Information For Buyers
In this article we will focus on:
Understanding the Types of Agency Inspections Financing the Purchase of a Home Closing the Deal The Transaction Explained
The Home Buying Process
Buying a home is one of life's most exciting experiences - and one of the most challenging. The purchase of a home is the largest investment most people will ever make in their lifetime. Today, however, disclosure laws, environmental regulations and the tightening financial market also make it the most complex investment most people will ever negotiate. You need a REALTOR® who is familiar with the housing market, prepared to answer all your questions, and able to provide you with enough knowledge to negotiate from.
As a buyer, you can choose to have the advice, assistance and representation of your own agent. Regulations of the Massachusetts Board of Registration of Real Estate Brokers & Salespersons require that written notice of the agency of a real estate agent be provided to buyers (and sellers) at the first personal meeting to discuss a specific property. Click here to open a copy of the Massachusetts Mandatory Agency Disclosure for your review.
Understanding the Three Types of Agency
As a buyer, you have the option of working with a seller's agent or buyer's agent. The decision will depend upon the types of services you desire.
Any one of the professionals identified above can help buyers understand housing costs, research properties available on the market within their stated price range, and provide important disclosures about the property being shown. They also can assist prospective buyers in obtaining legal forms and presenting the offer. They can provide information about schools and taxes, as well as provide general information to both the buyer and seller concerning issues such as financing and required inspections.
Seller's Agent:
The real estate agent represents the Seller and becomes the agent for the seller. "The agent owes the seller undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability, provided, however, that the agent must disclose known material defects to the real estate. The agent must put the seller's interests first and negotiate for the best price and terms for the seller."
Buyer's Agent:
When a buyer engages the services of a real estate professional to purchase property the real estate agent represents the buyer. "The agent owes the buyer undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability, provided, however, that the agent must disclose known material defects in the real estate. The agent must put the buyer's interests first and negotiate for the best price and terms for the client, the buyer."
Dual Agent
"A real estate agent may act as a dual agent representing both the seller and the buyer in a transaction but only with the express and informed consent of both the seller and the buyer. Written consent must be obtained by the real estate agent prior to the execution of the offer to purchase a specific property. A dual agent shall be neutral with regard to any conflicting interest of the seller and buyer. Consequently a dual agent cannot satisfy fully the duties of loyalty, full disclosure, obedience to lawful instruction which is required as an exclusive seller or buyer agent. A disclosed dual agent does, however, owe a duty of confidentiality of material information and accounting of funds. The written consent for dual agency must contain the information provided for in the regulations of the Massachusetts Board of Registration of Real Estate Brokers and Salespeople. "
Buyers should understand some important distinctions between these agents, and how these distinctions may affect their relationship with their agent.
For example, buyers should be aware that speaking to the seller's agent is no different than speaking to the seller. In other words, buyers should not tell the seller's agent anything they would not want the seller to know, since the seller's agent is obliged to disclose all relevant information to the seller.
A buyer's agent can negotiate on behalf of the buyer and provide advice on how much to offer; a disclosed dual agent cannot. A buyer's agent can discuss with the buyer their objective opinion of a home's value, a dual agent cannot. Any of these agents may accompany buyers to the home inspections, but only the buyer's agent can assist in formal price negotiations on behalf of prospective home buyers.
Working as a Buyer's Broker
Instead of browsing listings on your own, I will be able to zero in on specific areas and properties as they come onto the MLS computer and call or email you immediately. That way you are not wasting your time on properties that do not meet your needs. You will have daily emails of new properties and price changes in your search criteria. My website program has the latest technology for viewing the MLS properties. There are large pictures, locations on Google Map, Bird's Eye view, virtual tours, floor plans and anything else technology available. Listings can be saved in your own control panel where you can also send me messages.
My role is to make sure you are pre-qualified; are comfortable with your choice in lenders and supply you with information in that area.
As far as looking for a home, being in the business twenty-five years, and having grown up in Newton I am more than familiar with the area. I have seen many of these homes sell more than once and know the history of a lot of these homes in the area. Besides the homes I am also quite familiar with the schools, and what I do not know I will investigate for you.
