Most offers to buy a house are accompanied by a check. This
check is generally referred to as the earnest money deposit.
The basic reason for the deposit is to impress upon the seller
that the buyer “earnestly” intends to purchase the property.
The amount of the deposit varies from purchase to purchase
depending on a variety of factors. If a property generates a
lot of interest, a buyer may wish to make a larger deposit to
convince the seller that their offer is stronger than the others.
During “hot” markets, deposits are generally larger than
during slow markets.
In normal times, buyers should hesitate to make a deposit that
is larger than two percent of the purchase price. Underwriting
guidelines sometimes require strict documentation of such
deposits. A buyer may often be required to show a bank
statement just prior to the date of the check plus evidence
that the check actually cleared the bank. If you are closing
quickly, this might require a trip to your bank.
There are other reasons to try to keep your deposit as small as
possible, but not so small that the seller doesn’t take you
seriously. Once a buyer and seller agree to terms, the earnest
money deposit is usually placed in a trust account. At that
point it is no longer the buyer’s money. It belongs jointly to
the buyer and seller.
Almost all deals close and the earnest money funds are applied
to the buyer’s down payment and closing costs. As the saying
goes, however, there are exceptions to the rule.
Some sellers think that if the deal falls through, the earnest
money deposit is automatically forfeited. Some buyers think
that if the deal doesn’t close, they automatically get the
money back. Neither is true.
Even when the failure to close the transaction is the buyer’s
fault, the seller doesn’t have an automatic “right” to the
deposit as a way to “punish” the buyer. Nor does the buyer
automatically get the entire deposit back. Since the deposit is
held in trust, both the buyer and the seller must agree on the
disposition of the funds or the funds are turned over to the
court to make a determination. This is the law in most states
and the real estate agents and their companies have no
control over it.
Serious problems are the exception rather than the “rule.”
The situation may be new to you, but qualified real estate
agents have dealt with it many times in the past.
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DO I NEED A PERMIT?If you are contemplating remodeling your home andasking whether you need a permit, the answer isprobably yes, you do.ACCORDING TO MECKLENBURG COUNTYAppropriate permits are required for any new construction,reconstruction, alteration, repair, movementto another site, removal or demolition of anybuilding. Permits are required for the installation,extension, alteration or general repair of electrical,mechanical or plumbing systems. Permits are requiredto be grouped by the particular project andpaid for by the general contractor or the homeowneracting as their own general contractor. Separatepermits are required for building, electrical, heating,air conditioning and plumbing work.EXCEPTION FOR SINGLE FAMILY RESIDENCEPermits are not required for any work costing fivethousand dollars or less, unless the work involves:•The addition, repair, or replacement of loadbearing structures;•The addition or change in the design of aplumbing system;•The addition, replacement or change in thedesign of a heating or air conditioning system;•The addition, replacement or change in thedesign of an electrical system;•The use of materials not permitted by the buildingcode;•The addition of roofing, excluding replacementof like-grade fire resistance material.Not obtaining a legally-required permit can come back tobite you. Consider these potential issues that can arise:Failure to Disclose: A seller of residential real estate hasa responsibility to disclose all known defects and issuesthat might affect the value or desirability of the propertybeing sold, including improvements done without a permit.If the seller has not fully revealed the extent of theproperty’s defects or issues, then they may be foundliable for misrepresentation.Homeowner Insurance: Doing DIY jobs like updatingplumbing or electrical work incorrectly could lead to denied homeowner insurance claims. If something like a fire consumed your whole home and your insurer found youhadn’t obtained a permit, imagine the loss you’d suffer ifthat claim was denied.Appraisal Issues: Some lenders will not loan on non-permitted areas, and they ask appraisers to not includeany non-permitted area as square footage. Other lenderswill loan when there is a non-permitted addition, but theyask appraisers to consider how a lack of permits impactsvalue.Delayed Closing: What happens if just days before closingon the sale of your house the buyer learns there wasno permit issued for that new sun room? A delayed closingis probably going to be imminent or even a cancellationof the contract to purchase the home.Buyer research verifying permitted work is easy today, so“fudging” on this issue is not a good idea. I believe themain reason homeowners fail to obtain permits is not thecost of the permit itself but the possibility of property taxes increasing due to the increase in value of the home as a result of the new addition or improvement.
