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The Hardest Part Of Buying A House Might Be The Forms
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When you are finally ready to take the plunge and make an offer on a house, your real estate agent will bring out a hefty pile of papers with which to convey that offer.
If you are a first time buyer you should have each and every one of these pieces of "boilerplate" explained to you. They are routine to your agent who has probably prepared dozens if not hundreds of offers, but don't let her blow through them. An offer is not routine to you and it is your house, your money, and your blood pressure.
Admittedly, some of these papers are of the CYA variety, designed by the real estate office's corporate counsel, the National Association of Realtors, its local branch, or various state or federal agencies to protect everyone concerned from complaints or lawsuits, but some are legitimate attempts at consumer protection. Many can, however, confuse buyers, sometimes even paralyze them, and, if not properly explained by the agent, kill an offer in its tracks.
We have discussed one of these forms in an earlier article - the agency disclosure. This is a document that should be introduced long before a buyer gets to the offer stage. Agency disclosure is designed to inform the buyer, and to a lesser extent the seller, who the agent represents, a subject that should, and may even be legally required to be, discussed at the first meeting of agent and consumer. If a buyer is seeing this form for the first time when he is about to make an offer, he should regard everything else the agent lays before him with a certain amount of suspicion.
If your agent is part of an office which offers other real estate related services such as mortgage origination, homeowner's insurance, or relocation services, the office may be required to divulge such cross ownership to you. If so, you will be presented with a form enumerating the services, advising you may be offered these services, and, in some cases, pricing out the costs of these services.
Some versions of this form take the word obtuse to new levels. Buyers sometimes interpret what should be a simple disclosure to mean they must avail themselves of the real estate agency's other services. Take a deep breath and insist your agent explain this form to your satisfaction.
Some states have disclosure forms relating to structural inspections. There may be a leaflet informing buyers of their right to such an inspection and, of course, a form to acknowledge receipt of the leaflet. In some states an agent is prohibited from providing the name of specific inspectors, but must inform a buyer where to obtain a list of these professionals …and get signed a form that verifies he did so.
In areas where Radon has been identified as a problem, either in the water or air, there are other brochures and other forms to sign to prove that the buyer has been informed of the possibility of problems.
None of these disclosures, however, are as scary as those dealing with lead paint. Many an offer has come to a crashing halt when this issue is raised.
Federal law requires that a buyer be given ten days to obtain a lead paint inspection of any home built prior to 1978 - the year in which lead paint was no longer allowed to be a component of paint. The government-produced pamphlets and brochures about lead paint can be very frightening, particularly to the parents or potential parents of young children; parents who were themselves born after lead was outlawed and may be consciously hearing about the hazard for the first time while sitting with checkbooks clutched in already sweaty hands.
Read the pamphlets, order an inspection - the few hundred extra bucks it will add to your home buying costs are well worth it - and then, if lead paint is present, decide where to go from there. Lead can be removed and its presence is not the end of the world. Lead was actually in declining use for many years prior to its ban in 1978, and many, many older homes are, upon inspection, found to be lead free.
Now, we are finally to the actual offer forms, a modest bunch of papers compared to what you have already waded through.
Of course, if you have only thought about the dollar amount of your offer you will be ill prepared. Before you sit down with the agent to compose an offer you need to think about other components. And, of course, there is a form to accompany each of these decisions.
- When do you want to close on the sale?
It used to take a lot of time - 60 to 90 days - to put a sale together. Mortgages needed to be approved, inspections done, and titles searched. Automation being what it is, it is possible, if your mortgage originator is on her toes and all other parties are organized, to close a house sale in as little as two weeks. You may not want to move that fast nor may the seller. Think about what will work for you and be prepared to be flexible.
- How much can you escrow to bind the contract?
In many states a buyer can bind a contract until closing for very little money. In others a significant amount (perhaps 10%) is required upon signing the Purchase and Sale Agreement. Make sure, if funds are coming from a 401K or other semi-liquid source, that you will be able to access the funds in time to meet your commitment.
- What contingencies do you want to invoke?
Most offer forms make allowances for mortgage approval and inspections (lead, radon, structural, pest, hazardous materials.) In some areas a water quality inspection or a septic tank performance test might be a good idea. Some buyers still seek to make the sale of an existing home a contingency. If the purchase is a condo, a smart buyer will invoke contingencies that allow him to inspect the home owners' association's budget, balance sheet, bylaws, and recent meeting minutes.
Mortgage contingencies are becoming less and less acceptable to sellers as it is now expected that buyers will come to the table with a mortgage approval in hand, and in most areas where homes sales are brisk, offers contingent upon the sale of an existing home are an absolute non-starters.
No one should discourage a buyer from inspecting every inch of a potential purchase. Just remember that each of these tests will cost money, and again, in a competitive situation, may make an offer less desirable to the seller.
Finally, after wading through all of this paper, a buyer finally gets to make an actual offer.
It will probably be an anti-climax!
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