June 2010

When is the Time Ripe to Reduce the Price?

How Price Improvements Can Bring Multiple Offers

Price reductions, price improvements, price adjustments, it doesn't matter what you call it, nobody wants to hear about lowering prices except a buyer. In slow markets and buyer's markets, it's not unusual for sellers to point fingers at the agents and agents to point fingers at seller's unrealistic expectations for a price. Sellers say, "Why don't do you do more to sell my house?" And that's a good question. Sellers should ask an agent this question.

Before Reducing the Price

- Review Your Marketing / Advertising & Answer These Questions

1. How many ads have been published?
2. Do the ads contain too much or too little information?
3. What kind of direct mail campaign has been launched?
4. How many open houses have been held?
5. How does the house show online, lots of pictures?
6. Is your signage in a prominent location, contain several phone numbers, plus a Web site?
7. Do you have a virtual tour published, with scrolling text and audio?
8. What kind of feedback have you received from agents and buyers?
9. Are you offering enough compensation to selling agents?
10. Have you had any showings?

- Are You Selling in a Buyer's Market and Have Little Motivation?

1. Maybe you don't have to sell. When the market is slow and inventory is high, demand falls. If that's the case, maybe you should take your home off the market.
2. It makes no sense to put an overpriced home in MLS that is not receiving any showings because it skews the numbers for market performance.
3. If you're not motivated, you might be better off renting your house or staying put until the market rebounds.

Realtor JaCi Wallace once said to me: "If a seller does not conform to the marketplace, that person is not a seller. That person is just somebody with a sign in the yard."

Picking the Right Price

If you're too high, you'll need to continually reduce the price until you hit that "magic" number, and by then buyers will begin wondering:

1. What is wrong with your house?
2. How much lower will you go?

Ideally, you want one price reduction. Here are guidelines to consider:

• Realize your agent is not your adversary but is on your side; enlist her help.
• Pull up pending sales and examine the history. How many days on market before the price was reduced and how much of a price reduction was made? You won't know the sold price, but you can determine average price reduction percentages.
• Compare sold prices with active listings. Are they reversed? Are sold prices higher?
• Pull the history on active listings to determine how many days on market before the prices were reduced. Ignore active listings without price reductions unless they are similar to yours and the DOM are low.
• Run side-by-side comparisons with active listings near the price point you are considering. Price yours so it falls in the bottom two to five listings or, if you're really determined, price it less than anything else on the market.

Is Your Price Too Low?

• Even in distressed markets, as home prices slide into downward spirals, properties that are priced below what buyers are readily willing and without prodding to pay will receive multiple offers.
• It's common to have price wars among buyers who are competing, which will then result in an accepted offer for more than list price.

Every House Will Sell if the Price is Right!

A Land Park seller owned a home that was located along the I-5 freeway in Sacramento, California. It hadn't sold after 60 days on the market. To sell it, the price had to be less than anything else in the neighborhood, which was the very reason the seller had purchased the home in the first place. After a $60,000 price reduction, the house attracted two buyers and sold almost immediately.

CMA Comparative Market Analysis

How to Use a CMA Comparative Market Analysis

Before putting a home on the market or listing with a real estate agent, savvy home sellers obtain a comparative market analysis, also referred to in the industry as a CMA. You've probably received direct mail letters or post cards from local real estate agents about CMAs. These pitches offer you a free report to tell you how much your home is worth. Sellers use a CMA to figure out home pricing.

What is a Comparative Market Analysis?

Although reports can vary, from a two-page list of comparable home sales to a 50-page comprehensive guide, the length and complexity of the report depends on the agent's business practice. However, standard comparative market analysis reports contain the following data:

Active Listings

Active listings are homes currently for sale. These listings matter only to the extent that they are your competition for buyers. They are not indicative of market value because sellers can ask whatever they want for their home. It doesn't mean any of the prices are realistic. The offered sales prices do not reflect market value until they sell, and in buyer's markets, for example, most sell for a lot less.

Pending Listings

Pending sale homes are formerly active listings that are under contract. They have not yet closed, so they are not yet a comparable sale. Unless the listing agent is willing to share information about the pending sale — and many are not — you will not know the actual sold price until the transaction closes. However, pending sales do indicate the direction the market is moving. If your home is priced above the list price of these pending sales, you could face longer DOM.

Sold Listings

Homes that have closed within the past six months are your comparable sales. These are the sales an appraiser will use when appraising your home for the buyer, along with the pending sales (which will likely have closed by the time your home is sold). Look long and hard at the comparable sales because those are your market value.

