Real Estate Advice

[FRPLG]

I will probably echo a lot of what has been said but may have some other things to add.

First off I am 28 and live in my third primary home. I also several real estate investments properties and I am constantly traversing the real estate market in search for more. Basically I have been where you are enough to have some good insight into the more subjective aspects or your questions.

First, is there any sort of generalized formula for determining whether a house is a "good buy" based the home's assessed value?

These projected values almost always means little to nothing. There are two different types of projected values of a house.

Assessed value=the value assigned by the local government for tax purposes. It is almost always signicantly lower than the real market price since reassessments are done on a yearly or bi-yearly basis using an inexact comparable type system on old figures. Never pay attention to this assessed value beyond what it will do in terms of taxes for the property. It has no bearing on what the house is really worth.

Appraised value=this is a much closer figure to actual value as it done by an independent evaluator. Banks use it to make sure they property they are going to finance is actually worth what the buyers have offered. If a appraisal comes in lower than the offer price then usually the offer price is contractually reduced to the appraisal price. These appraisers are more accurate because they use a stronger model for comps and have much more recent data. The value though is very often skewed though because the data they use can be as old as 6 months and if the appraisal is set up by the selling agent then the buyers need to be wary. Basically I don't trust the appraisal for one reason alone. Most appraisers see the purchase contract before they appraise and almost always the appraisal comes in pretty darn close to the offer price. It is amazing how that works! Finding an appraiser who wont just finagle a way to justify a price is hard. Most know if they start under cutting offers then agents won't use them anymore.

Second, to what extent are buyer's agents useful? I know that buyer's agents owe fiduciary duties to their principals, but do such duties actually compel the agent to do what is in the principal's best interests given that their commission is based on the home's purchase price?

I find buying agents to have a few good uses.
First, they know the market inherently if they are any good.
Second, they know properties much better. You'll waste a little less time with worthless properties if you have an agent who can weed them out
Third, they take care of paper work and most offer a safety net in that they are on the hook for some stuff if the deal goes wrong. If you are your own agent then you better know what you are doing otherwise there are lots of little things that you need to have done as buyers to make this deal go smoothly.

I alwasy use a buying agent. They cost nothing and do work for you. I don't know why anyone wouldn't.

Third, how many home inspectors do people typically retain? Is there any way to determine if a home inspector is qualified, other than asking friends? For example, do they have certifications that might indicate that certain inspectors are more qualified than others?

Home Inspector - The National Association of Certified Home Inspectors
Home Inspector at American Society of Home Inspectors: American Society Of Home Inspectors, ASHI, ASHI Home Inspection, ASHI Inspector

Both orgs have a find a home inspector deal on their sites. Get a certified one for sure. You need more than a contractor. You need someone trained to know what to look for. The inspection, depending on property size, should take an hour or more. It should look like they are being uber picky. If it is a property older than 2 or 3 years you should end up with a list. Most of the list will be cosmetic but there still should be a list. If there isn't one then either the property is magically perfect or the inspector didn't do a thorugh job. You can guess which I'd assume.

Fourth, what is a good percentage of your gross income to spend on mortgage payments (including escrow)? I know this percentage will vary based on the individual and his outstanding debt, but is there a range for the "conservative" buyer and the less risk-averse buyer?

Figure out what you can afford in payment and that will point you toward what to do. Payment is the biggest key. I like to have my payment as big as I can afford. That means I have put less equity down meaning I will make a higher percentage on my equity when I sell. I still try and always put down at least 20% to avoid the aforementioned PMI. I avoid anything but fixed mortages. ARMs just make no sense to me.

Finally, what kind of "hidden costs" can I expect to incur? Obviously there is the down payment, loan origination fee, and inspection fees, but what other fees can I expect to pay?

Any title company should be able to give you the exact charges they are going to charge you. If they cannot then don't use them. The only thing variable on the HUD sheet should be, taxes, escrow, inspection fees and so forth. Do a Google on what things should be on the HUD in your state. If there any 'other' fees that don't make sense then go somewhere else. Title companies will put administrative fees on there that shouldn't be there.

[724Skinsfan]

More pieces of advice from a first time homeowner:

1) When having your home inspected try to get the years that the furnace/heat pump, roof, hot water heater, carpet and other big ticket repair items were last upgraded. To echo, don't use a home inspected referred by your realtor or lender. Make sure you are with the inspector during the walk-thru and take a notebook even though he'll provide you with a completed form.

