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Real Estate Secrets: Understanding the ‘Option Period’ and What This Term Means for You as a Buyer

Real Estate Secrets: Understanding the 'Option Period' and What This Term Means for You as a Buyer When the sale of real estate takes place, a certain amount of time might be allotted after a contract is created but before the transaction is finalized.  During this time the buyer may decide not to follow through with the deal set forth in the contract. This ‘option period’ allows buyers to have a property inspected and its value ascertained without the risk of losing the property to another buyer.

What Happens When The Option Period Takes Place

Typically, a buyer must pay an option fee in order to be able to enjoy the luxury of an option period. During the option period, property inspections are typically carried out on the property in question so that the buyer can be sure that the proposed offer is appropriate.

The nonrefundable option fee that the buyer pays the seller (so that the seller agrees not to follow through on a transaction with another prospective buyer) compensates the seller for the time during which the property is off of the market.

Differences Between Various States

It is not always possible for a buyer to have an option period during which he or she can finalize plans to make a purchase on a property. Regulations and procedures between different states vary significantly.

It is worth noting that the state of Texas has a real estate market that is particularly well known for granting option periods. In Texas, the option period usually lasts between seven and 14 days and serves as a period of time during which inspections are carried out; however, other states have different ways of dealing with option periods and scheduling inspections.

Associated Expenses

The particular laws applicable where a sale takes place will often dictate how much a buyer needs to pay to the seller in option fee charges. In the state of Texas, for example, the option fee is usually no greater than 1 percent of the sale price of the home. The option fee is normally applied to the transaction at escrow closing in the event that the buyer decides to proceed with the sale.

Buyers who decide not to purchase a property after the option period has already begun will usually be responsible for paying the option fee to compensate the buyer for lost time. However, the buyer will be under no further contractual obligations.

If you have questions on the processes and regulations involved in a real estate transaction, contact an experienced real estate agent to learn more.

DOC New Home Sales and NAR Existing Home Sales

DOC New Home Sales and NAR Existing Home SalesThe Department of Commerce reported July sales of new homes dropped by 2.40 percent over June to a four month low. Analysts noted that although July’s reading of 412,000 new homes sold fell short of expectations and June’s reading, the new homes sector is volatile and subject to change.

June’s reading of 406,000 new homes sold was revised to 422,000 new homes sold; expectations were based on the original reading. Three of four regions posted a slower rate of growth for home prices with only the South posting a gain.

The average price of a new home in the U.S. rose to $269,800, which is 2.90 percent higher than June’s average home price. Inventories of new homes increased to a six-month level based on current sales pace.

This was the highest inventory of new homes available since 2011. Strict mortgage credit requirements and an elevated national unemployment rate contributed to the lower rate of home value appreciation and higher inventories of new homes.

The good news: New home sales increased by 12.90 percent year-over-year in July.

Existing Home Sales Rise: Steady Mortgage Rates, Rising Rents Cited

The National Association of REALTORS® reported that July sales of previously-owned homes rose from June’s revised figure of 5.03 million sales to 5.15 million sales and achieved the highest reading for 2014.

The existing home sales readings are calculated on a seasonally adjusted annual basis. Existing home sales were 4.30 percent lower than for July 2013, which had the highest reading for existing home sales in 2013.

Lawrence Yun, chief economist for the NAR, said that a growing inventory of available pre-owned homes for sale and strengthening labor markets contributed to sales growth. Mr. Yun said that July’s pace of sales was expected to continue based on mortgage rates holding steady and rising rents for apartments.

The inevitable rise of mortgage rates and increasing home prices were cited as factors that could cool existing home sales in coming months. With the Fed scheduled to complete its asset purchase program in October and changes to the Fed’s target federal funds rate expected within months, mortgage rates are expected to rise. Affordability looms as an obstacle to sales; home prices continue to rise as wages grow at a slower pace than home prices.

The national median price for existing homes was $222,900, which was a year-over-year increase of 4.90 percent. This was the 29th consecutive month for year-over-year price gains for existing homes. The inventory of existing homes for sale increased by 3.50 percent to 2.37 million available homes and represents a 5.50 month supply. Unsold inventory of existing homes is 5.80 percent higher year-over-year. As compared to July 2013′s reading of 2.24 million available pre-owned homes.