Off-Market / Withdrawn / Cancelled

These are properties that were taken off the market for a variety of reasons. Usually the reason homes are removed from the market is because the prices were too high. The median prices of this group will almost always be higher than the median prices of comparable sales. However, listings cancel also for the following reasons:

• Seller's remorse. The sellers decided they cannot part with their home and no longer want to sell.
• Priced too high. Nobody made an offer or the only offers received were low-ball offers, which were rejected.
• The DOM were too long. Agents sometimes withdraw listings so they can put them back as a new listing and fool buyers.
• Repair requests. The homes were once under contract and after the home inspection, the buyer requested repairs which the seller refused.
• Seller fired the agent. It's not uncommon for unhappy sellers to fire an agent and hire a new agent.

Expired Listings

This group will reflect the highest median sales price because they did not sell and were probably unreasonably priced. Some of the expired listings could also show up as an active listing, listed by a new agent at a new price. Listings also expire because they were not aggressively marketed or because the home was in need of repairs.

Examining Comparable Sales

Comparable sales are those that most closely resemble your home. It is difficult to compare a tri-level home to a single-story home. Select the homes from this list that are mostly identical to your home in size, shape and condition, such as:

- Similar square footage

Appraisers compare homes based on square footage. Larger square-foot homes are worth less per square foot than smaller square-foot homes. The variance among a group of median-priced homes ideally should not exceed more than 200 to 400 square feet, plus or minus.

- Similar age of construction

Ideally, the age of the home — the year it was built — should be within a few years of other comparable sold homes. Mixed-age subdivisions are common. For example, in one area of Sacramento, a subdivision consists of homes built in the 1950s, and then they jump a couple decades to the 1970s. Although the homes are located next door to each other, the homes loaded with character from the 1950s sell for more than their newer Brady Bunch counterparts. If your home was built in 1980, say, and brand new homes up the street are selling for more, you cannot command the same price as a new home.

- Similar amenities, upgrades and condition

Appraisers will deduct value from your home if other homes have upgrades and yours does not. A home with a swimming pool will have a different value than a home without a pool. A completely remodeled home is worth more than a fixer. Homes with one bath are worth less than homes with two or more baths. Deferred maintenance will count against you.

- Location

Everybody knows that real estate is valued on "location, location, location," but have you considered what that means? A home with a view of the city, for example, is worth more than a home facing a cement wall. Homes located on busy thoroughfares are worth considerably less than homes on quiet streets. Compare your home to those in similar locations. If your home sits across the street from a power plant, look for other homes with power plant exposure or those located along railroad tracks, among other undesirable locations.

Pricing Houses – Pricing Houses to Sell

Price Your House Right

The single most important factor to consider when selling a house is the home price tag: how much your house is worth. You don't want to overprice the house because you will lose the freshness of the home's appeal after the first two to three weeks of showings. After 21 days, demand and interest wane. On the other hand, don't worry about pricing it too low because homes priced below market value often will receive multiple offers, which will then drive up the price to market. Pricing is all about supply and demand. It's part art and part science, and no two agents price property the same way.

Pull Comparable Listings and Sales

• Look at every similar home that was or is listed in the same neighborhood over the past six months.
• The list should contain homes within a 1/4 mile to a 1/2 mile and no further, unless there are only a handful of comps in the general vicinity or the property is rural.
• Pay attention to neighborhood dividing lines and physical barriers such as major streets, freeways or railroads, and do not compare inventory from the "other side of the tracks." Where I live in the Land Park neighborhood of Sacramento, for example, identical homes across the street from each other can vary by $100,000. Perceptions and desirability have value.
• Compare similar square footage, within 10% up or down from the subject property, if possible.
• Similar ages. One neighborhood might consist of homes built in the 1950s next door to another ring of construction from the 1980s. Values between the two will differ. Compare apples to apples.

Sold Comps

• Pull history for expired and withdrawn listings to determine whether any were taken off the market and relisted. If so, add those days on market to these listing time periods to arrive at an actual number of days on market.
• Compare original list price to final sales price to determine price reductions.
• Compare final sales price to actual sold price to determine ratios.
• Adjust pricing for lot size variances, configuration and amenities / upgrades.

Withdrawn & Expired Listings 

• Look for patterns as to why these homes did not sell and the common factors they share.
• Which brokerage had the listing: a company that ordinarily sells everything it lists or was it a discount brokerage that might not have spent money on marketing the home?
• Think about the steps you can take to prevent your home from becoming an expired listing.