When we view homes we will discuss the pricing relevant to the areas. When you are interested in placing an offer on a home I will do a comparative market analysis for you. We will discuss how to write the offer to obtain the property for the best possible price. Once written I will proceed to negotiate the offer with the seller's broker. We will discuss the negotiations each step of the way and discuss the best counter offers until we have reached out goal.
I make sure that you have all the inspections that you need. During the inspections I walk around with the inspector and write down anything that should be discussed before the Purchase and Sales Agreement is written. After we have discussed the inspection issues and come to terms with the Seller, I will get all the information of the sale to the attorney to draw up the Purchase and Sale Agreement. My job is to make sure all the necessary paperwork is completed and signed on time, any repairs to be done are completed on time, receipts are copied, and everyone is ready for the closing.
Before the closing I am there to make sure you are able to gain entry for measurements, etc. when you desire during the allotted number of times. In essence, my job is to make sure everything goes smoothly.
Of course, throughout the process, I am always available for questions, advice, second thoughts, or whatever your real estate needs may be. There is always need of reassurance for such a large investment! Please contact me whenever you like.
Financing the Purchase of a Home
A. Pre-approval and Shopping for a Lender
Although housing affordability is becoming increasingly difficult for many, it is important for buyers to carefully study their total net worth vs. their fixed expenses before determining the size and type of home they can afford. You may be surprised to discover you have more disposable income than you at first thought.
Know your credit score. Lenders are willing to take less risk than in prior years. They require good-to great credit to get a loan and you can't assume you have good credit, you need to know. Get your credit score before you apply for a mortgage so you know what you are dealing with. That way you can correct any mistakes on the report before the banks pull your credit. Your credit score is very important when applying for a mortgage. You have the right to receive a free credit report once a year from each of the three major credit bureaus - http://www.equifax.com/home/, http://www.experian.com/, and http://www.transunion.com/. For completeness, it is best to review the report from each one of them. http://www.annualcreditreport.com/ and ask for a free copy of your credit report once a year
Buyers should complete the mortgage pre-approval process as soon as possible to learn how expensive a home they may purchase. Many sellers want to know that a buyer has been pre-approved when they submit an Offer to Purchase.
Your total monthly housing costs (principal, interest, taxes, and insurance) shouldn't exceed 30% of your gross monthly income. In addition, when estimating your actual purchasing power, most mortgage lenders will require that approximately 36 percent of your gross monthly income be greater than the total of your monthly debt payment. These ratios are the guidelines used by many banks and mortgage companies, but not all. Click here for an example of the paperwork you will need for a mortgage application.
Buyers also are encouraged to comparison shop for lenders, and will discover the process enables them to recognize the best set of options for their needs. Besides, interest rates and loan availability can vary widely.
If you are a first-time buyer, be aware that many lenders and government agencies, like MassHousing, offer below-market interest rates for qualified buyers who are purchasing their first homes.
B. Mortgages and Loans
There also is a wide range of loan types. For example, adjustable rates, fixed rates, graduated payment adjustable rates, growing equity mortgages, balloon loans, etc. With the tight financial market many of these programs are no longer available because there are no investors to purchase them. Buyers may also find private mortgage insurance and equity lines much more difficult to acquire. The guidelines are much tighter and buyers have to supply full documentation. The banks are requiring larger down payments and higher credit scores. The credit sores have risen above 700 for all mortgage products. For scores between 680 60 699, borrowers would typically see increased fee up to 1% of the loan value, or an adjsutment in the rate.
The good news is that mortgage rates are at a historic low. In the 1980s mortgage rates were at 18%. The inventory is abundant and prices are stable. Click here to see the history of mortgage rates. Fannie Mae and Freddie Mac have additional information on their website at http://www.fanniemae.com/ and http://www.freddiemac.com/
To help you find out the amount a mortgage will cost you amortized over a number of years use the mortgage calculator here.
Look at the section: ”For Home Buyers & Homeowners” at www.fanniemae.com/
Look at the section: “Buying and Owning a Home” at www.freddiemac.com/
C. Don't Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.
If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.
The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce canceled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.
Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document. So leave your money where it is and do not change banks.
D. Consumer Protection Laws in Financing
Consumer protection laws in the Commonwealth require that lenders not discriminate in providing loans and other financing, and that real estate agents disclose referral relationships. These are called Truth in Lending Laws.