Homes sold through foreclosure or short sales have steeply declined from 36 percent of existing home sales in 2009 to approximately 9 percent in July and were down from 15 percent of existing home sales in June.

What’s Ahead For Mortgage Rates This Week – Aug 25, 2014

Whats Ahead For Mortgage Rates This Week Aug 25 2014Last week’s economic news brought several reports related to housing. The National Association of Home Builders (NAHB) Wells Fargo Housing Market Index for August rose by two points to 55, which was its highest reading in seven months.

Components of the NAHB HMI include builder surveys on conditions related to upcoming sales of new homes, which rose by two points for a reading of 65. Builder sentiment concerning present sales conditions also rose by two points to 58.

Builder views on prospective buyer traffic rose from 39 to 42. Readings above 50 indicate that more builders viewed housing market conditions as positive as negative.

NAHB cited job growth and low mortgage rates as conditions driving higher builder confidence in market conditions.

Housing Starts, Building Permits Up in July

According to the Commerce Department, housing starts and building permits rose in July. Housing starts increased to 1.09 million from June’s reading of 945,000 and exceeded expectations of 975,000. This reading reflects higher builder confidence and could contribute to easing demand for housing as new homes expand the inventory of available homes.

Construction of single family homes accounts for about 75 percent of new home construction. July’s reading was 656,000 single family housing starts on an annual basis. Regionally, housing starts declined by 25 percent in the Midwest, but rose by 44 percent in the Northeast, 29 percent in the South and 18.60 percent in the West.

Building permits issued in July rose to an annual rate of 1.05 million, which was an increase of 8.10 percent over June’s reading of 973,000 permits issued. Permits for single family homes increased by 0.90 percent to a reading of 640,000 permits annually.

July’s readings for housing starts and building permits are in line with overall economic growth and suggest that housing markets may improve in coming months as the supply of new homes increases.

Let’s add more icing to the cake. The National Association of REALTORS® reported that existing home sales rose to 5.15 million on a seasonally adjusted annual basis against predictions of 5.00 million existing homes sold and June’s reading of 5.05 million sales of previously owned homes.

Mortgage Rates Fall, FOMC Minutes Indicate Economic Improvement

Freddie Mac’s weekly survey of mortgage rates reported that average rates fell across the board: The average rate for a 30-year fixed rate mortgage dropped by two basis points to 4.10 percent with discount point lower at 0.50 percent.

The rate for a 15-year mortgage dropped by one basis point to 3.24 percent with discount points unchanged at 0.60 percent. The average rate for a 5/1 adjustable rate mortgage dropped by two basis points to 2.95 percent with discount points unchanged at 0.50 percent.

The Federal Open Market Committee (FOMC) of the Federal Reserve released minutes from its July meeting. Highlights included the committee’s 9-1 vote in favor of continuing the slow pace of reducing economic stimulus.

The minutes indicated that the committee intends to keep the federal funds rate below normal levels for “some time.” Previous FOMC statements have consistently indicated the Fed’s intention to maintain very low short-term interest rates after asset purchases under QE3 end in October, but FOMC has not released a specific time frame or details of its intentions concerning the federal funds rate.

The Fed acknowledged economic improvements, but cited lingering concerns over unemployment, which remains higher than average.

More Good News: Jobless Claims Lower, Economic Indicators Up

Weekly jobless claims fell to 298,000, lower than expectations of 300,000 new jobless claims and the prior week’s reading of 312,000 new claims. Leading economic indicators (LEI) rose by 0.89 percent in July after increases in May and June. Analysts interpreted this reading as a further indication of stronger economic conditions.

What’s Ahead

This week’s scheduled economic reports include New Home Sales, the Case-Shiller Home Price Index and FHFA House Price Index. General economic reports include the Consumer Confidence Index and the University of Michigan Consumer Sentiment Index. It will be interesting to see whether consumer views of the economy are consistent with recent economic improvements.

The 5-Minute Guide To Flood Insurance: What It Is, How It Works, And Whether You Need It

The 5-Minute Guide to Flood Insurance: What It Is, How It Works, and Whether You Need ItYou’ve got house insurance, and assume your property is covered for any type of detrimental occurrence that can possibly take place.