Pending Sales

• Since these are pending sales, the sales prices are unknown until the transactions close, but that doesn't stop anybody from calling the listing agents and asking them to tell you. Some will. Some won't.
• Make note of the days on market, which may have a direct bearing on how long it will take before you see an offer.
• Examine the history of these listings to determine price reductions.

Active Listings 

• These matter only as they compare to your listing, but bear in mind that sellers can ask whatever they want.
• To see what buyers will see, tour these homes. Make note of what you like and dislike, the general feeling you get upon entering these homes. If possible, recreate those feelings of reception in your own home.
• These homes are your competition. Ask yourself why a buyer would prefer your home over any of these and adjust your price accordingly.

Square Foot Cost Comparisons

• Remember that after you receive an offer, the buyer's lender will order an appraisal, so you will want to compare homes of similar square footage.
• Appraisers don't like to deviate more 25% and prefer to stay within 10% of net square footage computations. If your home is 2000 sq. ft., comparable homes are those sized 1800 to 2200 sq. ft.
• Average square foot cost does not mean you can multiple your square footage by that number unless your home is average sized. The price per square foot rises as the size decreases and it decreases as the size increases, meaning larger homes have a smaller square foot cost and smaller homes have a larger square foot cost.

Market Dependent Pricing

• Same house, three different prices. After you have collected all your data, the next step is to analyze the data based on market conditions. For comparison purposes, let's say the last three comparable sales in your neighborhood were $150,000. In a buyer's market, your sales price might allow some wiggle room for negotiation but be strong enough (near the last comparable sale) to entice a buyer to tour your home. To sell in this market, you might need to price your home at $149,900, settling for $145,000.
• In a seller's market, you might want to add 10% more to the last comparable sale. When there is little inventory and many buyers, you can ask more than the last comparable sale and likely get it. So that $150,000 home might sell at $165,000 or more.
• In a balanced or neutral market, you may want to initially set your price at the last comparable sale and then adjust for the market trend. For example, if the last sale closed three months ago, but the median price has edged upwards of 1% per month, pricing at $154,500 would make sense.

Selling Before Buying – Concurrent Closings

Reasons to Sell Before You Buy

Homeowners who are planning to move up often wrestle with the dilemma: "Should we sell first or buy first?" You'll find plenty of agents advising you to buy before you sell, but that's rarely in your best interest. It's in the agent's best interest because if you buy, you will need to sell, and the agent will be guaranteed two sales, regardless of how much it cost you to do it this way.

If you decide to sell first and then buy but, say, your home doesn't sell or it attracts very low offers that you do not want to accept, the agent will get nothing. Think about it.

Of course, which comes first, the chicken or the egg, depends on the market — is it a buyer's or a seller's market — and your personal motivation. However, for most sellers and buyers, the smart thing to do is to sell before you buy.

Reasons to Sell First and Then Buy

- Ability to Negotiate.

By selling first, you have the luxury of time. You don't have to take the first offer that comes along because you already have a place to live. It's called your home.

 - Higher Sales Price.

Sellers who aren't under pressure to sell often obtain higher sales prices because buyers realize the sellers are not desperate. Nothing yells "discount your offer" like a listing that reads: "seller motivated, bought another."

 - Contingent on Concurrent Closing.

By making the sale of your home contingent on closing concurrently with your new purchase, you have basically said to the buyer, "If I can't find the home I want to buy, I'm under no obligation to sell to you." You don't have to name the property address. You can simply state: "This sale contingent on closing concurrently with the purchase of seller's replacement home."

In fairness, a smart buyer's agent won't let a buyer sign a contract with a contingency clause like that; however, I get away with inserting that clause because few agents understand its implication.

- Contingency Period.

OK, let's say the buyer's agent is smart enough to strike a concurrent closing clause from the contract. The next best thing to ask for is a time period during which you are free to look for a replacement home. A contingency period will give you the right to cancel the contract during that time period if you so choose, which can range, on average, from 7 to 21 days.

 - Renting After Closing.

Some sellers who want to take their time to find the perfect home, that one-in-a-million, will often opt to rent after closing. If the buyer doesn't require immediate occupancy, the seller might rent back their own home for the amount of the buyer's new mortgage payment. Or the seller might move out, put their belongings into storage and rent a furnished, short-term apartment.

While Your Home is on the Market – Protecting Your Privacy

What Does Your Home Disclose About You?

Are your secrets safe? Before a home goes on the market and home buyers start to traipse through, savvy sellers will relocate confidential information. Even so, you might be astonished to learn what home buyers can figure out about you.

