Frequently Asked Questions
We get it, real estate can be confusing at times. From contracts and inspectors to escrow, title and appraisers… there are a lot of moving parts to a real estate transaction and a lot of new language/jargon to learn. No fear, Olga is here!! Below are some of the most common questions our clients ask us, so poke around, expand your knowledge… and don’t be afraid to reach out for more info 😉
Why should a Buyer use a Realtor?
A realtor will:
- Find you the right home and proactively search for off-market and coming soon opportunities. Search for sellers every day through networking with other agents, reaching out to everyone in her database, previewing homes, calling potential sellers, door knocking your favorite neighborhood.
- Negotiate the price
- Negotiate the terms of the sale
- Determine what comparable homes sell for
- Explain all legal forms (all 100+ pages of them and another 300+ pages of Homeowner Association (HOA) documents
- Help determine affordability
- Communicate with you
- Become a real estate concierge
- Reduce your anxiety and save you time
Negotiating is a big part of the job. For example, you may know that a home down the street was on the market for $950,000. Your Realtor will know how buyers in that area value upgrades, how much a busy street or a converted garage impacts the price in that specific neighborhood, and can not only share that a similar home sold for $975,000 recently, but also how many and what type of offers a seller received, which will indicate if the neighbor’s final sales price was an anomaly from a buyer who overpaid or the going market price. Realtors can check that that home was on the market for 65 days and there were two transactions that fell through because of a lender. There’s a LOT more to the strategy of saving buyers money though 🙂 Call us for more details.
We’ve done this a million times, just read our reviews here.
Why should a Seller use a Realtor?
A realtor will:
- Price the home competitively to NET you the most amount of money the market will tolerate. Price watch the market every day and adjust accordingly.
- Always be there for you
- Aggressively market the home to potential target Buyers
- Find a Buyer – proactively search for Buyers every single day
- Sell within a specific time frame
- Find ways to fix up the home to sell it for more money
- Negotiate and help deal with Buyers
- Help with paperwork and inspections
- Reduce your anxiety and stress
- Become your real estate concierge
We’ve done this a million times, just read our reviews here.
Is now a good time to Buy / Sell / Invest?
By waiting to buy your next home, you are effectively gambling two things:
1. You are betting that home prices won’t go up
2. You are betting that interest rates won’t go up
Did you know that a 1% increase in interest rates reduces the borrower’s purchasing power by a whopping 10%? In other words, if you were looking to buy a $1,000,000 house and mortgage rates are at 4%, to keep your monthly mortgage payment the same if the interest rates jumped to 5%, the purchase price would need to come down by 10% to $900,000.
You can buy a very different type of home in a very different type of neighborhood for $900,000 vs $1,000,000, wouldn’t you agree?
Is buying a home cheaper than renting?
In short – yes.
Many people believe that renting is less expensive than owning a home. Olga has found that buying is significantly more profitable than renting. Outside of the emotional benefits of owning a home, financially, a Landlord doesn’t give you anything when you vacate. With a home, you get to keep your equity. You also get to deduct certain expenses associated with homeownership, even if it’s your primary residence vs. an investment. To get a financial worksheet to see the cost differences of buying and renting, contact us today 🙂
It’s also important to note that, each time you renew your lease, you can expect your monthly rent to increase from anywhere between .05% to as high as 7%. In some cities, this can really make a difference in affordability. When you own your home, your monthly payment does not change, so you know exactly what to expect over the course of 30 years, or however long your loan term is for.
Many of the factors that make homeownership cheaper than renting often go unspoken, so we can talk about it for days 😛 make an appointment with us, let’s keep talking!
What are the advantages of owning a home?
Owning a home is like a forced savings account. Some advantages are:
- Gain tax advantages
- Build equity
- Increase borrowing power
- Stabilize housing payments
- Gain Freedom
- Place for family to live
- Achieve a sense of community
How does the buying process work?
The buying process may seem daunting at first; it’s really not so bad! We made a video that breaks down the process starting from the very beginning to home shopping, to contract, to moving in 🙂 You can watch it here.
What are Buyer closing costs?
These vary slightly with the purchase price and, assuming a median home price, about half of the closing costs are prepayments for items a buyer would pay anyways (think home insurance, property tax, Homeowner Association dues (HOA), prorated mortgage interest for the remainder of the first month, etc).