2) Don't get caught up in the "max you can afford" game that realtors tend to push you into. My wife and I make a comfortable living and could have afforded another 75k and still be under the 35% rule but after a while you're just getting a big house with bigger maintenance needs. Better to use that extra money to pay off the mortgage quicker.

3) If you have time, taking a real estate class really pays off if you have very little knowledge (like me). That $300 investment could save you a few thousand. I took the class and even went on to take the national and state realtor's exams. I learned a ton in that class (mainly I didn't want to be a realtor).

4) Review the tax assessed records of the area that you're thinking about buying a home. There's a big difference in tax assessed value and realtor's appraised value.

5) If you don't understand something...STOP! You're paying the realtor to help you not screw you. If you don't feel right about someting thenkeep in mind that there are always going to be homes for sale. There's no shortage nor will there ever be in the near future.

6) Sometimes it's okay to just go with your heart. We drove around one Sunday looking at dozens of homes that were available in our preferred price range that the realtor put together for us. It turned out that I saw a little listing in the Sunday paper with a house in our price range with the right number of BR's and sq ft. We drove over to it and immediately wanted it. It was the only house we walked thru. My home inspector was also a life long family friend and we caught a few things but nothing major. I set a price that was in between the tax assessed value and their asking price (~30K difference) and we bought it.

[firstdown]

Someone stated that the inspector pointed stuff out to him and thats important note. GO WITH THE HOME INSPECTOR WHEN THEY DO THE INSPECTION. Check water preasure my running the shower and flushing the toilet at the same time. In my house if you are taking a shower and somone flushes the toilet I would never know but I have been in some house where you will get hit with a spike in water temp.

[jsarno]

Sorry to use his thread for my own question, but I talked about PMI insurance earlier and realized that my new house is under 80% LTV. I owe around 75k and the house is now worth roughly 110K (I know it probably makes you guys sick to know that housing costs are so low out here, but remember this place sucks)...I'm still paying PMI. How do I get rid of this? I have yet to do this in my homeowner experiences. Any advice?

ps- I have a very good friend that does appraisals if this helps.

[FRPLG]

Originally Posted by jsarno

Sorry to use his thread for my own question, but I talked about PMI insurance earlier and realized that my new house is under 80% LTV. I owe around 75k and the house is now worth roughly 110K (I know it probably makes you guys sick to know that housing costs are so low out here, but remember this place sucks)...I'm still paying PMI. How do I get rid of this? I have yet to do this in my homeowner experiences. Any advice?

ps- I have a very good friend that does appraisals if this helps.

You'll need to refi and depending on your current rate it may not be worth it.

[jsarno]

Originally Posted by FRPLG

You'll need to refi and depending on your current rate it may not be worth it.

There is no other way out of it? So I'll be throwing that money away forever?

[arrington_QBkiller]

I'd reccommend going with a title company over a lawyer. I look at it this way, all a title company does is real estate all day. A lawyer does real estate, divorces, personal injury, etc. Going to a lawyer is like going to a general practioner to get brain surgery.

Just my $.02.

[arrington_QBkiller]

Saden, you said you paid NO closing costs? I would love to see the HUD1 on that one.

He may not have had to pay any closing costs if he wrote into the contract that the seller would pay his closing costs for him.

[724Skinsfan]

Originally Posted by FRPLG

You'll need to refi and depending on your current rate it may not be worth it.

You may be right, but I was under the impression that PMI is cancelled after reaching 22% of LTV. If that's not the case, then I thought you could request in writing to have PMI cancelled once sufficient proof (ie, appraisal) is provided. I had never heard of having to refinance, but then again it's not something I keep up to date on.

[FRPLG]

Originally Posted by 724Skinsfan

You may be right, but I was under the impression that PMI is cancelled after reaching 22% of LTV. If that's not the case, then I thought you could request in writing to have PMI cancelled once sufficient proof (ie, appraisal) is provided. I had never heard of having to refinance, but then again it's not something I keep up to date on.

Partially correct. I assumed you meant based on an increased market appraisal.

The HPA of 98 mandates that PMI is cancelled immediately upon reaching 22% equity based on original purchase price.