Private Documents

 - Is it snooping to open a drawer?

Not if the drawer is part of a built-in such as a kitchen cabinet or a dining room china cabinet. Buyers can innocently tug on a drawer to inspect its construction or depth and find important documents that you might not intend for anyone to see.

I once opened a drawer and discovered the seller's net sheet sitting on top of her comparative market analysis, in plain view. It clearly indicated a lower price was expected, so you can guess what my buyer offered.

 - Don't leave mail where anybody can find it.

Lots of sellers leave piles of opened mail neatly stacked on the kitchen counter. Buyers could find out how much you owe department stores or other credit cards. They can tell if you're late on your mortgage payments or if the I.R.S. is after you. Heaven forbid should you file bankruptcy or be sued and leave those documents on the table, but sellers do it. They must believe that buyers will not read someone else's personal mail, even when that mail is taped to the refrigerator door, begging to be read.

I've also shown vacant homes where the mail was tossed all over the floor in the entryway. Neither the seller nor his listing agent bothered to stop by and pick up the mail. It wasn't hard to figure out that much of the mail contained collection notices. If a buyer was armed with that information, guess what price the buyer would be thinking about. It wouldn't be list price.

Remove Diplomas and Wedding Photos from Walls

Notwithstanding that all personal items should be removed, sometimes sellers overlook the obvious and leave diplomas on the wall. People form biases and can carry a bias too far. For example, the seller might be a lawyer, and there are buyers who might not feel comfortable buying a home from a lawyer. For whatever reason. Diplomas also give away a seller's age or a close estimate. If a buyer sees a recent medical diploma, for example, the buyer might assume the seller is saddled with student loans and needs to sell to pay them off.

Wedding photos might give away the seller's religion, as do certain religious artifacts left in the home. Buyers can be prejudiced. Don't give buyers a way to form any opinion about you at all. Don't let buyers form ideas about you from the type of music you like or the literature you read.

Contents of Closets

Often sellers who are separating or getting divorced feel a lot of pressure to sell quickly, especially if the partner who remains in the home cannot afford to continue to maintain it. But that is not information most sellers want to share with buyers. Yet they do. They may as well toss their wallet out the car window doing 80 on the freeway.

They do this by hanging either all men's or all women's clothing in the closet. Was it a heterosexual or bisexual involvement? Who cares? It's nobody's business, really, if a seller is dissolving a relationship. But once a buyer finds out a seller desperately needs to sell, the buyer won't make an offer anywhere near list price. So don't leave any telltale clues around that could give away your motivation to sell.

Before you put your home in the market, please, prep it; empty out drawers, stage closets and pack up anything remotely personal. If your house speaks to a buyer about you, it's probably saying the wrong thing.

Selling When Getting a Divorce

Protecting Credit During Divorce & Selling

Even the divorces and breakups that start out amicable can eventually turn sideways — if not completely inside out — despite well-intentioned efforts to remain civil. Regardless of who was wronged, who was innocent, how the blame is divided, or whether the union simply drifted apart, it's a death of a relationship, a time to mourn. It's also a time of rebirth and a new life.

So, don't get sidetracked. Although your "better half" may be out of the picture, your finances will follow you wherever the future leads you. My mother used to warn her daughters by saying: "You can always find another boyfriend, but it's damn hard to find another place to live." Her Midwestern common-sense advice, if you're wondering, applied to my brother as well.

Steps You Can Take to Protect Your Credit

First, Obtain Your Credit Report. You can get a copy of your credit report by notifying each of the three credit bureaus, Experian, TransUnion or Equifax, or you can obtain free copy of each report online by copying and pasting this secure link into your browser: http://annualcreditreport.com.

Second, Inventory Credit. Make a list of all creditors, secured and unsecured.

1. Secured creditors are those that attach an asset as security for the debt. If your home is mortgaged or you have a loan on your car, for example, your home and car are assets used as security.
2. Unsecured creditors are those that lend you money based solely on your promise for repayment.

Third, Separate Joint Accounts From Individual Accounts. Joint accounts are those containing both names, and each of you is responsible for the debt. Individual accounts are those opened solely in your name.

Fourth, Call Joint Credit Card Lenders. Find out if the credit extended is based on your credit or your partner's credit.

1. If the credit is based on your credit, but your partner has a card, ask to have your partner removed.
2. If the credit is based on your partner's credit, put the credit card in your pocket. OK, just joking. Ask to have your name removed.
3. If the lender refuses to remove a name from the account, close the account and open a new account.
4. If you have a balance on your credit card, the creditor will not close the account unless you pay off the balance. But you can prevent further charges on the account by asking for the account to be frozen.

