Thoughts on the Washington, DC, and Northern Virginia Real Estate Market » FAQ

Tips for Choosing a Realtor

Katie Wethman — Mon, 20 Feb 2012 15:31:32 +0000

The Washington Post had a great article in this weekend’s Real Estate section called “Buying a Home? Here are a few tips.” In addition to addressing financial items like checking your credit score and getting a pre-qual letter from a reputable lender (not just any lender…a reputable lender), the author had a section on selecting “one full-time, experienced Realtor with whom you get along.”

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.

Tips for Couples Buying Their First Home Together Buying a home means starting a new phase of your...

Related posts brought to you by Yet Another Related Posts Plugin.

Buyer’s Closing Costs

wethmangroupadmin — Tue, 31 Jan 2012 12:00:20 +0000

Many buyers are aware that there are fees related to the purchase of a new home—a rough guide is 2.5% to 3% of the transaction value—but what are these fees, and are there ways to minimize them?

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.”

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Can I make an offer now if I don’t want to settle for several months?

Katie Wethman — Mon, 21 Mar 2011 15:07:40 +0000

It’s a tricky thing to time a home purchase with the expiration of a lease. Often buyers ask me: Can I make an offer on a house I like now even though my lease isn’t up until later this year to minimize the overlap?

Typically contract to close will be 30-60 days. There are several reasons for this.

The first is your loan. You can not lock in an interest rate until you have a property (the letter has a rate, but if you read the fine print it will say somewhere that it’s ‘subject to’ an acceptable property…at that time they give you whatever the current rate is. Once you find a property, a lender will lock you in for 45 days for free, and beyond that you need to pay a rather hefty fee (thousands of dollars). For that reason, most buyers look to close within 45 days of contract.

Most sellers obviously want a quick close as well (unless you pay a premium to make them wait), so it’s rare to see a closing that is many months away on a resale.

Occasionally sellers will want a ‘rent-back’ or post-settlement occupancy agreement, wherein they reimburse the buyers for their costs to stay in the property for up to 60 days past settlement. More than 60 days will create problems with your lender, as that’s typically the time frame after which they will consider it an ‘investment property’ and your loan terms will be different.

Buyers should also remember that the first mortgage payment isn’t due until the 2nd full month after you settle. So, for example, if you settle in April, then your first payment isn’t due until June 1. This is because you make mortgage payments in arrears, rather than in advance like you do with rent.

Of course every situation is different, but an experienced agent can help you utilize some of the contract’s clauses to minimize any overlap between your lease and your mortgage. Every situation is different, so contact us to discuss your rent-to-own transition or attend a free first time home buyer class.

Cheaper to Buy Than Rent in DC Area According to Trulia’s first quarter 2011 index, it is officially...

Related posts brought to you by Yet Another Related Posts Plugin.

I Got My Condo Docs – Now What??

Katie Wethman — Mon, 14 Mar 2011 16:50:53 +0000

In Virginia, buyers of condominiums and properties within a homeowner’s association have a three (calendar) day review period to review the “resale package” or “condo docs” following a ratified contract. In the District buyers have three business days. (Typically these are not available in advance because associations charge a fee, and most sellers are reluctant to incur that fee before receiving an offer. Several items in the package are also time-sensitive, so if the package is too old then sellers will need to pay for an updated package, so most sellers choose to wait until the offer is received before ordering.)

Sometimes the documents are electronic or online, or often they come in a big binder for your reading pleasure. Some of the items that are supposed to be included* the resale package are:

- Bylaws, rules, and regulations of the community (e.g., pet, noise, and rental policies)

- The annual association budget

- Two months of Board minutes

- A statement from the property manager about whether the unit is currently in compliance with rules (do NOT assume that if there is a violation the seller will remedy it prior to settlement!)

- Master insurance policy

*Unfortunately sometimes items are missing from the resale package. You can ask for the missing items, but it does NOT extend your three day window for rescission.

There will be a lot of information to read through in a short amount of time, so I recommend buyers first prioritize these three items:

- Review the rules and regulations to make sure you can live with them. Even if you’ve verbally been told otherwise (e.g., “oh, no one actually carpets over the hardwoods and it’s never a problem” or “there are lots of owners with dogs even though the policy says no pets”, or “of course you can install a washer/dryer.” These are the rules and you should be prepared to have them enforced. There are no guarantees that a lax Board will always remain lax.

- Look at the percentage of units that are more than 30 days past due on fees. Could it be indicative of a financially strapped community with short sales and foreclosures to come?

- Compare the reserve balance to the engineering study, which is a study that estimates the remaining useful life and cost to replace or repair for community items such as parking lots, roofs, and common areas. Engineering studies are typically performed every five years.

