In the previous section, we looked at the advantages and basic steps required for you to sell your own home. With these steps completed, it is now time to talk about the players in the supporting roles of the process; your real estate lawyer, mortgage banker and home inspector.
YOUR REAL ESTATE LAWYEREach of the steps that you take is to accomplish the goal of selling your home to a qualified buyer. To transfer the property, you will need a real estate attorney to handle the legal sales agreement and contract that are needed to sell your home.
It is in your best interests to have a list of items that you want written into the contract, i.e., items excluded from the sale of the house. In addition, your lawyer will play a vital role in witnessing the final walk-through of the property before settlement, the sales proceedings and closing.
Because you are selling your home on your own, ask your lawyer about your legal responsibilities in negotiating the final terms of the sale with prospective buyers including; the sales price, offer to purchase form, deposit receipt, buyer's cost sheet, disclosures, financing, inspections, date of closing and possession.
Especially in the case of disclosures, many states require the seller to provide all prospective buyers with a written disclosure statement of any defects in the house when the buyer first sees the property. Be sure to make note of WHEN you need to make each of the disclosures available to buyers.
The purpose of a disclosure is to provide buyers with a realistic picture of the condition of your property, so that they can make their best offer. A property that has water damage due to a flood is worth less than a house that has none.
While this damage affects the amount you can expect for your property, it is much better to disclose problems in the beginning rather than have the new owner discover the problem and then take legal action against you.
Along with the state mandated disclosures for real estate, the federal government requires sellers to provide a lead disclosure to buyers, be sure to ask your lawyer for a list of the appropriate disclosures.
Here is a few of the legal things you will have to do once you have found a qualified buyer:1. Creating the Sales Agreement
When you have found a qualified buyer, they will need to sign a sales agreement to put the process in motion for the closing of the sale and transfer of the property. Verbal contracts are not valid when it comes to real estate, to prevent fraud, all real estate transactions must be in writing for it to be binding. In addition, the sales agreement cannot be written on the back of an envelope: this is a legal document and should be created by a lawyer or if a standard form is used, a lawyer should review it to make sure it is appropriate.
2. Opening Your Escrow and Title Insurance Account
With your signed sales agreement, you are ready to "open escrow". The escrow and title insurance company acts as an independent entity that handles all monies and documents. The escrow company searches the title of your property to see if there is any type of debt or lien that would prevent the title from being cleared.
3. Resolve Problems with the Title
In the case where the escrow and title insurance company discovers a problem, such as a loan that was paid but is still showing on your title as unpaid, consult with your lawyer regarding the best way to resolve the issue if it cannot be done directly with the recorder of the debt.
Hopefully, you have discussed the various options available to qualified buyers to finance the purchase of your home as we discussed in the first section. Most house hunters are aware that they need to bring a pre-approval letter for the mortgage to prove that they are capable of securing the financing to close the deal.
However, not all pre-approval letters are created equal. The most crucial part of this document is the commitment. A mortgage pre-approval letter should tell you how much financing is available to the buyer as well as the terms of commitment and the issuing authority.
You should see in the letter the maximum mortgage amount. In the best-case scenario, the Loan to Value Ratio (LTV) will also be given. Loan to Value Ratio determines the amount of the down payment. If you are selling your property for $200,000 and the lender states that your prospective buyer qualifies for up to $180,000 at 90%, the buyer must produce a down payment of 10% or $20,000.
The best source of a mortgage pre-approval letter is a lender with the ability to guarantee the funds, such as a mortgage banker or banking institution. Letters from mortgage brokers, who must solicit funds from a lender, are in essence "pre-qualifying" letters that only offer an opinion of the potential of the buyer to secure funding.
The commitment in a pre-approval letter is rarely stated in concrete terms. More times than not, the lender will state that they have thoroughly checked the prospective buyers credit and that they are "tentatively" approved for a mortgage. But financing is not guaranteed. Requesting a pre-approval letter can save you a lot of time, if the prospect cannot secure financing, there is no deal. When you find a pre-approved buyer and have a signed sales agreement in hand, it is a good idea to set a deadline for the buyer to secure the financing. Keep an eye on the progress of your buyer's financing, if a deadline is missed, make sure you get the details and consult with your lawyer about the best way to proceed.
A WORD ABOUT INTEREST RATESHow do interest rates impact houses for sale by owner? When interest rates are low, it is easier to find buyers who can qualify and make their monthly payments. But all it takes is a slight increase in the interest rates to change this picture.
Currently in the United States, the Federal Reserve has been raising interest rates on shortterm borrowing, i.e., a 12-month personal loan will cost a borrower more. But long term interest rates for a 30 year home mortgage loan are fairly stable because most the financial institutions that make these loans believe that the Federal Reserve will continue to keep these interest rates low to retard inflation.
