Read that again because every word is important: One. Full-Time. Experienced. Realtor. With whom you get along. 

That sentence packed a lot of punch. 

The author did a great job of explaining each criteria, but I want to add a few of my own suggestions because choosing the right Realtor can help mitigate all of the other risks in the process…that’s what makes it arguably the most important step in your process. While I could go on for days about choosing a realtor, I’ll limit my advice to 3 tips:

Experienced: You’ll have to define your own level of ‘experience’ required.  Is it years in the business?  Transactions completed?   Transactions the team completed?  I would argue that one of the best gauges is the number and quality of transactions completed in the past 12 months that are similar in price and location to where you think you will be looking/selling.  I’m NOT saying to hire the ‘neighborhood expert’ that every agent seems to label themselves regardless of whether they actually live OR work there.  And agents with extremely high numbers of transactions tend to have junior associates that they hand you off to, so be sure you’re looking at the experience of the agent who will actually be looking at homes with you and working on your contract.

Getting Along: I would take this a step further and say you have to trust them. If you don’t trust your agent, get another agent. Ask for a reference who has bought/sold within the past 6 months. Then ask that reference “Have you given this agent’s name to anyone else? If no, why not? If yes, can I speak to that person?”

Finally I’ll add another tip about ‘getting along.’ You also need to be confident in their ability to explain things to you quickly and simply. In short, they must be able to educate you about the process and the decision points. Buying a house can be scary. There are dozens of pages of legalese, and decisions often need to be made quickly.  How organized is this person?  Do they take the time to answer your questions? Do they return calls, texts, or emails promptly? What hours and days are they available to you?  No one can be expected to work 24/7, but contract negotiations DO happen–often–outside of normal business hours and deadlines matter. It’s stressful enough to make big decisions on a deadline, you don’t need to make them in a vacuum. 

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First, a few clarifications. Both buyers and sellers have closing costs in a transaction. The sellers’ costs are typically much higher than the buyers’ fees because the sellers pay the commission for both real estate brokers. These fees are typically paid at closing—they come out of the sellers’ proceeds, and the buyers can either pay cash, or can negotiate to have their portion of the closing costs paid by the seller (read more here.)

For now, let’s focus on the buyers’ fees. Your lender should provide you with a Good-Faith Estimate (GFE) when you apply for a loan. This GFE is essentially an estimate of your “HUD-1” form, which you will receive at closing. Each lender has their own preferred format, but you should be able to compare apples-to-apples by looking at the section headers, or, even better, the line-item numbers. It’s important to note, though, that lenders only control certain sections, while others may be simply based on their own experience. When comparing lenders, it’s important to focus only on the line items that the lender actually controls.

The fees vary by jurisdiction, broker, and settlement attorney, but below is a good way to categorize them:

• Pre-paids: These are generally required by the lender, and may include insurance, property taxes, and interest. Another common prepaid item is condo/HOA fees. These vary based on the day of the month that you close, since they are pro-rated between buyer and seller.
• Points: A point represents 1% of the loan balance and are charged by lenders. This, along with the fees, can easily amount to thousands of dollars, so it’s important to discuss this with your agent and your lender.
• Fees: These are fees charged by real estate brokers, settlement attorneys, and lenders, and are the toughest to judge for “reasonableness” without experience. These vary widely, particularly among lenders. Some real estate agents will pay their broker’s fee on your behalf—be sure to ask them. For lenders, whose fees can be substantial, it’s important to know early in the process what they’ll charge. These fees can generally be found on your Good-Faith Estimate in the 800 section, but look in the 1300 “Additional” section, too. Broker’s and attorney’s fees are scattered throughout the closing statement sections.
• Title Insurance: This is paid by the buyer and, depending on the policy, can amount to thousands of dollars. It’s a one-time charge that covers you in the event of a problem with the chain of ownership. See my post on how to save some money with title insurance here. This fee is addressed in the 1100 section.
• Government and Transfer Charges: These are fees that are paid to the local jurisdiction and can be quite substantial. For example, in the District of Columbia, the transfer taxes (paid by the seller) and recording taxes (paid by the buyer) are 1.1% each. Northern Virginia sellers pay $1 per $1000 in value for their transfer taxes.

This is just a high level summary of some of the most common items on a HUD-1, so be sure to ask your agent to walk you through the expenses and strategize with you on how to minimize your costs! Read more about how to spot “junk fees.”