After some research I realized I was wrong. With the super low rates most people have been refinancing to create higher equity, cancel PMI and reduce rates and payments. Now with rates leveling out it is probably not in your best interest to refi so you can request PMI be cancelled once you reach 20%equity or if you provide sufficient evidence that you now have 20% equity due to market value increase. I have never heard of someone doing this but I don't think it is terribly uncommon. Just lately it has been because of market conditions. Usually there will be some type of wait time involved before PMI can be cancelled. I guess 2 years is the norm. That is wait time from loan origination.

[EternalEnigma21]

[quote=Schneed10;300107]

Buyers' agents only make like 1% commission from the sale, so their incentive is to not spend too much time with you, because they could be putting their efforts into selling a house which gets them 5 or 6% commission. So they'll tend to urge you to bid higher on a house you like, just to increase the chances of pushing a deal through.

It's generally a good idea not to go with the home inspector that comes recommended by the agents (either buying or selling). Those inspectors have relationships with the agents. All agents want to do is push transactions through quickly; if the inspector is willing to downplay problems with the house, it increases the chances that the transaction will go through. And if the inspector does this for the agent, the agent will feed the inspector more business. [quote]


gotta say thats some pretty wild speculation on your part...

Buyer's agent's have alot at stake, and make more than 1% on a transaction. You SHOULD always interview agents before you sign up with anyone... you can tell who is in the business for the long haul and who's out to make a quick buck. A professioal realtor will want your transaction to go as smoothly as possible and advise you as correctly as possible to meet your needs, because if you don't get referrals in the real estate business you will die...

The inspector/agent relationship conspiracy theory is pretty bogus too.... It would take one phone call to get an inspector's license jerked if it was found that he overlooks something on a transaction on purpose... or that he consistantly misses things. Walk with your inspector no matter what they say and look over his report. Make sure it is thourough.

If you're in northern VA, WV, or MD I can give you a guy who is amazing. Also, buyer's agents are more useful if you're not sure about title research and things like that. You can get into a world of hurt if someone who knows the biz is set against you and you don't have someone representing your interests... knowledge is key in transactions consisting of HUNDREDS OF THOUSANDS OF DOLLARS OF YOUR MONEY!!!

[FRPLG]

Originally Posted by canthetuna

knowledge is key in transactions consisting of HUNDREDS OF THOUSANDS OF DOLLARS OF YOUR MONEY!!!

Absolutely. One agent said to me once when we were about to sign a contract, and I always remember this, "Ok so this is going to be a 1/4 million dollar deal."

He did so to make sure the impact of the amount of money was understood.

[Southpaw]

This is all great info. I'm in a similar boat as SGG, but about six months off from actually buying a house. I've done a ton of research, but it seems like the best info comes from unbiased people that've been through the process.

This thread could be helpful to a lot of people around here, since the majority of us are 20 something's. I don't know if it's worthy of a sticky, but it should at least be archived so it doesn't get buried.

[Monkeydad]

Most of the top tips have been covered and I emphasize, STAY AWAY FROM ARMs!!!!!

One home inspection is fine, but make sure the inspector is not a contractor who could potentially make money off of doing the repairs. An inspection company that ONLY does inspections will be the most honest and fair since they have no chance of doing repairs and cashing in on them.

[FRPLG]

Originally Posted by Buster

Most of the top tips have been covered and I emphasize, STAY AWAY FROM ARMs!!!!!

One home inspection is fine, but make sure the inspector is not a contractor who could potentially make money off of doing the repairs. An inspection company that ONLY does inspections will be the most honest and fair since they have no chance of doing repairs and cashing in on them.

Yeah. If you are a current home owner and have an ARM I apologize in advance but in my opinion you have made a very bad move. ARMs are hideous creations by banks to be able to offer more loans for more money to less qualified people. To do so they have to offset all of their increased risk somehow so that should clue you into how bad ARMs really are compared to standard loans. Right now all the people who jumped into an ARM 4 and 5 years ago are starting to really realize what kind of problems they can cause. Avoid them at any cost. If you have to hold off on buying a house or have to buy less house then do so. But don't jump into an ARM so you can qualify to buy a $500,000 house. Buy a $250,000 house wait 2 years and sell for profit(hopefully) then take your increased equity and move up. It is the safer and less expensive way of doing it over the long haul. And when it comes to primary housing you are ALWAYS talking about the long haul.