the fact market is on their side. When comes to New homes, Builders are increasing their prices every 2 weeks in many master planned communities taking advantage of the demand.
If you are in the market for new or resale home, you better ready for tough negotiation or settling for price close to the market value unless you find a reason for seller to agree for better one. Always get help of a smart realtor to work with you.
Fannie Mae – 2013 Housing Industry Projection
Few weeks ago I posted a blog about Real Estate Industry prediction for 2013 by NAR. Now we have housing industry prediction by Fannie Mae Research team. The housing market is “on a sustained growth path,” according to the latest economic outlook by Fannie Mae’s Economic & Strategic Research Group. Below is the snapshot of the report.
“One of the key developments for the housing market last year was the general consensus that home prices, on a national basis, bottomed earlier in the year and continued to build momentum, exhibiting robust year-over-year gains unseen since the housing boom,” according to the report.
Housing inventories are at the lowest since December 1994 and fewer distressed homes have helped to lift home prices, according to Fannie Mae economists. Fannie Mae economists said the housing recovery is “broadening” and “durable.”
“Housing underpinned the broader economy in 2012, particularly the pickup in construction,” the report said.
Among some of Fannie Mae economists projections for this year:
Home prices: Fannie Mae economists predict that the median price of existing homes will increase 2.3 percent on an annual basis this year, reaching $181,000. The median price of a new home will likely increase 1.6 percent to $248,000. For 2014, economists predict that home prices will increase an extra 2.8 percent.
Home sales: Existing-home sales will likely rise 11.5 percent in 2013, and new-home sales will rise 12.5 percent, economists predict.
Mortgage rates: Rates will likely edge up slightly this year with 30-year fixed-rate mortgages projected to average 3.8 percent this year and rise to 4.4 percent in 2014.
Unemployment: The mortgage giant anticipates an average 7.8 percent unemployment rate this year, followed by an average 7.4 percent rate in 2014.
Click to read full report.
It looks like housing is going to continue its steady progression assuming the employment scene gets better and both pushes the overall economy forward.
Houston housing market is Healthy & Humming…
Trulia is all about reports and analysis published periodically which helps to guide the consumer and realtors. I have posted many blogs in the past regarding various Trulia’s reports and this blog post is one of that kind about recently published report about rising asking prices.
Trulia Price Monitor is one of the earliest leading indicator of how asking prices trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do.
Many markets have shown big price gains whereas others are not. It doesn’t mean their housing market is doing good as per Trulia’s report explained below.
Most Housing Markets with biggest Price gains aren’t really healthy. Huge price gains in Phoenix and elsewhere are not necessarily a healthy sign. As part of our 2013 housing outlook, we ranked the 100 largest metros on the health of their housing markets, based on three market fundamentals: strong job growth, low vacancy rate, and low foreclosure inventory. On this list of healthiest markets, Houston ranked #1.
Weaknesses on these fundamentals are red flags for a local housing market – even when prices are galloping ahead. Few of the markets with the biggest price gains are “healthy” in terms of these fundamentals: eight of the 10 top price gainers were in the bottom half of the “healthy markets” ranking. For example, Detroit – despite a 14.2% price increase – was dead last, ranked 100 out of 100. None of the 10 markets with the largest price gains was also among the top 10 healthiest markets for 2013, though San Francisco came close, with the 11th largest price increase and the 2nd healthiest market.
Although most of the housing markets with big price gains exhibit unhealthy fundamentals, some markets with rising prices are healthy. Furthermore, modest price increases aren’t necessarily a sign of poor health: markets with flat or falling prices include both healthy and unhealthy markets. Looking at both price gains and market health reveals four types of local housing markets: Booming, Humming, Rebounding & Struggling.Booming markets have big price increases and healthy market fundamentals. Their price gains are supported by strong job growth, and future foreclosures are unlikely to threaten today’s price increases. San Francisco, Seattle, Denver, San Jose, and Salt Lake City are the best examples of booming markets.
Humming markets have strong market fundamentals without dramatic price gains. They’re humming along after avoiding the worst of the housing bubble and bust. Moreover, many are now seeing lots of construction activity. Houston, Boston, Raleigh, and Dallas are good examples of humming markets.
Click to read the full report and know about Rebounding and Struggling …This scatter plot shows that price gains and market health often don’t go hand-in-hand:
In the plot, Houston is plotted on top in the Humming zone which means Houston housing market is in the right track to move towards Booming when the economy really turns around. Many areas in Houston are really turning as seller’s market and many listing agents are trying to be more protective of their clients. They don’t want to come to the table just to close the deal and don’t want to leave out money for seller’s. They are educating clients about the market and telling them wait and hold on to avoid selling lower.
With low inventory and more demand, it seems like asking prices are poised to go up more in Summer. Watch out and work with a Realtor to guide you in making the smart decision on your home purchase price.
Commonly asked Questions by Home Buyers – TREC Contract Explained
Currently I am working with a young couple having 1year+ old kid looking to buy their first home. They both are well educated and seems to have been researching the home buying arena in Houston for few months which I can guess from their decent questions asa first timer. I love share and guide these kinda of clients who knows just a little bit about what they are getting into and like to learn from others and try to make smart decision accordingly.
I showed them couple of houses and they liked a house and we went ahead and made an offer. While making an offer, they asked some valid questions about contract which is relavant to any buyers. So I decided to put those questions with answers explaining them in detail relating to the TREC(Texas RealEstate Commission) Contract in this blog post for future buyers.
- Is the personal property like appliances, stove included with the sale?
Usually home sale includes real property with all the improvements and accessories attached to it including stove, dishwasher, ceiling fans etc., Appliances like refrigerators, washer, dryer or not attachements and considered personal property. Below picture is the section 2 from the TREC Contract which explains in detail.
Sometimes sellers might include some personal property as part of the sale. Realtor needs to check the listing to makes what’s included and excluded. If they didn’t specifically mentioned any appliances included in the listing, buyer should be able tonegotiate using addendum part of the contract. - How much earnest money should I offer?
There is no standard number. Usually it’s 1% of the offer price but sometimes it’s dicated by the seller depending upon on the type of sale. For example, if its a foreclosure and REO property, seller might need minimum $1000 to start with. In a normal seller scenario, 1% is an acceptable figure. Sometimes buyer agent will also tell the buyer to put more earnest money to show the seller that they are really interested but make sure you have back out options clearly mentioned in the contract so you won’t lose your earnest money incase of an issue. See the picture below showing the section 5 of the contract.
- Whom should I make the Earnest Money cheque payable to?
In almost all resale scenario, you should make the personal cheque or cashier cheque payable to title company. Never make a cheque payable to the seller or seller agent name. The reason being you have better chances of getting your money back when the contract fails. - When I will be able get my Earnest Money back if I need to back out?
You should be able to get your full refund of your Earnest money back when you back out during the option period due to any reason. You also will be entitled to get the Earnest Money if you credit is not approved and credit approval addendum is included in your contract. - What situation I will lose my Earnest Money?
You cannot just back out of the contract after option period and credit is also approved. You will all your earnest money after this period. If you need to back out after this period for some unavoidable reasons, you need to mention or show legitimate evidence to the sellers and they might be able to refund the earnest money with their own discretion
I only covered a few questions and answer pertaining to first page of the contract and still have more to come. I will try to post them in my future blog posts.
Keep reading, become a smarter consumer…