For example, it is required that an agent make full disclosure of Controlled Business Arrangements (CBA), in which a person has an affiliate relationship or ownership interest of over one percent in another business which provides settlement services, and directly or indirectly refers business to that provider.
The Real Estate Settlement Procedures Act (RESPA) was enacted in 1974 to provide consumers with disclosure about closing costs and to prohibit unearned fees (kickbacks/referral fees). This law prevents real estate agents from unlawfully earning income for such referrals.
E. Tax Breaks for Buyers
There are significant tax advantages to home ownership, most prominently that interest payments on mortgages and property taxes are, in most cases, tax deductible. In addition, some home equity loans also are tax deductible, and many people use their home equity loans to consolidate their debt, thereby making all the debt interest tax deductible. To get more information on the tax benefits of being a homeowner, ask your accountant or tax preparer or view the IRS
The Transaction Explained
A. Making an Offer to Purchase
Once you have found the house you want to buy, there are a number of procedures that must be followed to secure a binding legal agreement. The first step most buyers take is making an offer to purchase. The offer to purchase must be in writing accompanied by an earnest money deposit, of typically $1,000.00, which is not deposited until the offer is accepted. You are offering to purchase the property on certain terms and conditions such as price, closing date,property to be included in the sale. It also stipulates contingencies such as inspections, special provisions, and mutually satisfactory Purchase and Sale Agreement.
Massachusetts law requires that the listing agent present all offers to the seller. An offer can be accepted immediately or can be counteroffers could go on for days depending upon the situation. Typically, a negotiation will last 24-48 hours. The offer to purchase is not just about price. The terms of the sale are very important. How strong is the preapproval letter of the buyer? Did the buyer stop the mortgage contingency at the Purchase and Sale Agreement? How convenient is the closing date for the seller?
An offer to purchase which includes all essential terms and which is signed by both buyer and seller is a binding contract.
Once the offer is accepted, the Buyer usually has between 7-10 days to have the property inspected. In most cases, the dates are extended if the inspector identifies conditions that the buyers want to investigate further. The parties usually discuss any issues arising from the inspection and means of resolving the issue(s).
B. Purchase and Sale Agreement
The purchase and sale agreement defines all the rights and obligations of the Buyer and Seller. There may be as many as 30 clauses in a Purchase and Sale agreement, so buyers should be intimately aware of their responsibilities prior to signing. Because most sellers typically require a larger deposit when the Purchase and Sale Agreement is signed, buyers should make sure they understand their rights and obligations before signing. Usually a broker will provide an attorney with the information necessary to prepare the document but it is a Real Estate Attorney who prepares the document and negotiates with the seller’s attorney for the final draft.
Although brokers are not attorneys, they may complete a standard Offer to Purchase form and are aware of its content and importance in the home buying process. In most cases, the Purchase and Sale Agreement is the final written and binding agreement for all terms and conditions of the transaction.
C. The Up-Front Money
Buyers may be expected to put down a deposit, sometimes called earnest money, at the time of the purchase and sale agreement to secure the property is presented. This money will be credited to the buyer at closing. Buyers pay for all inspections performed on the building prior to closing. The cost of these inspections varies, but buyers should be clear about what inspections they will require.
Aside from inspections, buyers will need to calculate the amount of down payment money needed to secure financing, and tax escrow expenses. Tax escrow in Massachusetts varies depending upon the month of closing. The following is a chart of what buyers can expect to put into escrow.
| If loan closes in month of: | Bank will require escrow of: |
| January | 4 months |
| February | 5 months |
| March | 6 months |
| April | 1 month |
| May | 2 months |
| June | 3 months |
| July | 4 months |
| August | 5 months |
| September | 6 months |
| October | 1 month |
| November | 2 months |
| December | 3 months |
D. Real Estate Agents Are Not Inspectors and Do Not Guarantee Property Condition
Real estate agents are not trained to find structural, electrical, plumbing, septic and other problems with a home or land and do not guarantee the condition of property they sell. Agents have no duty to inspect a property for defects and have no duty to verify information received from sellers, municipal departments or other reputable sources. Naturally, real estate agents may not "knowingly (make) any substantial misrepresentation" (MGL c. 112 section 87AAA (a)). Agents have no liability for innocently passing along to buyer’s information from reputable sources, even if it is later determined to be inaccurate.) Agents who provide buyers with names of lawyers, accountants or other professionals do not automatically guarantee the accuracy of the reports of those professionals. Since May 1, 2001 home inspectors have been required to be licensed by the commonwealth and to carry errors & omissions insurance.
