What Are Title and Closing Costs?

title_deeds

Signing the documents that will finally get you your home is one of the most exciting days of your life. Here’s a handy guide to understanding what happens to obtain title and what your closing costs are all about.

What Exactly Are the Costs of Closing?

Most of the time you will have to pay for things like escrow fees, appraisals, loan fees, advanced payments like property taxes or homeowner’s insurance, real estate commissions, title insurance, real estate transfer taxes, termite inspections and such. Some of these may be negotiated in your purchase contract.

What’s it Gonna Cost Me?

Closing costs vary greatly, but when you get a loan for your new home you will be provided with a good faith estimate of what they’ll be.

Can I write a Check?

Typically, title and escrow companies frown upon personal checks except for your initial earnest money deposit that goes with your offer. Closing funds should be in the form of a cashier’s check or even better a wire transfer directly from your bank to escrow.

Do I HAVE to Buy Title Insurance?

It is not a legal requirement for you to have, but any lender will require it for the face value of the deed of trust. This holds true whether you are making an initial purchase or refinancing. As a one-time premium, it’s worth having because it protects you against loss from things like unknown liens or encumbrances that were in place at the time you took title. It also protects against fraud (false claims of ownership, forged deeds etc), human error and improper wills and deeds.  It can also aid in boundary disputes depending upon the type of title insurance purchased.  We at The Perreault Group STRONGLY recommend that you buy the title insurance — the seller usually pays for the initial policy and the buyer pays to have their lender insured.

Is there a “Closing Table”?

In California, the closing process is actually fairly anti-climactic!  You go to the escrow office a few days before closing to sign final docs including your loan docs.  Then generally a day or two after signing the docs, the loan funds.  Recording usually happens the next day after that which is the official “close of escrow” and you get the keys from your agent (preferably ME!) after recording has been confirmed by the title company to the escrow officer and your agent.

Of course, this is the quick and dirty version; if you have other more specific questions or concerns about closing costs or title insurance in particular, please contact me at 310-418-5353 or add your comment below!

 

Buying a House is Like Dating

Your New HomeEveryone has a wish list for their ideal home. For some people, it might be simply a certain neighborhood plus x number of bedrooms and a home they can afford that doesn’t look like it will fall down. Other people only like a particular style, or only want homes that are new or new-ish. One couple I helped recently was willing to live almost anywhere as long as they would have room for their four beloved dogs at a price they could afford. And then there are the people that are hopeful but unrealistic. Their wish list of criteria is simply unrealistic for the market conditions, because there are so rarely homes available that have their whole list of right number of bedrooms, bathrooms, square footage, in the right part of town, with a view, without any neighbors that look shabby, on a quiet street, in good condition, at the relatively low price they want to pay.

It’s not that it never happens, its just that it happens so very, very rarely. The truth is that if the house had all that, it would probably be priced higher!  And in the meantime, many other homes that they like a lot, but aren’t just absolutely perfect, get sold to other people … and the market prices are increasing. So if they keep on going this way, soon they won’t be able to afford as much house as they could when we started this process! Sometimes I wonder if I actually DO manage to find a home with all the criteria that this client wants, will there just be other criteria that they produce, because they are actually scared of making the commitment to buy a new home?

Buying a home is kind of like dating. Some people keep holding out for Mr. or Ms. Right, trying to find the absolute perfect mate and they end up single forever because they are actually scared of making the choice of one slightly imperfect person. People don’t really fall in love on a first date like a lightening bolt hitting. Homes are like that too. As you go househunting, don’t dismiss each house so quickly. Keep an open mind. Take another look at the home and see if it has the POTENTIAL for you to fall in love with it. Does it have good “bones?” Does it have good traffic flow, or a great location? Maybe it needs to have a wall taken out to improve the light and flow. Or maybe it isn’t even really the house you can love forever, but it’s a great price and one you can tolerate for two years, build some equity and make some money on, and then be able to buy your dream house (unlike dating, it is ok here to begin planning your divorce right from the start ;->). Maybe it just needs new paint and maybe bathroom tile and cabinets and drapes — again, kind of like that TV reality show Beauty and the Geek — sometimes those guys just really need a makeover and some houses do also!