Fifth, Sell or Refinance Secured Assets. It is important to separate the liability for secured assets.

1. If a car is financed in both names, regardless of whose name is on the title, both of you are responsible for the loan.
2. If a mortgage is held in both names, regardless of whose name is on the deed, both of you are responsible for the mortgage.
3. Even if your divorce decree assigns possession of those assets to one party, or if one of you voluntarily transfers title to the other, the liability for the loan will remain if you do not sell or refinance the asset.

Refinancing Your House

Should you reach an agreement whereby one person will remain in possession of the home, then the prudent course of action is to remove the existing loan and replace it with a new loan, providing, of course, that you lack the capital to pay off the loan in cash.

Record a New Deed. Ask your lawyer or title company to draw up a deed that transfers title from one person to the other. Commonly used deeds for this purpose are quitclaim deeds, but your lawyer may prefer to use a warranty deed or a grant deed.

Obtain a New Mortgage. Places to get a mortgage include your local bank, a credit union or through a trusted mortgage broker.

1. If you cannot qualify by yourself, you can either sell the property or obtain a co-signer such as asking a relative to help you qualify.
2. Should you owe your partner equity, ask your partner if he or she would be willing to let you obtain a large enough loan to pay off the existing loan and then carry a second mortgage for the amount owed. This way you can make payments to your partner for the equity, perhaps at a lower interest rate and better terms than a lender would give you.
3. Moreover, providing there is enough equity in the home to support a second mortgage — preferably the amount of both loans do not exceed 80% of the home's market value — your partner might be able to sell the mortgage at a discount to obtain the cash.
4. Bear in mind that obtaining a new loan will require an appraisal to substantiate value, but since lenders have a vested interested in making you a loan, you might want to also ask a trusted real estate agent to pull comparable sales for you as well. Appraisals are not written in gold. You do not want to pay your partner more for the property than it is worth, and refinance appraisals often result in higher values than you might get upon resale.
5. A new mortgage will also require a new title policy. Although you will be insuring the lender and not yourself, this process will give you relative assurance that your partner has not further encumbered the property without your knowledge.

Selling Your House

• Establish Market Value. Figure out how much your home is worth based on past comparable sales.
• Prepare Your House For Sale. Clean, declutter, depersonalize and pack.
• Find a Real Estate Agent. Consider experienced agents over friends or relatives with little or no experience.
• Don't Advertise Your Dissolution. Protect your privacy while your home is on the market. If buyers know the reason for the sale, you might receive a lower offer.

For legal advice, please consult a lawyer.

How To Prepare Your House For Sale

Prepping and staging a house. Every seller wants her home to sell fast and bring top dollar. Does that sound good to you? Well, it's not luck that makes that happen. It's careful planning and knowing how to professionally spruce up your home that will send home buyers scurrying for their checkbooks. Here is how to prep a house and turn it into an irresistible and marketable home.

Difficulty: Average

Time Required: Seven to 10 Days

 

Here's How:

1.  Disassociate Yourself With Your Home.

• Say to yourself, "This is not my home; it is a house — a product to be sold much like a box of cereal on the grocery store shelf.
• Make the mental decision to "let go" of your emotions and focus on the fact that soon this house will no longer be yours.
• Picture yourself handing over the keys and envelopes containing appliance warranties to the new owners!
• Say goodbye to every room.
• Don't look backwards — look toward the future.

2. De-Personalize.

Pack up those personal photographs and family heirlooms. Buyers can't see past personal artifacts, and you don't want them to be distracted. You want buyers to imagine their own photos on the walls, and they can't do that if yours are there! You don't want to make any buyer ask, "I wonder what kind of people live in this home?" You want buyers to say, "I can see myself living here."

3. De-Clutter!

People collect an amazing quantity of junk. Consider this: if you haven't used it in over a year, you probably don't need it.

• If you don't need it, why not donate it or throw it away?
• Remove all books from bookcases.
• Pack up those knickknacks.
• Clean off everything on kitchen counters.
• Put essential items used daily in a small box that can be stored in a closet when not in use.
• Think of this process as a head-start on the packing you will eventually need to do anyway.

4. Rearrange Bedroom Closets and Kitchen Cabinets. 

Buyers love to snoop and will open closet and cabinet doors. Think of the message it sends if items fall out! Now imagine what a buyer believes about you if she sees everything organized. It says you probably take good care of the rest of the house as well. This means:

• Alphabetize spice jars.
• Neatly stack dishes.
• Turn coffee cup handles facing the same way.
• Hang shirts together, buttoned and facing the same direction.
• Line up shoes.