However, not all homeowners are aware that home insurance policies don’t necessarily cover damage related to a flood, as the risks are too great. As a result, homeowners must purchase flood insurance through a private company.

Floods are one of the most common hazards in the US, costing billions of dollars in damage to properties every year.

Since this is a common issue lately, the federal government updating these policies currently so please talk with your real estate professional or local insurance company for the most up to date information.

What Is Flood Insurance?

Flood insurance policies are typically made available to homeowners in flood-prone areas. The majority of insurance policies cover some form of water damage, from things like leaking faucets to bursting plumbing pipes.

However, such policies don’t cover water damage as a result of flooding of rivers or sewers that cause water to ruin a home.

Specific flood protection is provided by the National Flood Insurance Program (NFIP), which is run by the Federal Emergency Management Agency (FEMA). Standard flood insurance policies cover “direct physical damage” to a property resulting from floods.

A separate policy must be purchased to protect the belongings inside the home or building. Homeowners can buy up to $250,000 in coverage for the home, and up to $100,000 in coverage for possessions. Even renters are permitted to purchase flood insurance to cover their possessions.

How Does Flood Insurance Work?

Flood insurance isn’t sold by FEMA directly, but rather is sold to customers through private insurance agencies. Premium rates are determined by the government, and they remain consistent from one insurer to the next.

How much a homeowner pays for their own specific flood insurance depends on a number of factors, including how prone the neighborhood is to floods and how much coverage a homeowner wants. The average annual premium is approximately $520 for $100,000 worth of coverage for a property with no basement, and approximately $615 annually for a property with a basement.

Filing A Flood Insurance Claim

The claims process is like any other insurance claim. Once the claim is filed, the damage will be analyzed by an adjustor assigned by the insurance company. A “proof of loss” form will need to filled out and submitted to the insurer within 60 days of the flood occurrence.

Do You Need Flood Insurance?

It’s necessary to find out if you are eligible for flood insurance before buying it. For residents of a community to be eligible, the community needs to enforce floodplain statutes to lessen the chances of flood damage, after which FEMA ensures that such regulations are followed.

Only those who reside in a community that participates in NFIP can buy insurance – today, about 20,000 communities across the country participate in this program.

FEMA offers maps that outline what areas are at high risk for floods, and those that are at moderate-to-low risk. The law requires homeowners to have flood insurance if the properties are located in a high-risk zone and have a federally-backed mortgage. This is because properties located in these high-risk areas have a 26 percent chance of suffering flood damage during the 30 years that it would take to pay off a mortgage.

Homeowners are not required to buy flood insurance if they reside in a moderate-to-low-risk zone, though it may be a good idea to purchase it anyway. Properties outside the high-risk areas make up over 20 percent of NFIP claims. Homeowners in these areas can purchase up to $200,000 in flood insurance.

The bottom line is, even if you don’t necessarily live in a high-risk zone, this doesn’t mean your home won’t ever get flooded. Many conditions can result in flood damage, including clogged drain systems, flash rainstorms, and damaged levees.

Saving the Best for Last: Why You Want to Save the Best Rooms in Your Home for the End of the Showing

Saving the Best for Last: Why You Want to Save the Best Rooms in Your Home for the End of the ShowingDo you remember when you were buying your first home?

You may have looked at dozens before you settled on the perfect home for your family to live and grow in. Perhaps another home came in a close second, but you ultimately settled on that house or apartment – the one you’re now selling.

Chances are you don’t remember anything much about most of the homes you viewed, and the things that stand out are the best (that bedroom with a fireplace!) or as bad as they can be (remember the sofa placed over the cigarette burn in the carpet?).

When you’re staging your own home and giving tours to prospective buyers, it’s important to give them something to remember, and saving the best for last is one way to do it.

First In, First Out

When it comes to memories, older isn’t necessarily better.

In fact, research shows that the brain clears out older memories to make room for new ones. That’s why what you did today is fresh in your mind, but things get hazy when you think about last week or try to remember life as a child.

If you show off the best rooms in the house toward the end of the tour, it will stick in the buyer’s mind after she leaves.