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Our first time home buyer classes are educational sessions designed to give an overview of current market conditions and the home buying process.  We cover a recap of the market, current trends and market stats including days on market, average sales prices, and inventory levels.  We’ll also discuss the home purchase process and common pitfalls, financing basics and a how to get started checklist.

Specific topics covered:

• Arlington, Northern Virginia and DC market analysis (average sales prices, days on market, etc.)
• Mortgage basics: rates, points, fees
• Financing basics: FHA, Conventional, Conforming, and “Jumbo” loans
• Calculating the tax benefits of homeownership
• Short Sale, Foreclosure/REO/Bank Owned basics
• Search tips
• Fees and closing costs
• Buyer agency and choosing an agent

Details:

Wednesday February 29th 7:00 – 8:15
Arlington Central Library
1015 N Quincy St 2nd floor meeting room
Ballston (Orange Line)

Though there is no cost to attend, you must contact us to register since seating is limited and we need to make sure that materials are available for you.

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1) Get organized.  Financing will be the first hurdle you face and it’s important that you are both open and honest about your savings, debts, budgets, and credit ratings.  It’s important that you both be comfortable not only with your share of the mortgage and other housing expenses, but with the rest of your budgets too, since coming up short at the end of the month may now affect whether you have a roof over your heads!

2) Independently, list your “must haves.”  Then, sit down together and compare lists to make sure you’re not contradicting each other.  Go to open houses together to discuss which parts of the house you liked and didn’t like.  Make sure the houses you’re previewing are in your price range!  Consult your agent if you are finding that you disagree on some of the key factors–a good agent will be able to discuss different floorplans, potential renovation projects, and alternatives that would be a nice compromise.

3) Consider how you will take title (joint tenants with rights of survivorship or tenants in common), and what will happen if one of you wants to sell.  I know it’s not romantic, but being part of a couple means you have to be practical sometimes.  How will you split the equity (or loss) accrued?  It’s imperative to put your understanding into a binding written agreement – hire a lawyer to do this! Though it may seem morbid, also include what happens if one of you were to pass away or otherwise become incapacitated.  This is a good time to update your wills to ensure consistency with your agreement.

You’ll be learning a lot about each other throughout this process.  Be patient!

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The delinquency rate is an important one to follow because it’s one of the best leading indicators we have for predicting ‘shadow inventory.’  Shadow inventory is the elusive backlog of future foreclosures–that is, homeowners who are inevitably headed towards foreclosure but the paperwork is still going through so the bank has yet to take possession of the house and/or list it for sale.  Foreclosure processes vary widely state to state, and it’s notoriously difficult to predict when a property will actually hit the market.  Buyers and market bears are always shouting about the huge backlog of inventory coming down the road, dooming recovery progress in the shaky housing markets.  Yet here in the DC area we have been waiting years for this alleged ‘tidal wave.’

I wouldn’t hold your breath.  First, these delinquency stats have been relatively stable for years, and we haven’t seen the big bump in foreclosures yet in our area–the fact is that our local market (particularly close in Northern Virginia and DC) has remained strong enough to absorb foreclosures and short sales as they come to market.  Second, remember that banks control the inventory they take possession of, and they are well aware of the laws of supply and demand.  If a bank is trying to recoup as much value as possible, why would they flood the market with inventory, thereby depressing prices?  The carrying cost of a property for a bank is minimal–after all, they don’t pay themselves a mortgage–so the only real incentive for them to get properties off the books is regulatory requirements that affect the amount they have to hold in reserves.  So it’s a big of a juggling act for banks.

Delinquencies, of course, are tied to unemployment rates: no job = can’t pay the mortgage = delinquency.  DC’s strong job market is another reason we don’t see the avalanche here that other parts of the country might experience.  But stay tuned…the lack of a budget deal from the super committee could mean serious cuts in government spending in our local market.

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What’s included in condo fees varies—sometimes widely—from building to building.  First you need to be sure that you’re looking at a condominium, rather than a co-operative.  While they may appear similar, in legal terms that are very different (see my page on condos vs co-ops here.)  When it comes to fees, co-ops appear much higher because they include property tax and occasionally an underlying mortgage, which results in fees that look much higher on paper, but when a buyer calculates their all-in housing expense, can actually be a bargain compared to condos.

Condo fees generally include a master insurance policy for the dwelling.  You will need to have an HO-6 (aka “condo rider” or “walls-in”) policy, but this is much cheaper than the policy you would need to purchase for a townhouse or single family home.