But eventually, this strategy will come to an end and interest rates for long-term loans will begin to rise. If you are selling your home when the interest rates begin to increase, how can you motivate a buyer? If you were selling your home for $200,000 through a real estate agent with a 6% commission fee, the agent would pocket $12,000. You can use this money to "sweeten the deal" by offering a reduction of the purchase price by $6,000 to the pre-approved buyer to achieve a faster sale. In extreme cases, where the seller is under pressure, some have opted to reduce the purchase price by the full value of the commission.
YOUR HOME INSPECTOR
While the role of the lawyer and mortgage banker are vital, so is that of the Home Inspector who gives you the important information you need in order to give buyers the disclosures required by law in most states.
As stated earlier, it is best to tell buyers if the property has significant problems that you cannot fix. This will save you the embarrassment of being unpleasantly surprised or having to re-negotiate the deal.
A home inspection at the beginning of the process affords you awareness of required
property repairs and property conditions so you can incorporate them in your pricing decision. It also shows buyers that you are a committed seller and makes your property more attractive. With fewer conditions and amendments to the sales agreement, closing the sale is easier.
GETTING READY FOR YOUR HOME INSPECTIONScheduling a home inspection begins by locating a qualified and preferably licensed Home Inspector.
Before the Home Inspector's visit there are several things you can check for problems and remedy if need be:
ÏPaint: Check each room for cracked or peeling paint.
Ï Stairs and Walkways: Be sure to remove any and all obstructions to stairs and walkways, both inside your house and in the area around your property. Stair railings should be stable and secure.
Ï Windows: If you have wooden frame windows, look for signs of dry rot around the pane glass and sills. Clean the glass and check for hairline cracks in glass. Test the operation of your windows, they should be open easily and function properly. Test the seal of the window and make sure that it closes securely without draft. If you have window screens make certain that they are fitted securely.
Ï The Roof: First look for leaks or cracks/condition that may encourage a leak. If you have trees on your property make sure that they are pruned so that none of the branches in contact with the house. Wet fallen leaves create stress on your roof.
Ï Furnace: Make sure the venting around the furnace is in accordance with regulations. Check that all of the thermostat functions are operational.Ï Plumbing: With pipes and fixtures, first check for leaks and then test the cold and hot water pressure by turning on two faucets at the same time. In the bathroom inspect the walls around the shower and tub for water damage. Look for rust and signs of leakages around the hot water heater. Make sure your inspection is in order for the water heater.
ÏYour Foundation: The foundation and mudsill (the part of the foundation that supports the house) is dry and level. Look for signs of shifting and settling crack.
Ï Electrical Systems: Check your fuse box or circuit breaker; test all of electrical outlets, light sockets fixtures and switches to ensure they work properly. Check for broken or loose outlets.
Ï Drainage: All runoff spouts should drain in a direction to take water away from house. Your lot should incline away from the house to help with water drainage. Your house foundation should be at least 8 inches above ground level.
CHOOSING THE HOME INSPECTORYou have made all of the repairs to the problems you found and the day to schedule your home inspectors' visit has arrived. Although licensing is not required by all states, it is in your best interest if you choose to hire a licensed home inspector. This is especially true for the termite and/or radon inspections that are required by banks and mortgage bankers to issue the financing for the purchase of the home.
When the inspector arrives at your property, they will explain the inspection process in general and make a tour of the property to estimate the amount of time the inspection will take. The inspection will begin by walking through the property and investigating all visible areas, appliances and items such as the electrical system, interior plumbing, the heating system, central air conditioning system, the roof, attic space and all visible insulation.
The inspection will include checks of the interior and exterior structural condition of all aspects of your home. From the basement or crawl space to the attic and everything in between; the walls, ceilings, floors, doors and windows. The inspection will end with a check of the entire property to ensure everything is as it was when the inspection started.
While it is not mandatory for you to be present at the inspection, attending the inspection will give you the opportunity to see your property from the objective perspective of a stranger with no emotional attachment to the property. Home inspectors can provide valuable information on the different aspects of the structure and systems that function within your home and how to best take care of them.
DEALING WITH PROBLEMS UNCOVERED BY INSPECTIONSMortgage bankers require a termite inspection and buyers expect one. However, if the Home Inspector discovers a problem that you were unaware of, you will have to make the repairs, especially if termites are found. However, beyond termites, you can negotiate with the buyers regarding repairs that were brought to light by the Home Inspection Report.
In the next section we will look at what you need to know about competing for buyers in the "for sale by owner" real estate market.