5. Rent a Storage Unit. 

Almost every home shows better with less furniture. Remove pieces of furniture that block or hamper paths and walkways and put them in storage. Since your bookcases are now empty, store them. Remove extra leaves from your dining room table to make the room appear larger. Leave just enough furniture in each room to showcase the room's purpose and plenty of room to move around. You don't want buyers scratching their heads and saying, "What is this room used for?"

6. Remove/Replace Favorite Items.

If you want to take window coverings, built-in appliances or fixtures with you, remove them now. If the chandelier in the dining room once belonged to your great grandmother, take it down. If a buyer never sees it, she won't want it. Once you tell a buyer she can't have an item, she will covet it, and it could blow your deal. Pack those items and replace them, if necessary.

7. Make Minor Repairs.

• Replace cracked floor or counter tiles.
• Patch holes in walls.
• Fix leaky faucets.
• Fix doors that don't close properly and kitchen drawers that jam.
• Consider painting your walls neutral colors, especially if you have grown accustomed to purple or pink walls. 
• (Don't give buyers any reason to remember your home as "the house with the orange bathroom.")
• Replace burned-out light bulbs.
• If you've considered replacing a worn bedspread, do so now!

8. Make the House Sparkle!

• Wash windows inside and out.
• Rent a pressure washer and spray down sidewalks and exterior.
• Clean out cobwebs.
• Re-caulk tubs, showers and sinks.
• Polish chrome faucets and mirrors.
• Clean out the refrigerator.
• Vacuum daily.
• Wax floors.
• Dust furniture, ceiling fan blades and light fixtures.
• Bleach dingy grout.
• Replace worn rugs.
• Hang up fresh towels.
• Bathroom towels look great fastened with ribbon and bows.
• Clean and air out any musty smelling areas. Odors are a no-no.

9. Scrutinize. 

• Go outside and open your front door. Stand there. Do you want to go inside? Does the house welcome you?
• Linger in the doorway of every single room and imagine how your house will look to a buyer.
• Examine carefully how furniture is arranged and move pieces around until it makes sense.
• Make sure window coverings hang level.
• Tune in to the room's statement and its emotional pull. Does it have impact and pizzazz?
• Does it look like nobody lives in this house? You're almost finished.

10. Check Curb Appeal.

If a buyer won't get out of her agent's car because she doesn't like the exterior of your home, you'll never get her inside.

• Keep the sidewalks cleared.
• Mow the lawn.
• Paint faded window trim.
• Plant yellow flowers or group flower pots together. Yellow evokes a buying emotion. Marigolds are inexpensive.
• Trim your bushes.
• Make sure visitors can clearly read your house number.

The Home Closing Process

Waiting to Close on a Home

After getting a purchase offer accepted, the next question home buyers want to know is how long will it take for the transaction to close. Unless the buyers are paying all cash for the home, it is the buyer's lender who will determine the length of time required to process the loan and close.

A buyer and seller can agree to an earlier closing date in the purchase contract, but if the lender can't perform during that time window, it doesn't really matter which date is selected, because it's not going to close on the date the buyer and seller specify. It will close when the lender is ready to close.

The Escrow Closing Process

Depending on where you live, any number of entities can handle the closing process. The closing agent could be an escrow officer, a closer, the title company or a real estate lawyer.

Closing processes can vary widely even within the same state. In California, for example, the escrow process is different in northern California versus southern California. The primary difference between the two is escrow instructions are drawn and signed on the front end in southern Cal and on the back end in northern Cal.

Before any escrow can close, however, all the terms of the purchase contract must be met; then the seller deposits the deed and the buyer deposits the funds. Here are sample types of conditions required in California. Your state closing process may vary.

• Fully executed purchase agreement and addendums.
• Deposit of earnest money deposit.
• Home inspection or waiver.
• Fulfillment of seller obligations such as submission of pest inspection report and / or completion, roof certification, home warranty, preliminary title policy, beneficiary demand receipt, repairs, if any, according to the Request for Repairs.
• Completion of buyer inspections, including release of contingencies, if demanded.
• Buyer's final walk-through inspection or waiver.
• Appraisal of property by lender's appraiser.
• Lender's loan approval and satisfaction of loan conditions by buyer such as depositing evidence of a homeowner insurance policy.
• Seller's and Buyer's signed escrow instructions.
• Seller's signed and notarized deed conveying title.
• Buyer's signed and notarized deed of trust and executed promissory note.
• Buyer's signatures on all loan documents.
• Deposit of buyer's funds from lender.
• Deposit of balance of buyer's down payment and buyer's closing costs.

