There are many common questions that arise during the home buying/selling process and so I’ve tried to capture below some of the most common questions/topics.
How much do I need for a down payment?
The are many types of loan programs available. A traditional conventional loan requires a 20% down payment on a 30-year fixed-rate mortgage. At the low end of the spectrum, the minimum down payment for an FHA loan is 3.5%. For veterans, there are VA loans available with 0% down. You should check with a lender for more details on the many loan types available. And whichever route you go, you should always speak to a few different lenders to compare the details of their loan programs and choose the one that is best for you.
How is the market?
This question will have an ever changing answer. Presently (Feb 2019), greater L.A. is still experiencing a seller’s market, but there are indications this may be softening.
What is meant by a ‘seller’s market’ and a ‘buyer’s market’?
A market in which the number of buyers (the “demand") far exceeds the inventory of houses available for sale (the “supply”) is considered a seller’s market. This is because the supply and demand imbalance commonly leads to a situation in which there are multiple offers on a given property, which results in a bidding war - as well as signed Backup Offers, which would become effective in the event the first accepted offer falls through. This dynamic strengthens the negotiating position of the seller and weakens it for the buyer. Conversely, when the supply (housing inventory) far exceeds the number of buyers ((demand), the leverage swings to the buyer and this is considered a buyer’s market.
Is it absolutely necessary to be pre-approved before shopping for a home?
No. However, if you come upon the house of your dreams and you want to submit an offer, if it’s not accompanied by a pre-approval letter, your chances of having the offer be accepted are greatly reduced. This is especially true in a seller’s market when you will likely be competing against other offers.
What kind of inspections should one have one buying a home?
A buyer should always get a physical (general) inspection, in which the inspector will perform a high-level review of all aspects of the house, including foundation, roof, plumbing, electric, HVAC, etc. This report will provide insight to what aspects of the home warrant a follow-up inspection by an specialist. (E.g. roof, plumber, foundation, mold etc.) I also always encourage buyers to get a sewer inspection because this is not covered by the general inspection and if there are any issues requiring repairs, it can be very costly. If the property is in a condo/townhouse complex, this is not required because this is an item that is covered by the Home Owner’s Association (HOA). A termite inspection is also very important as most homes in Southern California experience some degree of infestation. Certain homes will be more prone to problems than others. Finally, when a property is on a steep hillside, having a geologic assessment is very important.
How long does a typical house purchase take?
Most transactions are executed in 30 days. However, depending on the terms of the purchase agreement and circumstances of the buyer and/or seller, it may take longer, or may be completed in less than a week.
What exactly is “escrow”, anyway?
Once a Offer (Purchase Agreement) has been been executed by a buyer and seller, the escrow process will begin. Escrow is the by which a neutral 3rd party is engaged (In southern CA this is typically an escrow company) to mediate the details of the transaction, which includes holding deposits in an escrow account until both sides (buyer/seller) agree that all of the terms and conditions of the purchase agreement are met. During the escrow period, the buyer performs their due diligence inspecting the property, reviewing records and disclosures, and completing the loan application process (unless is a cash deal). Likewise, the seller orders and/or prepares all of the required reports and disclosures required for the sale. At the close of escrow the buyer’s loan is funded, the money is transferred to the seller, commissions are paid to the real estate broker(s), the deed is recorded with the county in the buyer’s name, and keys to the property are transferred from seller to buyer.
How much are closing costs, and what do these costs include?
Closing costs range from about 1-3% of the purchase price. There are different costs for the seller and buyer. And the buyer’s fee’s, which include loan fees, depend on the size of the loan. Some of the closing costs are:
Buyer Closing costs
Loan origination fee
Loan processing fee
Escrow company fees
Lender’s Title Insurance Policy
Wire, courier and notary services
Governmental recording fees
Documentary transfer taxes
Settlement company for escrow processing
Seller Closing Costs
Owner’s Title Insurance
Escrow company fees
Wiring and messanger fees
Natural Hazards Report
Certificate of Compliance with Dept of Water and Power
Wire, courier and notary services
In addition to the above, broker commissions, which are typically paid by the seller, are also paid at the close of escrow. Also, any fees associated with inspections conducted by the buyer are paid directly to the inspector(s) at the time of the inspection. These fees are NOT paid through escrow.
I’m thinking of selling my house. Can I rely on the estimated value of my home that shows up on Zillow, Redfin and other online sites?