Inspections
Inspections can include, but are not limited to, a home inspection, well water inspection (is applicable), pest inspection, radon and lead paint inspections. Additionally, the Commonwealth of Massachusetts now requires all homes with septic systems or cesspools to undergo a Title 5 inspection to insure compliance with local health ordinances
A. Building
Home inspections give you detailed information on potential problems and a means to evaluate the physical condition, structure and mechanical systems of the house. Any serious structural problems found can give a buyer reason to cancel the transaction, re-negotiate with the seller, or have the seller repair the problem prior to signing the Purchase and Sale agreement.
B. Title 5
Title 5 is the common name for a Massachusetts environmental code governing septic and cesspool
use. Inspections are mandatory before any home serviced by a septic system can be sold or enlarged.
An inspection is required within 24 months prior to a sale or transfer. If weather prevents an inspection within this time period, one must occur as soon as weather permits, but not later than six months after the sale or transfer.
In most instances, systems that fail inspection must be repaired within two years. In addition, applications to install new systems require a soil evaluation test performed by an evaluator approved by the Massachusetts Department of Environmental protection (DEP).
The owner of the property is responsible for compliance with Title 5. The price of inspection is not regulated. On average one can expect to pay $300-$500 for a Title 5 inspection. However, the seller and the buyer may decide who will pay of the costs of the repair or upgrade, which can be negotiated as part of the sales agreement. Some mortgage lenders may require any repair or upgrade to be completed before closing or that the funds for the cost of the repair be placed in escrow before closing.
Additionally, in 1997, the Massachusetts Legislature authorized an income tax credit to ease the financial burden placed on homeowners. Eligible property owners can qualify for a tax credit of up to $6,000, or 40 percent of the cost of a septic system upgrade, whichever is less, over a five-year period. The credit applies to primary residences only.
C. Radon
Radon is a naturally occurring ground gas. Short-term tests include charcoal canisters, alpha track detectors, electrician chambers, continuous monitors and charcoal liquid scintillation. An elevated radon level can be corrected, but again it is an item that is negotiated before the Purchase and Sale Agreement is signed.
D. Termites and pests
Termites and pests can be detected during the inspection process. This inspection can cost approximately $150, but may be well worth the money, particularly for older homes and/or if termite damage is detected at the home inspection. There is treatment for termites and pests, but it also has to be determined if they have caused any damage to the property that needs to be repaired.
E. Lead Paint
If you are purchasing a home built before 1978, the seller or REALTOR will give you the Lead Paint notification. The seller or sales agent must tell you what the seller actually knows about the homes lead-based paint and give you any relevant records or reports if they exist. You have the right to take up to ten days to test the property for lead paint if you want. Massachusetts law requires that all homes where children under the age of six live be lead-safe. The Lead Pain Notification is signed by the Seller, Buyer and Agent.
Closing the Deal
The process of closing the sale can take between 30-60 days (or longer), a length of time necessary to complete all the financing requirements, including clearing the title, approving the loan, appraising the property, and having the plot surveyed.
A closing date will be set, at which time all the parties to the transaction must have completed their requirements to consummate the sale. Buyers are not required to hire an attorney to represent them in the closing transaction, but may choose to as a precaution against any potential problems. The bank's attorney has an obligation to ensure all legal requirements are met, but represents the bank only and not the buyer. A buyer's attorney can review all the documents to ensure your needs, as a buyer, have been fully met. The day before the closing the closing attorney will prepare a settlement statement (known as a HUD). This will list all the monies changing hands and needs to be carefully looked over for accuracy.
The buyer should bring a certified check or bank check payable to him/herself for the closing costs and purchase price, less the amount of deposits and mortgage amount. The bank's attorney will give you an exact figure. The buyer must present an insurance binder at the closing, covering the property for one full year. Buyers are expected to pay for any fuel oil remaining in the tank at time of closing.
Before the closing the buyers will conduct a final walk-through of the property to ensure that the property is in the same condition as they last saw it, and any agreed upon repairs have been completed by the seller.
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