How Long Does a Home Closing Take?

Buyers who have received loan preapproval versus loan pre-qualification are often in a position to close sooner. The preapproval process involves verification of certain items upfront, before signing the purchase contract, moving the borrower a few steps closer to closing.

If a lender has verified the borrower's employment, bank accounts and credit report, closing can take place as quickly as underwriters can process the paperwork and review the appraisal, generally within a week or two. However, if a document is missing from the file such as a preliminary title report or a seller's condition of sale, the closing may be delayed.

Most federally related mortgage loans can close within 30 days. Special first-time home buyer programs, particularly those involving help with the buyer's down payment, might take 35 to 45 days to close. These special loans typically require approval from two underwriting processes.

Home Closing Delays

The biggest problems often occur after the file is submitted to the underwriter. Loan officers are generally familiar with underwriting guidelines; however, they can't always predict an underwriter's response.

Little is worse for buyers than sitting on boxes containing every valuable they own, waiting for movers and not knowing if their loan will be approved by an underwriter. The last few days of closing can be very suspenseful.

Here are common problems that can delay or prevent closing, many of which, it pains me to say, should have been addressed prior to submission to an underwriter, but sometimes the ball gets dropped:

• Low appraisal or the underwriter orders a review appraisal that does not match the first appraisal.
• Additional debt found on the buyer's updated credit report.
• Mistakes noted in the buyer's credit report.
• New liens or judgments filed against the buyer or seller upon title update.
• Clouds on title.
• Marital status change for buyer or seller.
• Required updated bank statements or financial documents.
• Insurance information missing.
• Expired loan or program commitment.

If the purchase contract does not contain a provision that makes closing contingent upon loan approval, the buyer's earnest money deposit could be at risk if the loan is not approved and the transaction does not close.

Title Insurance Policies

What are Title Insurance Policies – Do You Need Title Insurance?

To understand title policy insurance in America, let's look at chain-of-title and how title companies search the public records. Title insurance companies aren't really concerned with where dinosaurs once roamed, whether our ancestors trekked across the Bering Straight or where American Indian tribes settled. Title searches begin with when the United States government stole the land, I mean claimed it — from the U. S. patent — and move forward from that point.

Because humans are involved in recording deed transfers and plotting land parcels, a lot can go wrong. You want title insurance because it will protect you against defects and human error.

Property Searches and Public Records

• Property transfers were first recorded alphabetically in separate Grantor and Grantee books.
• The books are heavy to lift and dusty.
• County records are often maintained at local courthouses or the Clerk of Registrars.
• Today, most records are stored on the computer.

Division of Land

• Early deeds involved large chunks of land known as Townships.
• Townships contain 36 sections and are six miles by six miles.
• Sections measure one mile by one mile and contain 640 acres.
• Half of a section is 320 acres.
• 1/4 of a section is 160 acres.
• 1/4 section of 1/4 section is 40 acres.
• An acre is 43,560 square feet

Title Search Basics

• Title searches start with the most recent deed, searching the grantee's name (the person now holding title) backwards in time, until the deed when the grantee acquired the property is located.
• That grantor's name is then searched backwards in time in the grantee's book to find when the grantor acquired title as a grantee.
• This process continues, and over time, the property description involves larger and larger parcels of land.
• Eventually, the searcher finds the U. S. Patent.

Other Factors Affecting Title

Deeds establish chain-of-title, but sometimes those chains are broken. In addition, title searchers also look for reconveyances (proof that the encumbrances are paid off), and they look for easements, rights-of-way, CC&Rs, other elements affecting title to the property. Here are more records that are searched to piece title together:

• Marriage records
• Death certificates
• Tax sales

Title Insurance Coverage

Depending on the title company, consumers can choose among a variety of options, but the top three choices are Owners, Lender's and Extended Coverage.

Basic Owner's Title Policy Coverage:

1. Clear title to the property
2. Incorrect signatures on documents
3. Forgery, fraud
4. Defective recordation
5. Restrictive covenants
6. Encumbrances or judgments

Basic Lender's Title Policy Coverage:

1. Mechanic's liens and unrecorded liens
2. Unrecorded easements and access rights
3. Defects and other unrecorded documents

Extended Owner's Coverage

1. Building permit violations from previous owners
2. Subdivision maps
3. Covenant violations from previous owners
4. Living trusts
5. Structure damage from mineral extractions
6. Variety of encroachments and forgeries after title insurance is issued

Who Pays For Title Policy Insurance?