The short answer is “no”. While these apps come in very handy, the software that compiles the estimate has no view inside your home (and in most cases a very limited and/or dated view of the exterior) and, as such, it has no accurate idea of its condition, how it’s been updated, etc. These estimates are an okay starting point, but by no means should you consider it to be a de facto, accurate valuation of your property. If you do, you may end up hurting yourself by selling for less than market value, or by listing it for too much, which causes it to sit on the market for a long time and become a stagnant listing. Here is an interesting anecdote: The CEO of zillow sold a property he owned and the Zillow Zestimate was 40% higher than the amount he sold it for! And he acknowledges the important of relying upon a real estate agent for assessing a home’s value. If you don’t believe me, you can read that story here.
What is a title report?
There are many records and seller disclosures that are provided to a buyer during escrow which inform the buyer about various aspects of the property they are purchasing. The Preliminary Title Report (aka Prelim; Title Report) one of them. This report is issued by a Title Company and is typically paid for by the seller. This report documents the ownership, vesting, and detail regarding anything recorded against the home, such as liens, encroachments, or easements. The title company compiles the report from a search of county records to issue title insurance, and any liens against the property are listed as “exceptions” to a title policy. As such, this report is important to the buyer because it reveals whether the title to the property they are buying is “clean”, or whether it has any “clouds” on it.
What is title insurance?
Title insurance provides a new home owner (and lender) with coverage for certain due to defects (e.g. fraud, forgery) in the title that might have occurred prior to your ownership, but were not detected until after the close of escrow, and which could possibly jeopardize your ownership and investment. The premium is paid once, up front, at the close of escrow.
What is a Residential Property Report (9A) report?
The Los Angeles Department of Building and Safety (LADBS) requires, and issues, a Residential Property Report (also known as a 9A report) prior to the close of escrow. The report ensures that properties are in compliance with various minimum code requirements at the time ownership is transferred. It may also inform buyers of potential or pending special assessments that the city is planning, which the property may be subject to. An application must be completed (typically by the seller), including declares that the property is, or will be, brought into compliance with the city's requirements. The application is then sent to LADBS with a $70.20 fee, and the City then issues the report.
Items covered by the Residential Property Report (9A):
1. Water Conservation - The plumbing fixtures of the property shall comply with the City's Water Conservation Ordinance.
2. Security Lighting and Locks - All apartment buildings (buildings containing three or more dwelling units) shall be provided with security lighting and locks.
3. Metal Bars and other security mechanisms on windows - every sleeping room below the fourth story shall have at least one operable window or door approved for emergency escape.
4. Seismic Shut-Off Valves for Gas Lin
5. Smoke Detectors
6. Carbon Monoxide Detectors
7. Impact Glazing on sliding doors
8. Protected Trees - Any Oak tree indigenous to CA (except Scrub Oak), Southern CA Black Walnut, Western Sycamore, California Bay
The most common way to ensure that the property complies the LADBS requirements is to have a “retrofit” inspection performed. This is typically paid for by the seller and billed through escrow. Once the property has been determined to meet all city ordinances, the inspection company will issue a Certificate of Compliance (COC). (This is only needed in City of L.A.). This certificate of compliance enables the seller to accurately complete the 9A report regarding compliance with city code. If the property does not presently meet code, the retrofit inspector can provide an estimate for any work that needs to be performed.
What is an Natural Hazards Disclosure (NHD)?
The California Natural Hazards Disclosure Act stipulates that real estate seller and brokers are legally required to disclose if the property being sold lies within one or more state or locally mapped hazard areas. For this reason, all CA home sale transactions require the buyer to receive an NHD. This will reveal whether the property lies in an prone to hazards such as a fire zone, flood zone, earthquake fault zone, etc. Depending on the specific report, it may also include information about radon gas, airport influence, military ordnance, Megan’s Law disclosures, and local tax information.
What is a short sale, and is this a good way to find a home at a “cheap” price?
A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. For example, a house is listed for sale for $500,000 and receives a full-price offer, but the seller has $600,000 in debt on one or more mortgages. In this scenario, the lien holders (lenders) must agree to accept less than the amount they are owed on the debt in order for the sale to proceed. Because of the time required for the lien holders’ review and approval of the sale, a short typically takes much longer to complete than a standard sale. Also, since the bank must approve all terms of the sale, and since they will be losing money in the transaction, the lender will typically not accept any buyer requests for credits or further price concessions.
I’m new to L.A. What is the best place to live?
Let’s get coffee. My treat.
If you have any other questions, feel free to call me, or submit it below.