Just like you make sure the first impression is good – this is known as ‘curb appeal’ – you’ll want to end on a high note. This helps sell your home faster.

Doorway To The Mind

Entering a new room causes you to forget why you’re there in the first place. Researcher Gabriel Radvansky from Notre Dame completed a year-long study about this phenomenon, which is also known as ‘event boundaries.’ In essence, your brain compartmentalizes data to a specific location.

When you’re indoors, the walls around you literally become mental boundaries. As soon as you step through a doorway, you forget that you meant to put the phone back on the hook. For home buyers, every new doorway acts as an event boundary.

If you put the bedroom with the fireplace or the outdoor jacuzzi in the first half of your tour, buyers will walk through a lot of doorways after seeing some of the best parts of your home.

Every doorway is an opportunity for their brains to forget something that might help you when it comes to getting the sale closed. Put fewer doorways between the strongest architectural or design features and the end of the tour to make the biggest impact.

If you have further questions about staging, contact your real estate agent today for advice and strategies.

Home Buying Tips: Three Items to Watch out for in a Purchase Agreement Contract

Home Buying Tips: Three Items to Watch out for in a Purchase Agreement ContractThe purchase agreement is a vitally important document that outlines the provisions, terms and conditions for the transfer of property.

It should be read carefully and any ambiguities should be clarified prior to signing. It is a legally binding contract between the buyer and seller.

The purchase agreement may vary depending on the location. Most real estate agents use a form that has been approved by a state Realtors® Association.

The seller may have a different version that was drawn up by an attorney. It should not be assumed that they are all the same.

Typically, the purchase agreement will include an inspection period. This allows the buyer time to verify the conditions stated on the purchase agreement. Three of the most important stipulations in the contract are listed below.

All Owners Must Sign the Purchase Agreement

In most cases, the purchase agreement should be signed by the legal owner of the property.

If there is more than one owner, each owner should sign the agreement. In many states, both parties in a married couple have an interest in a property even if the title is held in one party’s name alone. Therefore, the purchase agreement should be signed by both parties of a married couple.

In the event the property is being sold by a corporation, verify that the person signing the agreement is authorized to commit the corporation to the sale.

List All Fixtures to be Transferred with the Sale

The purchase agreement should list all items that are to convey with the property. “Fixtures” are considered items that are attached to the property.

Legally, they should be included with the sale, but more than a few buyers have been dismayed to find the property stripped of countertops, appliances and window coverings. Any fixtures and personal property that are part of the sale should be included in the purchase agreement.

Verify Zoning Ordinances

The purchase agreement may contain various stipulations. One should include the right to cancel the contract if zoning prohibits the use of the property as planned.

Zoning ordinances may restrict the use of buildings or land. This may prove to be an obstacle for someone who intended to include a workshop on the property. The buyer should be able to withdraw from the contract if they discover that zoning prohibits the intended use.

These agreements can be complicated, so be sure to check with a local real estate agent if you’re unsure about how to proceed.

Selling Tips: Four Surefire Ways to Irritate Potential Buyers and How to Avoid These Costly Mistakes

Selling Tips: Four Surefire Ways to Irritate Potential Buyers and How to Avoid These Costly MistakesIrritating any potential buyers is the last thing you want to do when selling a house because it is can be a challenging and sometimes lengthy process.

The buyer is going to have a wide array of options when deciding on a new home, so they have no problem going somewhere else if they see something they do not like.

While there are a plethora of ways for a seller to irritate a potential home buyer, these are the four most common – and most costly.

Pricing The House Too High

There is nothing worse you can do when trying to sell a home than pricing it too high. While you may think that it gives you room for the buyer to counter at a lower price, they are more likely to simply ignore your listing entirely even if the home is a good fit. The best way to keep this from happening is by pricing your home in the same price range as the rest of the neighborhood.

Not Making Home Repairs

Buyers are going to be immediately turned off if they walk into the home and see a state of disrepair. Not taking the time to make small visible fixes is going to make the buyer think that the house is going to have major issues. Taking the time to get the house in great shape before showing it at an open house will ensure the house sells faster.