Units in older buildings generally are not individually metered, meaning that certain utilities are often included in the condo fee.  Heating and air conditioning bills can add up!

Are there expensive amenities like an indoor pool or a staffed front desk?  These drive up fees quickly.

Is the building new construction and still being managed by the builder?  Builders are notorious for underestimating fees (and often not adequately funding reserves.)

Finally, a buyer needs to look at reserves.  There is no right or wrong answer on funding reserves.  Condo boards make decisions annually about the amount they need for their annual operating expenses, and the amount they want to put aside for future capital repairs and improvements (new roofs, new windows, redecorating common areas, etc.)  Board members are owners that are elected by other owners.   Just like some owners save for a rainy day, so do some Boards.  And just like some owners live paycheck-to-paycheck and pray that nothing breaks, so do some Boards.  So having fees that are too low could indicate that a building is not properly funding its reserves, which could lead to future special assessments.

More Resources:

Search the MLS for properties

Contact us to discuss your home search

Attend a free First Time Buyer Seminar

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According to Inman News: “A price-to-rent ratio of 1 to 15 means that it’s much cheaper to buy than to rent in a particular city. A ratio between 16 and 20 means that it’s more expensive to rent than to buy, but, depending on the family’s situation, buying could “make financial sense,” the site said. Any ratio above 20 indicates that owning is much more costly than renting in a city.”

Of course, there are many factors to consider when deciding to rent or buy. If you’d like to discuss the home search process, please contact us, or consider attending one of our upcoming free first time home buyer classes.

More Resources: New York Times Rent vs Buy Calculator

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Last week, the Administration proposed lowering the “jumbo” loan limit from $729,750 in our area (one of the highest cost housing markets in the country) to $625,500. Technically, the $729k limit was ‘temporary’ but it had been extended several times and most people came to think of it as permanent. But the Administration is proposing letting it lapse this September, which means higher interest rates for any loans above the new lower limit.

Then, as part of the Administration’s final report advising a restructuring of the nation’s housing market, they signaled their intent to eliminate Fannie Mae and Freddie Mac, the nation’s largest mortgage market maker, which facilitates a nationwide lending environment, keeping fees low, though they acknowledged that moving too quickly could extend the housing decline. Seven years was thrown out as a target timeline, and three scenarios were presented as replacement options, though each has its own set of new risks for taxpayers.

The markets don’t like uncertainty, and these changes are likely to lead to higher mortgage rates in the near term. Home buyers, beware!

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The article appropriately warns of the danger of dual agency: “This arrangement may also be called “dual representation.” Both buyer and seller are represented by the same agent. Both parties must sign a form, prepared under the auspices of the local real estate commission. The form requires informed consent. For example, in the District of Columbia, sellers and buyers are put on notice that “when the parties agree to dual representation, the ability of the licensee [the agent] and the brokerage firm to represent either party fully and exclusively is limited.” Maryland law does not allow such dual representation.”

I have made it a personal business practice NOT to engage in dual agency.  I will not represent both a buyer and seller in the same transaction.  It quite clearly is a conflict of interest in my mind.

If you’re interested in learning more about the way I work with clients, contact me for a no obligation meeting.

Read more: Why I May Not Be Able to Represent You

Read more: Why is the Buyer’s Agent Called the Selling Agent?  Buyer Agency Explained

Read more: How do I start my home search?

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• Short Sales & Foreclosures are a great opportunity because you can be patient. (See my post on the challenges of timing a foreclosure transaction here and the frustrations of shorts sales that never close here.) While an owner occupant doesn’t have the luxury of time and can get frustrated with all the problems of these transactions, investors can go with the flow since their timing is more flexible. And that flexibility pays off by getting properties for less money.

• Consider the home’s condition and your level of expertise in doing or managing renovations. Many of the short sales and foreclosures on the market today come at bargain prices, but require everything from heavy cosmetic work to kitchen and bath remodels to mold remediation. Very few properties in the attractive price ranges are move-in ready, but there’s a lot of upside for people not afraid of elbow grease and with the right handyman connections.

• Be patient. You may need to wait for the right house at the right price. Set up an alert so that you can be ready to jump on a property that meets your investment needs as soon as it comes on the market—you can be sure other investors are circling and waiting for the right opportunity as well!

Agents keep a close eye on the market and can help you identify a good opportunity.  Winter is an especially good time…there are fewer buyers out there, and sellers are generally more anxious.  Contact me if you want to discuss some good opportunities that are out there right now.

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