My point here is that if you have been looking and looking for a home and not finding what you want, perhaps your list is unrealistic. Try editing it down between the Must haves (you must have so many bedrooms, for example) vs. the want to have (you WANT to have x number of square feet). Then let your Realtor (hopefully ME!) know the difference between the Musts and the Wants. Pretty soon you’ll be moving into your new home … and falling in love all over again.

Selling Long Distance — Thank You, You Tube!

I recently sold a beautiful home in the  Monte Malaga area of Palos Verdes Estates to a buyer who closed escrow without ever seeing the home!  How could we do this?  With technology!

The clients were people I had worked with since 2005 who now lived in Hong Kong.  Mrs. Buyer had grown up on the Palos Verdes peninsula and still has family there, so they knew the area well.  They had wanted to buy a home for a long time in this area so that when Mr. Buyer’s overseas assignment ends in a few years they would have a U.S. home; they felt that given our current interest rates and the rate of appreciation of homes, that if they didn’t buy something now, they might be priced out of the market in a few years.  Each time they were in town over the many years since I first met them, we would take a day and look at homes, but because they couldn’t agree on where to look, we always ended up not finding the right home.

Then this year, they were both on the same page regarding location, so the search started in earnest.  Once we had identified a few possibilities, I took her Mom out with me to see each potential home, taking LOTS of video with my cell phone and uploading it to YouTube with a private URL sent only to them.  This allowed the buyer and her husband (she was to be the sole buyer to simplify the tax situation) to evaluate the home choices and decide which of the ones they had liked on the internet really met their needs.  Using more technology to do all the signing digitally using Docusign, and with a few late night Skype calls, some Facebook messages, some texts and Google voice calls, we were able to determine what to offer.  We made an offer to close in two weeks and were able to beat out three other buyers.

Then came the fun part — inspections.  This time the buyer’s Mom AND her brother came with, and were able to communicate back to the buyer and her husband what they had heard.  We also did more video and more photos, more Docusigning and more late night calls.  At one point, I stayed up until 3 a.m. Pacific time (which was a busy Saturday morning for my client in Hong Kong) so that I would be available to forward a time critical document on to the listing agent so that he would have it first thing in the morning as promised.

We also had to solve a tricky problem about funding transfer limits between Hong Kong and the US, but my wonderful escrow officer was able to resolve this and find the “secret sauce” of US banking regulations that allowed the transfer of the funds in a timely manner while still following all the banking rules for international money transfers.

This was an amazingly fast transaction considering that the buyer was thousands of miles away.  The many forms and disclosures that are part of any California real estate transaction were flying through cyberspace on an almost hourly basis for a few days there!    But I can safely say that if it wasn’t for modern technology, we never could have done this.

The buyer and her children are arriving for the Summer soon — I sure hope they like it  :->

 

 

What on earth is a “Pocket Listing?”

topsecret-smallThese days in the South Bay, you may be hearing about “pocket listings.”  What on earth is this? you may ask yourself.  I thought I’d clear that up for you! Traditionally, a pocket listing is one that the agent does not have a signed listing agreement for, but has some knowledge that a seller is thinking of selling.  This lack of actually having the listing signed may be for seller’s reasons (they are clearing up some estate or title matters, or they are still deciding what to price it at) or it may be because they haven’t chosen their agent yet or even decided whether they really want to sell.  These days, it is also sometimes because they don’t want to sell until they can find a place to move to, since our low inventory situation makes them fear being homeless.  Once in a while, the agent may think the listing is “in their pocket”, but it is actually going to go to another agent.

Another type of listing that is often called a “pocket” listing but really is technically a “listing on waivers” is that there is a signed listing agreement but for some reason the seller doesn’t want it on the MLS.  This can be because they are sprucing the place up to get ready for showings, because the seller is going out of town,  because they think there is a more strategic time to place the property on the MLS, or because, in many cases, they are “testing” the price to see what the reaction is from those agents that they have let in on the secret.  That way, the property doesn’t linger on the actual MLS and get “stale” and “aged” because it was originally priced too high.  By floating the trial balloon of a listing on waiver, they can adjust their pricing strategy.