THE IMPORTANCE OF THE APPRAISAL
The appraisal is the linchpin around which all else inthe real estate sales transaction revolves. Both buyersand sellers are in a holding pattern until the appraiserarrives at the property, looks it over and comes backwith a figure for what he thinks the place is worth.Such is the case whether the property in question is a$200,000 single-family home in the suburbs or a $200-million office building in the city.The appraiser’s job is to be unbiased and completelyindependent of the transaction, while at the same timebeing realistic and practical. The appraiser’s valuationis his or her opinion - - repeat, opinion - - of what theproperty is worth. It doesn’t matter what the buyer iswilling to pay or the seller is willing to accept.Two appraisers could do an appraisal on the sameday, on the same house, come up with two differentvalues and have them both be right. The reality is thatvalue is really the appraiser’s opinion, not an average,not a range, but a number the appraiser picks by lookingat the data, understanding the market and consideringall factors.If the appraisal comes in too low for the lender to acceptthe buyer’s application for a mortgage, the sellerwill have to lower the price or the buyer will have tocome up with more cash to make the deal work.Appraisers are only as good as the data available tothem. Most markets have a multiple listing servicefrom which the appraiser gleans much of his information.But issues tend to arise when the appraisal ison new construction or houses in rural areas. Thenthe appraiser must often deal with incomplete, outdatedor inaccurate data. Sellers should write up a list ofall improvements made to the house within the previousfive years to present to the appraiser as he entersthe house. That way, the appraiser can spend timeverifying the information, which is more likely to reflectfavorably upon the overall appraisal. Remember,though, that routine maintenance does not count.You are only as good as your neighborhood. Like itor not, your neighbors and your neighborhood havean overall effect on your home’s value. In a$200,000 neighborhood, spending $100,000 on improvementsis not likely to add $100,000 in value.All adjustments to the valuation of the property mustbe backed by real data that support the appraiser’sopinion. For example, a $5000 adjustment for agarage isn’t just pulled out of the air. It is backed bymarket research and data indicating that garagesare worth $5000.Appraising is a full-time profession. The typical appraiserdoes one or two appraisals a day. They aretrained to be very careful when it comes to what theywill and won’t do regarding value, property conditionand selecting comparables. Licenses are difficult toobtain. It takes two years, 300-plus tested educationhours and 3000 field hours to obtain appraiser certification.An appraisal is not a home inspection. The two aretotally different. The inspector’s job is to make sureall of the mechanical and subsystems are workingand that there are no structural issues. The appraiser’sjob is to observe the house in its current state,compare that with similar homes in the area, andcome up with a valuation. Put another way, appraiserstypically work on the assumption that everythingis in good working order, whereas inspectors verifyfunctionality.
PROTECTING YOUR PRIVACY WHEN SELLING YOUR HOMEAre your secrets safe?Before your home goes on the market and home buyersstart traipsing through, smart sellers will relocateconfidential information. Even so, you might be astonishedto learn what home buyers can learn about you.Is it considered snooping to open a drawer?Not if the drawer is part of what they will be purchasingsuch as kitchen or bathroom cabinetry. Buyers caninnocently open a drawer to inspect the construction ordepth and find important documents that you might nothave intended they see.I heard a story about a buyer opening a kitchen drawerand finding an estimated seller “net” sheet reflectingthe price the seller wished to obtain for their home. Itclearly indicated a lower price was expected, so youcan guess what that buyer offered.Don’t leave mail where anyone can find it.Many sellers toss opened mail onto their kitchen counter.At a quick glance, buyers might see how muchyour owe on your credit cards. They can observe ifyou’re late on your mortgage payment or if the IRS isafter you. Heaven forbid you should file bankruptcy orbe sued and leave those documents out for the worldto see, but sellers do it all the time. They must haveconfidence that buyers will not glance at that personalmail even when it’s taped to the front of the refrigeratorbegging to be read.I’ve also shown vacant homes and seen mail tossedall over the floor in the entryway. It wasn’t hard forthe buyer to figure out that much of that mail containedcollection notices. If a buyer is armed with thisinformation, guess what price the buyer would bethinking of offering? And it wouldn’t be the askingprice.Remove diplomas and wedding photos from walls.Notwithstanding that all personal items should beremoved, sometimes sellers overlook the obviousand leave diplomas on the wall. People form biasesand can carry them too far. For example, the sellermight be a lawyer, and there are buyers who mightnot feel comfortable buying a home from a lawyer.Diplomas give away a seller’s age or a close estimate.Wedding photos might give away the seller’sreligion, as do certain religious artifacts. Buyers canbe prejudiced. Don’t give buyers a way to form anyopinion about you at all.Contents of closets.Often sellers who are divorcing feel pressure to sellquickly, but that is not information the seller wouldwant to share with a buyer. They do this by hangingall women’s or all men’s clothes in the closet. Oncea buyer finds out a seller desperately needs to sell,the buyer won’t make an offer anywhere near theasking price, so don’t leave telltale clues around thatcould give away your motivation to sell.