Other closing costs are one time payments that cover lender fees, appraisal, notary, recording, title insurance, city transfer tax, etc. We made a nifty video that breaks down what you can expect, watch it here.
When do I pay property taxes?
That’s a great question! Depending on how your loan is structured, you may have property taxes included in your monthly cost, or you will have to pay them your self throughout the year.
When paying property taxes yourself, you’ll pay the bill in two installments. Each installment covers a certain portion of your tax assessment, which is what the county values your home at. We break down the timelines and what to expect with installments in this quick video here 🙂
I want to buy a house – do I need to pay a realtor?
Nope, a Seller pays commission to the realtor that brings in a Buyer and the Realtor that represents the Seller. There are many ways for a Seller to structure compensation and, as a Buyer, you shouldn’t have to pay anything. If you are working with an agent and they say you need to pay… run!! (and call us ? )
What’s the difference between average and median prices?
Median means “in the middle”. So, with regard to List Price, this means exactly half of the homes listed are above this price and exactly half are below. For example, let’s say there are 5 homes for sale in a market at prices of $175,000, $200,000, $250,000, $350,000, and $600,000. The Median Price would be the one in the middle, or $250,000.
Note that this is not the same as Average Price. Using the same example above, the average price would be $315,000, which is significantly higher than the median of $250,000. Statisticians might say that median is a better indicator of the “typical” home within an area because it is not affected by “outliers” (the $600,000 home in this example).
Here’s why this is helpful to you…
When selling or buying a home, the most useful information associated with Median Listing Price is the trend displayed in the graph. If the graph shows a downward trend, it means that sellers are dropping their prices in response to a softening market. A “soft” market is also referred to as a “cold” or “buyers” market. If Median Listing Price is trending down, it may take longer to sell a home and buyers may have more bargaining power. If Median Listing Price is trending up, the market may be “hot” and homes will likely be selling more quickly. Sellers will have the advantage when prices are going up.
How does a Seller’s process work?
This is a great question! We don’t just list your house on the MLS, stick a sign in the yard, and sit back and pray that someone else sells it 🙂 We proactively prospect for Buyers every single day and price watch the market.
First, we need to meet and go over the process of selling, the current state of the market, valuation of your home, what you can expect to net from the sale along with any capital gain and property tax implications, and, finally, which options you have to get moved, which will depend on your unique situation and if you are buying another home or moving out of the area.
Next, when it’s time to sell your house, we’ll walk you through what you should be prepping in your home for sale, whether that be a professional cleaning, adding crown moldings, repainting some rooms, staging, etc. The goal is to NET you the most amount of money.
Once your house is prepped and ready to list, we’ll guide you through filling out disclosures and take care of inspections. There’s not much you’ll need to do from here on.
We start to pre-market your home before it goes live to the public to get maximum exposure. Our marketing sells homes and we would have gone over that in detail during our initial meeting.
Once an offer is accepted from a Buyer, we coordinate with the title companies, appraisers, and lenders to minimize your stress while constantly giving you timely updates on what’s happening and what to expect. You’ll be needed in person just once, during the Seller sign off. This is a quick meeting where you officially sign off the transaction.
Once the transaction closes, you will receive your proceeds.
We’ve done this a million times, just read our reviews here.
What are Seller closing costs?
Seller closing costs are the one-time fees related to the transaction, net of any Buyer credits. These differ depending on the location of the house since different cities and counties have different fees. From the sale proceeds, the Escrow company will pay off any outstanding property taxes and the Seller’s mortgage.
We made a handy video that breaks down what these costs can be made up of, watch it here 🙂
I found a home I like, what’s the next step?
First, you need to have the thumbs up from a lender via a pre-approval or, even better, an underwritten loan approval. Then, you need to find a realtor that can help protect and represent YOUR best interests (A.K.A., us ;-)). It’s a bad idea to work with the seller’s agent (see our FAQ response: Using the Seller’s Agent to Buy a Home – Why is it a Bad Idea)
Using the Seller’s Agent to buy a home – Why is it a bad idea?
The seller’s agent’s loyalty lies with the Seller. Their job is to get the Seller the most amount of money. You need someone rooting for you and protecting YOUR best interests. Naturally, you want to pay the least amount of money ?
While it’s not illegal, an agent can’t possibly represent both Buyer and Seller in any one transaction without having a conflict of interest. Having a Buyer’s agent costs Buyers nothing (see our FAQ response: I want to buy a house – Do I need to pay a Realtor?)