The reason this matters to the ordinary person is that in our South Bay market, about 10 to 15 percent of all listings in 2012 were sold before they hit the MLS.  In Manhattan Beach, there are so few homes for sale in large part because there are many that are actually pocket listings and therefore not generally known to the average person perusing Zillow, Trulia, Redfin, or Realtor.com.  Some agents think that over a third of Manhattan Beach homes for sale will end up being sold “off market”.  This means that in order to buy Manhattan Beach real estate, you need to work with an agent like me that is connected to the other top local agents and knows about this shadow inventory. In order to stay connected and knowledgeable about the market, I attend at least three meetings every week, am part of some secret Facebook groups and email sharing groups, and am sure to attend the Brokers Open caravans each week.  This is how I stay on top of the real estate market in Manhattan Beach so that I can help my clients find the hidden listings in the area.

It is multiple offer time in Manhattan Beach!

Well, it truly is a seller’s market now in Manhattan Beach. If you are sitting on the fence thinking about selling your home in Manhattan Beach, now is the time, because there is so little inventory just about everything is getting snatched up in days with multiple offers.

Two recent examples:  last week, there was a complete “scraper” tear-down on a large for the Tree Section of Manhattan Beach (almost 5000 square foot) lot at 1805 John,  Manhattan Beach considered an A (but not an A+) tree section location as John is very quiet without through traffic and it is close enough to walk to downtown Manhattan Beach.  There were over 20 offers, most of them all cash, no contingencies.  It was listed at $1.1Million and ended up going into escrow at a number rumored to be in the high $1.3Million range, almost $1.4 M.

This week, there was a darling family friendly home at 2705 Maple, also in the Tree Section,  listed at $1.525M.  It  came on the market last Friday, had 6 offers and ended up at a rumored $1.6Million, all cash, no contingencies!

For the ordinary South Bay area buyer who needs a loan, this means one thing — you may have to be prepared to really pay significantly over asking for the really cute places.   If you are going to beat out an offer that has no risk to the seller — because they don’t have to wait for a bank loan to be approved, they don’t have to worry if you are going to change your mind due to an inspection contingency, or because they don’t know if the home will appraise for what you paid for it — then you have to pay a risk premium to the seller or they will take the lower risk all cash no contingency offer.

The appraisal contingency is especially significant, since, in a rising price market like this, the recent comps from 3 months ago will probably be slightly lower in price than today’s values.  This may mean you have to bring a little more down payment to the table.  For example, if you offered $1,000,000 with a 20 percent down, 80 percent financing and your home only appraised at $980,000, then you would have to come to escrow with the originally planned $200,000 down PLUS the additional $20,000 down that the appraisal was “short” for.  So this can be a real challenge for first time buyers!

At any rate, as we continue to see low and lower inventory (see previous post) and buyers sit up and notice the ridiculously low interest rates, we can only continue to see these multiple offer situations.   For more advice on how to handle a multiple offer situation, see this post about Counter offers from a few years ago — the advice is just as good now as it was then!

 

How Do I Hold Title in California?

The means of holding Title to real property in California can be done in many ways.  You may think that the method doesn’t matter, or you may think you should just choose what you always have, but this is not necessarily true, as some new choices such as “Community Property with rights of Survivorship” may override the “Joint Tenants” choice that most married people used to take.

The choice of title can have serious implications in the event of the death of one of the persons on title, a divorce, or even a refinance.  Although I am not an attorney and am not allowed to give legal advice, I can pass on this great article in the LA Times.  You may also wish to consult with your tax attorney, CPA, or an attorney who is handling your estate planning to be sure that the choice you make is the best for you.

Read the LA Times article here:  Picking the Best Way to Hold Title to Your Home

 

 

Property Tax Time Looms

It’s property tax time again for CA …the first installment is due November 1st and delinquent after Dec. 10th.  Second installment is due February 1st and late after April 10th.  To make it really confusing, California’s  fiscal year starts July 1st, so your first installment is for taxes that are primarily paid in arrears (July – December) and the second installment is for taxes paid in advance (January through June).  When you close escrow, each party pays for the period of time that they own the house.  So a seller might have already paid taxes and they are therefore credited and the buyer is charged.  Just ask your professional Realtor (hopefully me!) or escrow if you have any questions.