• This depends on your local custom.
• It can differ from county to county, but it is also negotiable in the purchase offer.
• Sometimes sellers and buyers split the fee for the owner's policy.
• Typically, the buyer pays for the lender's coverage.

How Long Are Title Policies Good For?

Forever, theoretically. If you are planning to resell the property within a couple years, ask your title company about "binder" coverage. Most companies will sell you a binder policy for 10% more. A binder is good for two years, often can be extended beyond that time, and the fee charged for the new buyer's policy will be the difference between what you bought the property for and the price at which it sold. In other words, you will get a credit for the amount of coverage you purchased under your own Owner's Title policy.

How Often Are Title Policy Insurance Premiums Paid?

Once. The fee is due when you buy. You will never pay it again. Title policy insurance is the best insurance policy you can ever buy.

Homeowner Insurance – Tips to Buying Homeowner Insurance

How to Save Money on Your Homeowner Insurance Policy

Shopping for homeowner insurance is one of those nagging home buying details that sometimes manages to slip though the cracks. It’s not unusual for insurance agents to receive last-minute frantic phone calls from title and / or escrow companies requesting a home insurance binder. To save yourself trouble, it’s a good idea to start shopping for a homeowner policy as soon as your purchase offer is accepted. Here are a few tips about buying homeowner insurance that are designed to save you time and money:

Determine Insurability

Your insurance agent needs extensive information from you to quote you the best rate for your policy. To determine insurability, an agent will ask:

• When was the home built?
• How old is the plumbing and electrical?
• What type of roof?
• What’s the square footage?
• How many claims have been filed over the past 5 years?
• Where is the home located? 

If the home is located in a rural area without a nearby fire department or there is no fire hydrant on the street, some companies may refuse to insure it. In that case, you may have to inquire at a specialty or surplus-lines company, and this quote will take longer to obtain.

Deductibles

You can save money by having a higher deductible on your policy. Typically, insurance companies will start giving discounts at a $500 deductible and increase the discount as your deductible increases. Most companies offer deductibles up to $10,000. Be careful, however, because many mortgage companies will not allow you to exceed a $1,000 deductible, so check with your lender before opting for a higher deductible.

How Much Insurance Do You Need?

Most agents use a cost estimator to figure cost replacement estimates. This will ensure that your home is insured for the correct amount. Insurance companies do not insure dirt. If you buy a home that includes a large lot, do not be astonished when you receive an insurance policy for a lot less than what you paid for the home. This is because you are buying coverage for the home and not the land.

In the past, replacement coverage was called Guaranteed Replacement Cost. There is no such coverage anymore. Today it is Replacement Cost Coverage, which means each insurance company designates a percentage of additional coverage on top of the insured amount. This is designed to protect the homeowner who has suffered a loss from having to pay additional construction costs to rebuild. It can cost more to build because of inflation or simply because material prices have increased. For example, if the dwelling coverage is insured for $300,000, and the company has 125% replacement cost coverage, the homeowner would receive an additional $75,000.

I recommend 200% replacement cost coverage, which gives homeowners double the coverage.

Policy Options

You have other choices on your home insurance policy that you can tailor. Liability coverage is a part of your homeowner's insurance policy that is often overlooked. This protects the insured against claims arising from bodily injury and property damage to others. For example, if your five-year-old was playing with matches and set your neighbor’s house on fire, your liability coverage would pay for this damage. You might have to move out of the neighborhood, but your insurance policy would pay your neighbor.

It is common to see $300,000 in coverage for liability, but the cost to raise it to $500,000 is about $20 more a year. You can have up to one-million coverage on most policies. Over that, you need an excess liability policy or “umbrella” policy. Umbrella policies give you an additional $1,000,000 liability coverage for a $300 to $500 premium.

Available Discounts

Make sure that you are getting all of the credits for which you are eligible. If you have an alarm system that reports to a central station (a company such as Brinks or ADT), in some cases, you can get up to a 10% discount. If you are over 50 and care to admit it, you may be eligible for a discount. Companies have different names for age preference policies, from senior discount to mature policyholder discount.

The most common discount is the multi-policy discount. This will save you money on your home and auto insurance. By combining the two policies with the same company, you are given a certain percentage discount on both. the percentage discounts vary among companies, so it’s best to shop around.

Review Your Policies

Call your agent and review your homeowner policy at least every three years. Needs change, markets change and coverages change. You should stay up-to-date on your insurance because you never know when you will need to rely on it.

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