What are contingencies?
You might have heard people say they are making an offer on a home that is “contingent”, or dependent, on one or more conditions that must be fulfilled before the Buyer is willing to proceed with the purchase.
A contingency is a safety net for you, allowing you to walk away from a transaction, completely unharmed, or to renegotiate with a Seller.
There are 6 contingencies in a purchase contract and anything can be made into a contingency. For example, a Seller did not perform a chimney inspection; you might make an offer contingent on completing the inspection and being satisfied with the results.
For more details and to learn what type of contingencies exist, watch a quick video here 🙂
How fast can I become a homeowner?
Quicker than you think 😉 All it takes is a great lender, a strong realtor, and the desire of homeownership! The lenders we work with get clients into their new homes in as little as 18 days. Of course, each client is different, and, before we go shopping, we will sit down and talk about your timeline and what you can expect, given where you’d like to be. Let’s set up an appointment today!
What is an HOA and how do they differ?
If you are in the market for a townhome, condominium, or a single-family home that was constructed not too long ago, you’ll likely have to deal with a Homeowners Association (HOA).
Owning a condo has its advantages and disadvantages. Condos/townhomes give you the opportunity to enjoy your home without having to worry about mowing the lawn or the roof leaking. These services are not free and HOA fees provide a source of funds that are used to pay for these amenities.
What do most HOAs cover? (Watch our video here)
Generally, the more bells and whistles an HOA has, the higher the HOA fee. The vast majority of HOAs cover the same things such as exterior maintenance and common areas. Think roof, exterior painting, stucco/siding repair and replacement, sidewalks/driveways, mailboxes, common area landscaping, and utilities, etc. HOAs also cover common areas such as playgrounds, pools, tennis courts, gyms; some even cover marina access in the mid and north Peninsula.
Where HOAs differ:
– Is water covered by HOA dues (could be just hot water, could be both hot and cold)
– Is garbage covered by HOA (San Jose loops trash into the property tax in San Jose; it’s also safe to assume multi-story buildings or townhomes that have a large dumpster on the premises have HOAs that cover garbage service)
– Does HOA cover termite work (on the unit’s interior/exterior/ both)
– Who covers the cost of replacing windows
– Are there pet restrictions
– What are the rental restrictions, if any? It’s possible a unit can’t be rented at all; a unit might be eligible to be rented after a homeowner lives in it for 12 months or a certain proportion of the units in the community can be rented out (there might be a waiting list or the limit might not have been met yet)
– Who covers the front door and garage door replacement/repair
– Does HOA cover the sewer-lateral line/blockage
– Is exterior window washing covered
What is HOA insurance, home insurance, vs. home warranty?
Homeowner Association (HOA) insurance covers common areas (playgrounds, pools, etc) and a certain level of coverage for individual units. While we are not attorneys, you can think of the HOA insurance paying for building a “box,” a house exterior, if the entire complex burns down.
A homeowner’s insurance would put a kitchen inside that “box,” build a staircase and put in carpet or wooden floors. Homeowner’s insurance would also cover you in case of burglary/theft, vandalism, someone hurting themselves at the property, having property damage, etc.
A home warranty is very different and, typically, a Buyer or a Seller in a real estate transaction pays for 1 year worth of coverage, which can be extended by the Buyer. Depending on the extent of the coverage, a home warranty may cover appliances, A/C, furnace, a leaky shower, a broken garage door or a doorbell, etc. There’s usually a “service fee” per trade (~$75) for someone to come and diagnose the problem. The actual fix is complementary and, if something can’t be fixed, it’s replaced at no cost to the homeowner. When it comes to service fees, an electrician, for example, would be considered one trade and a plumber – another.
What is Escrow?
There are 2 answers:
- The time between when a Buyer’s purchase offer is accepted and until that Buyer becomes the official homeowner, aka the transaction process is referred to as escrow. Some people say “we are in escrow” or “we got into escrow” – this means we are in contract/offer got accepted and the transaction is in progress.
- Escrow is a neutral third party that works with everyone involved in a transaction. The Escrow company is one and the same as the Title company in Bay Area and it collects payments from the Buyer and Lender and distributes the funds to the Seller, insurance companies, and county/city, realtors. We made a neat video detailing just how escrow works, watch it here 🙂
What is Title?
This is just a legal way of how you take ownership of your home and there are many options, which have tax implications, so you should always consult your CPA.