Why shopping ONLY for a foreclosure//bank owned property is a bad idea

These days, I get lots of emails and calls from buyers who say “I only want to buy a foreclosure property.”  This always makes me groan a little inside, because it is the sign of someone who is reacting to all the media hoopla and really doesn’t understand all the issues involved in foreclosure sales.

The reality is that you don’t want to limit your searching to just foreclosure properties.  Foreclosure properties and bank owned (REO — real-estate-owned) properties often have a number of things going against them:

  • In the case of REO’s, the Seller (the bank) knows absolutely nothing about the property and will not take any responsibility for disclosures.  You are buying a pig in a poke, with no information as to anything that may be wrong with the property.  Your inspections become so much more critical in this case, because you don’t even have the disclosure statements to give you a clue as to what to investigate.
  • Both foreclosure homes and REO homes have typically had neglected maintenance for a long time, as the previous or current homeowner was short on the cash that would have been required to keep the place up.
  • These homes by definition are generally in an area where the property values have fallen.  If they had held, the homeowner would most likely have been able to renegotiate a new loan, but because they became “upside down”, then they couldn’t refinance.  Since the first rule of Real Estate is of course, Location, Location, Location — do you really want to buy in a neighborhood where prices are dropping?  Especially when so much of the South Bay has held its’ value over the last two years?  Remember, when you are the owner, the same effect will apply — the areas that held value will go up faster than the areas that dropped during these last few years.
  • The banks are notoriously difficult to negotiate with.  While you submit an offer on a short sale, the banks typically are waiting to review the offers at one time.  So there might be a number of competing offers, and you are only one of the offerors.  When negotiating, it is always better to be one-on-one rather than many to one.

That’s not to say that sometimes the best home for you isn’t a short sale property or REO.  My point is that you have to tell your Realtor what you are looking for and how much money you have to spend and let her (notice I use her , ’cause of course you’re gonna hire me, right :->  )  use her expertise and market knowledge to find the very best property that the market has to offer, regardless of whether it is a short sale or not.

Sometimes the better deal will be a non-foreclosure house that is lingering on the market because it is ugly inside, when all it needs is a cosmetic makeover (and most buyers lack the imagination to see what to do.)  I once got a terrific buy on a home because it reeked of cat urine and most people couldn’t hold their noses long enough to complete the tour!  But rip out the ratty orange pee soaked carpet and the furring strips that went with it, sand down the solid oak hardwood floors underneath (replacing the sections that had pee stains of course), add new bath and kitchen cabinets, plumbing fixtues and appliances, and this house looked gorgeous — and sold for a lot more money.

I know that foreclosures sound like a way to get a bargain, AND THEY CAN BE!  However, please don’t tie your Realtor’s hand behind their back by telling them you only want to look at foreclosures.  Instead, get prequalified, figure out what YOU can comfortably afford, and then figure out what kind of house you’d like to have.  Discuss these needs honestly with your Realtor and target the parts of town you might reasonably find the kind of home you are dreaming of for the price you can afford to pay.  Your Realtor, hopefully me,  may know of homes that are NOT foreclosures that might still be just right for you.  Or we may know of properties that might just be about to become short sales.    Give me a chance to earn my commission, and let me find you the house based on price and location and not just on some arbitrary criteria about its’ legal status.

The Golden Rule

It’s natural to believe with all the doom and gloom that is in the news about the housing market these days that there must be dozens of unbelievable bargains just waiting to be purchased.  Unfortunately, the real deals don’t stay on the market very long to wait for the Buyer to make up their minds and arrange their financing.

In this market, the number one “Golden Rule” to remember is the old joke “He who has the Gold, makes the rules!”  In this case, the Gold is the loans and/or cash and the first, most important, and most difficult thing to get in this market is financing. A Buyer shouldn’t even start looking at homes until they have completely nailed down their financing arrangements, including hopefully a pre-APPROVAL, not just a pre-qualification, letter.  This will allow the Buyer to make an offer quickly and confidently when you they find something that does appear to be a bargain, and having their financing settled will make their offer stand out against other possible competitors in any bidding war.