EVALUATING THE NEIGHBORHOODGood neighborhoods, like beauty, are in the eyes of the beholder. For example, being near excellent schools is important if you have young children. If, conversely, you’re ready to retire, buying in a peaceful area with outdoor activities may appeal to you, and being next to a noisy junior high school is your nightmare. Personal preferences aside, all good neighborhoods have the following characteristics: AmenitiesAmenities are special features of a neighborhood that make it an attractive, desirable place to live. Wide streets bordered by stately oak trees, lush green parks, ocean views, quiet cul-de-sacs, parking, and proximity to schools, churches, shopping, restaurants, transportation, playgrounds and beaches are prime examples of amenities that add value to a neighborhood. The more of these perks a neighborhood has, the better from the perspective of most home buyers. Quality SchoolsYou may not care how good or bad the local schools are if you don’t have school-age children; however, unless you’re buying in a remote retirement or vacation-type community, you’d better believe that when you’re ready to sell your house, most prospective buyers with children will be deeply concerned about the school system in your neighborhood.Low Crime RatesMost people today are concerned about crime. As with schools, don’t rely on hearsay or isolated news reports. Communities compile crime statistics, generally by neighborhood. StabilitySome communities are in a constant state of flux. Imagine what would happen to property values if a junk yard were replaced by a beautiful park. How about the reverse — an ugly multi-story concrete parking garage appears where there was once a beautiful park?Pride of OwnershipA home’s cost has no bearing on the amount of pride its owners take in it. Drive through any neighborhood, posh or modest, and you will see in a flash whether the people who live there are proud of their homes. Property values sag when homeowners no longer take pride in their property. Avoid declining neighborhoods which display the red flags of dispirited homeowners — poorly kept houses, junk-filled yards, abandoned cars on the street, many absentee owners renting their houses out, high rates of vandalism and crime, and so on.
DON’T LET TERMITES EAT UP YOUR INVESTMENTTermites cause an estimated $5 billion in property damage every year in the United States, making these pesky insects even more of a threat to wood-based structures than fire, flood or wind. Yet many homeowners know very little about the damage that termites pose to their property. You don’t usually notice them until the damage is extensive. Termites may take up residence in a home for years, even decades, eating away at the structure from the inside out. An average subterranean termite colony can consume a two by four per year until the damage finally shows itself, hence the unsettling nickname “silent destroyers.” There have been situations where homeowners have leaned against a wall and suddenly fallen through and toilets that have plummeted through chewed-up floorboards. Termites can enter a home by slipping through a crack in the foundation as thin as the average business card. Window vents and roof joints are also popular entry points. Older homes, where it’s more likely that the foundation may have cracked, probably are more inclined to be at risk but new homes aren’t off the hook. If termite pre-treatments during construction aren’t done correctly by the builder, termite swarms can take hold even after five years. So how can homeowners keep these crawly insects from biting into their investment? •Keep moisture out. Use downspouts and gutters to divert water away from the home’s foundation. •Store mulch, firewood and wood chips away from the home. •Ensure shrubs, vines, and other plants aren’t planted too close to the home and aren’t covering vents. •Ventilate crawl spaces to reduce humidity. •Eliminate gaps and cracks in areas such as attic vents, window joints and roof eaves. •Remove old tree stumps and roots near the home. A homeowner’s best defense is to schedule regular inspections with a termite specialist. Termite specialists can also prevent termites by using special wood treatments and repellants. Such treatments are usually needed every seven to ten years. The U.S. Department of Housing and Urban Development’s web site provides information by state about areas most prone to termite damage. Go to www.hud.gov and search for “Termite Infestation Probability Zones. Because termites thrive in warm climates, activity is greatest in the South, Southeast, West and Southwest. Even in areas with a lower probability of infestation, the right combination of food, moisture and warmth can spell trouble.
THE LOCKBOXIf you are selling your house, you should not be present when an agent brings a potential buyer to view your property. Successful marketing means that buyers need to be able to imagine the house as their future home. Nothing puts a damper on that more than having the current owners hanging around. That is one of the reasons why the lockbox is such a key tool for real estate agents. A lockbox is a hollow metal box that attaches to the front doorknob or some other secure place nearby. Inside the hollow area is another matchbox-sized box that contains the key to the house. When an agent opens the lockbox, a smaller container slides out. The lockbox gets its name because it is a locked box. A stranger cannot come by, open the box, get the key and gain entry to the house. Only real estate agents can do that. Most modern lockboxes have a tiny microprocessor inside. You need an electronic key to open it, and the only way to get a key is to be a member of the local Multiple Listing Service. All of the keys have a unique identifier so that when someone opens the box, the microprocessor inside registers the name of the agent who opens it. Agents are forbidden to allow another agent to use their electronic key. Since the box is “reset” just before being placed on the door, any agent who opens the box can be identified, as well as the date and time they entered the house. That information is downloaded every night at the MLS Association. This works as a security measure for the homeowner. But the main purpose of the lockbox is that it facilitates the sale of your home. Without it, selling or buying a home would be much more difficult.Think of the alternatives. Without the lockbox, the seller would have to be present for all showings of the property, and that does not help to sell the home. Sellers could leave the door unlocked, of course, but in today’s security-conscious world, that is not the best idea. Another possibility is that the seller could give a key to the listing agent, but then the listing agent would always have to be present when another agent brought a buyer to the home, and this could be an inconvenience to the buyer.