What’s a Trust and Why is it Important?
Anyone with a large asset, such as a home, and / or dependents benefits from setting up a Trust. A Trust is an estate planning vehicle and dictates what happens to assets and dependents and in what proportion / order when someone passes away and touches on medical wishes if someone is not in a condition to make a decision. A legal will, according to the attorneys we’ve spoken to, is usually not clear enough for the courts to determine the rightful owner of assets. There are 3 main ways to do that and it can take just a few minutes. The goal is to do it once and adjust the terms as you progress through life. It’s vital to get this done to avoid “probate court” which costs ~$40K for a ~$1M estate and, when someone passes away, the asset cannot be touched (sold/rented etc.) while probate court decides who is the rightful owner – this can take 1.5-2 years. Quick video about how things work is here.
The Lending Section
We aren’t mortgage lenders, so we brought in the best of the best! We teamed up with Yvonne Wu from The Loan Story and Scott Doruff with Private Mortgage Advisors to give you the juicy details you’re dying to know
Do I need to be pre-approved before we can go shopping?
Absolutely ? Otherwise, looking at a home is a waste of time. You wouldn’t want to fall in love with a home you cannot buy. Buyers who do this spend the next 6 months chasing after a house they couldn’t buy in the first place because they needed an extra couple of days to get the thumbs up from a lender.
Meeting a realtor to discuss off-market homes and strategies on how to save time and money can be done in parallel as you talk to a lender.
What is an underwritten pre-approval?
This type of pre-approval is essentially a pre-approval that has been taken to the next level at no cost to the Buyer. It can be leveraged in negotiations with the Seller.
“A fully underwritten pre-approval is based on a review of the entire loan application and credit file and supporting documentation by an underwriter, including pay stubs, W-2s, tax returns to verify the income, bank and investment statements that support the down payment and reserves, and verification of employment and history- all prior to entering contract. The only remaining items required should be a purchase contract, appraisal, and title report (and HOA information if applicable).” Says Scott Doruff, of Private Mortgage Advisors.
When do I have to pay a mortgage?
When you pay rent on the first of the month, it covers the month that you are in. With home loans, you pay in the rear, for the month that just ended.
In other words, let’s say you close your transaction and become a homeowner on January 15th. A lender will require a borrower to pre-pay loan interest through the end of January at the time the transaction closes and this will be looped into your closing costs. The first mortgage payment would be due on March 1st. That March 1st payment would cover the mortgage for the month of February ?
Do I need 20% Down to buy a home?
Long story short… NO!!! It used to be commonly accepted that in order to buy a house, you’d need to put 20% of the purchase price down to secure your loan. In today’s day and age, that is simply not true. A solid lender will have a multitude of programs for you to choose from, which best fits your needs. Watch our helpful video here where we teamed up with Lender Yvonne Wu about ways you can buy a home with as little as 3.5% down 🙂
What is PMI (Private Mortgage Insurance)?
PMI is a lender’s protection in the event that a borrower defaults on a primary mortgage and the home goes into foreclosure. When borrowers apply for a home loan, lenders typically require down payments ranging from 3.5% to 20% of a property’s purchase price. If a borrower has less than this amount, the lender will typically look at the loan as a riskier investment and require that the borrower take out PMI.
When do I need PMI (Private Mortgage Insurance) and how much does it cost?
It used to be that if you have less than 20% down, you’d need to pay PMI. There are many loan programs available where lenders need only 10% to waive PMI in full.
When there is PMI involved, the cost depends on the amount of downpayment a borrower provides as well as loan programs. Talk you your lender to get more info.
What paperwork do I need to get a loan approval?
It’s important to keep proper documentation of all sources of income. Scott Doruff of Private Mortgage Advisors gave us some insight on what he asks from his clients during the loan approval process:
“Standard file documentation includes: 2 years of personal tax returns (and business returns if applicable); 2 years of W-2s and 1099s (if applicable); pay stubs for the past 30 days; bank statements for the past two months (all pages); Investment/retirement account for the past two months (or most recent quarter).”
Disclaimer: Olga and her supporting staff are not attorneys, insurance providers or tax professionals… We are real estate professionals 🙂 The above is provided to you as general information to help understand common occurrences in real estate. If you are seeking specific information / have questions about topics that require accountants, attorneys, lenders, etc… let us know! We’re always happy to connect you to the right person 🙂