- Is there a move in fee or capital contribution required at settlement? This is becoming a big trend for condos to assess buyers a fee to help fund their reserves, sometimes it can run into the thousands of dollars.

The three day period can be a stressful one, because it’s difficult to get more details if needed in such a short amount of time. Property managers are often restricted from giving information to non-owners, further complicating the ability to get details related to a buyer’s concerns. The remedy is to negotiate with the seller for an extension of the period, or to void the contract, so it’s best to read the documents immediately upon receipt to identify any potential issues early.

More resources:

Search the MLS for properties

Attend a free First Time Buyer Seminar

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Why are these condo fees so high?

Katie Wethman — Mon, 07 Mar 2011 16:42:45 +0000

I’m often told by buyers “I won’t look at anything with high condo fees.” Often this can be a mistake. We need to look at what condo fees cover, and why some buildings may be higher (or lower) than others.

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

Attend a free First Time Buyer Seminar

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Cheaper to Buy Than Rent in DC Area

Katie Wethman — Mon, 28 Feb 2011 18:17:33 +0000

According to Trulia’s first quarter 2011 index, it is officially cheaper to buy than rent in the DC area, along with 72 other large US cities. With rent averaging $2500-3000, and an average purchase price of $400-500k, the price to rent ratio is hovering around 14.

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

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Proposed Elimination of Fannie, Freddie May Boost Interest Rates; FHA Insurance Premium Set to Increase

Katie Wethman — Mon, 21 Feb 2011 18:21:26 +0000

The administration has released a white paper saying it intends to wind down Fannie Mae and Freddie Mac and severely cut back FHA’s role in mortgage funding. Though the plan could take up to seven years to execute, it would mean a dramatically privatized mortgage market and very likely higher rates. The report offers three options, including creating a new government agency that would continue to insure mortgages or a new agency that would step in only during times of crisis. The most drastic option would end government backing for home loans beyond the FHA. This could prove to be disastrous for condo financing, which has long been problematic when it comes to FHA. (Read more about how changes in condo financing impacted sales in this post.)

This report comes on the heels of another direct hit on buyers: FHA’s recently announced increase in the monthly mortgage insurance premium of .25% beginning with case numbers assigned on or after April 18, 2011. FHA Commissioner David Stevens said “After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” said Stevens. “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.” This means that FHA buyers who have a ratified contract AFTER that date will have a higher monthly payment, so plan accordingly and get those offers in during EARLY April! On a $400,000 loan it translates into an extra $83 in your monthly payment.

Interest rates have a huge impact on affordability, especially for first time buyers who typically have lower down payments than 2nd or 3rd time buyers who are rolling equity over from a previous home.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Do I Need a Buyer’s Agent?

Katie Wethman — Mon, 10 Jan 2011 19:46:47 +0000

The Washington Post had a great article about how to figure out who represents you in a real estate transaction.

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.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

More Tips For Finding a Good Investment Property

Katie Wethman — Mon, 03 Jan 2011 19:43:33 +0000

I’ve previously written about how to identify target neighborhoods for buying an investment property. Once you’ve done that, how do you find the actual property?

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.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

How do I calculate my expenses on an investment property?

Katie Wethman — Tue, 28 Dec 2010 03:38:48 +0000

In our continuing series about buying an investment property, we turn our attention to the expenses. In our current market, it’s relatively easy to find properties where the rent covers the mortgage payment, but what else should investors take into account?

Obviously, condo or HOA fees are a big ticket item. Don’t forget these!

Property insurance. Even in a condo that comes with a master insurance policy built in, you’ll need landlord insurance.

Maintenance and repairs. Remember that you have a basic standard of safety and living that you need to provide your tenants. The amount you budget is largely impacted by the condition of the property you buy.

Vacancy. In a perfect world you’d have a tenant move out and another one move in the next day, but in reality it rarely works that way. Budget for at least a week or two of vacancy, which doesn’t sound like much but when you do the math, 2 weeks vacancy = 3.8% of your annual rent.

Property management. Most property management firms charge 6-10% of the rent to manage your property. Some states require you to have an in-state representative for the property, so if you’re not local, keep that in mind. The percentage sounds hefty, but do you want to be the one taking midnight phone calls about the leaking water heater, and then taking time off of work to wait for the plumber?

Advertising/Tenant Screening. If you plan to hire an agent to advertise, find a tenant, show the property, and then screen the tenant (check credit reports, references, and verify employment), you’ll need to pay for that service. Fees vary.

Depreciation. This is a non-cash expense, of course, but significantly reduces your tax bill. When estimating depreciation, remember that you can’t depreciate the value of the land–only the structure.

It’s also a good idea to budget for a ‘miscellaneous’ category…Murphy’s Law applies to investment properties, too.

More Resources:

Search the entire MLS for a property

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.