It’s hard to believe there could still be bidding wars!  But the best located, competitively priced properties are still going extremely quickly with multiple offers – my office just listed a very tired fixer upper in Manhattan Beach.  The 2 bedroom home was basically a wreck but had a great location within walking distance of the beach and interesting architecture — it would take some real money and determination to make it habitable, but it was a true diamond in the rough.  It was priced at $799,000, which if you follow Manhattan Beach real estate at all, you know is ridiculously low.  Within 2 days, the client had 7 offers, including 2 all cash to choose from.  The listing agent said the client was going to decide by tonight, so I’m not sure what it will end up at, but you can bet it went for well over asking price.

Another great property I saw recently in Rancho Palos Verdes had 3200 square feet and panoramic 180 degree ocean views.  It was priced at $1,500,000 — not cheap, but much cheaper than that view usually goes for.  It sold in 10 days with multiple offers.  My estimate is that with about $50,000 of work, it will be worth at least $2,000,000.

These two deals were rare examples of properties that had a lot of equity built into them from the start.  Most homes in this market, however, also have pent-up equity built in — the equity the Buyer will gain after living in it for a few years!  No one promises, when you buy real estate, that the market will go straight up without a hiccup or two.  But over the long-run, South Bay real estate has been a remarkably good investment, returning an average annual return of close to seven percent — much better than the stock market!

Trying to find the real deals on your own by using the publicly available MLS’s is not a winning proposition.   If the home is really a deal,  Realtors and their clients will have bought it already, because they will get to see it before it hit the Multiple Listing Service or at least get a call immediately that one of the really good ones has come up.    Again, EVEN IN THIS MARKET, THE BEST LOCATED, MOST COMPETITIVELY PRICED PROPERTIES ARE STILL GOING EXTREMELY QUICKLY!

To really find a bargain, a Buyer needs to work closely with a Lender and a Realtor.  The financing should be all lined up so the Realtor knows exactly what can and can’t be negotiated.  And the Buyer needs to be very clear about their needs versus their wants, and exactly how much of a “fixer” they are ready to take on.  Buyers need to really understand what they will compromise on — because every home is a compromise in some way unless you are fabulously wealthy.   Buyers probably can’t have everything for the price they want to pay — the reality is that if the home had everything, than it should and will be priced higher, reflecting its higher value.

Will you give up location for size?  Will you give up that dreamed for view for a better school district?  Unless you are clear in your own mind about what you really need vs. what you want, you will not be able to decide quickly when your Realtor (hopefully Moi!) gives you that call that says “Guess what!  A home just like what you are looking for just came into our office — it’s going to go fast!”  But if you’re ready — the next bargain may be yours!

1031 Exchanges

A “1031 Exchanges” or Striker exchange, is a mechanism used to defer(not avoid forever) capital gain on the sale of investment propertyuntil a later date — usually, a date in the future when the owner’sincome is smaller (i.e, retirement) and therefore the tax “hit” issmaller.  In effect, the government gives you a no interest loan byallowing you to keep the capital gain in circulation and buy a newproperty. The idea is that you hopefully will make even more money andeventually pay the government more taxes, but a good tax accountant canavoid this.

The key here is investment property — it can’t beused on your personal residence, but can be very useful if you havestarted to build your real estate investment portfolio.  Under veryspecific circumstances, you can convert a personal residence to aninvestment property or an investment property back to a personalresidence, but the tax laws changed pretty significantly on this in2009, so be sure to discuss all of this with your tax adviser beforeattempting this.

The details of the exchange must be handledvery precisely, so in addition to escrow a 1031 Qualified Facilitatorcompany is employed to be sure all IRS requirements are satisfied andyour gain is securely held until you roll it into your next property.When you sell an investment property, you can do a Deferred Exchangewhich allows you a certain narrow window of time to identify andpurchase a replacement property, or you can purchase the replacementproperty at the same time as the sale of the old investment property. The new property must generally be worth more than the old one, or thedifference is immediately taxable, but you can for example buy threeless expensive properties as long as the total of the properties isgreater than the sale price of the exchanged property.  The law alsorequires that you finance at least an equal amount on the new propertyas what you owed on the old property, or you will have to pay taxes onthat amount as a virtual gain.

To find out more details, you can go here to the Qualified Facilitator’s Professional Trade Association website.