Leaving Your Stuff Everywhere

Buyers want to feel like they could move into the house as soon as the purchase is finalized. They also want to envision themselves living in the home, and this is almost impossible if you have your personal items throughout the house. This is more difficult to pull off when selling a home you are currently living in, but it is best to stage the home with as few personal items as possible.

Getting Emotionally Invested

While you may have lived in your house for years, you have to drop any emotional attachment to the home the second it hits the market. You can’t take it personally if the buyer wants to make a major change to the house after the purchase. Their idea of a perfect home is not going to be the same as yours. The best way to make sure you do not insult the buyer when they bring up their vision of the home is by letting your agent handle home viewings. If you have become too attached to your home or are guilty of any of the other three things on this list, then you make sure they are corrected before your next open house.

What’s Ahead For Mortgage Rates This Week – Aug 18, 2014

What's Ahead For Mortgage Rates This Week Aug 18 2014Last week’s economic news brought little housing-related content, but several economic reports in other sectors contributed to overall perceptions of the economy.

In a speech given in Sweden, Fed Vice President Stanley Fischer noted that the economy might be in a period of “secular stagnation.” This condition is expected to keep interest rates low for longer than expected.

A survey of small business owners showed that confidence increased by 0.70 in July. Job openings for June increased from 4.60 million to 4.70 million. Readings for several reports fell shy of expectations and new jobless claims were higher than expected.

Economic Readings Lower Than Expected, Weekly Jobless Claims Rise

Retail sales for July were flat and fell shy of June’s reading of 0.20 percent, which was also the expected reading for July. Retail sales except autos were also lower in July with a reading of 0.10 percent against the expected reading and June’s reading of 0.40 percent.

Weekly jobless claims were reported at 311,000 against expectations of 300,000 new claims and the prior week’s reading of 290,000 new jobless claims. According to the U.S. Department of Commerce, this was the highest reading since June.

New jobless claims were close to pre-recession levels which suggested a slower pace of layoffs. The four-week average of new jobless claims, which presents a less volatile reading than for weekly reports, rose by 2000 new jobless claims to a reading of 285,750.

Mortgage Rates Lower

Freddie Mac’s weekly survey reported lower mortgage rates last week. Average rates were as follows: 30-year fixed rate mortgages had a rate of 4.12 percent and were two basis points lower than the previous week.

Discount points averaged 0.60 percent against the prior week’s reading of 0.70 percent. The average rate for a 15-year fixed rate mortgage was 3.24 percent as compared to the prior week’s reading of 3.27 percent. Discount points were unchanged at 0.60 percent.

The average rate for a 5/1 adjustable rate mortgage dropped by one basis point to 2.97 percent with discount points unchanged at 0.50 percent.

A couple of good news bytes from last week included an increase in small business sentiment in July. The National Federation of Independent Business Index for July increased from June’s reading of 95.00 points to 95.70 points.

The federal government also reported that job openings increased from 4.60 million in May to 4.70 million in June.

What’s Ahead

Several housing-related reports are set for release this week. The National Association of Home Builders (NAHB) will release its Home Builder Index for August, which measures builder confidence in market conditions for newly built homes.

The Department of Commerce will release Housing Starts for July, and the National Association of REALTORS® will release its Existing Home Sales report for July. The Federal Open Market Committee (FOMC) of the Federal Reserve will release the minutes of its most recent meeting on Wednesday; this could provide details concerning the Fed’s recent monetary policy decisions, which include the wind-down of asset purchases under the current quantitative easing program.

Six Key Questions to Ask when Hiring a Real Estate Agent to Market and Sell Your Home

Six Key Questions to Ask when Hiring a Real Estate Agent to Market and Sell Your HomeThe work of a real estate agent can make or break how a prospective buyer feels about the property. Now that it’s time to sell your home, you want to find the right agent to market it.

How do you find someone you can trust who will make you feel confident they can sell your home quickly for the best price possible? Here are the questions you should be asking.

Are They Licensed?

This one is the easy one. You should be working with a member of the National Association of Realtors®. It is also important that you check whether they have any complaints on record about their practices.

You can check with your state’s real estate department as well.

Are They Successful?

A successful real estate agent is more than the number of sales they have completed. You should also find out the average difference between listing and selling prices on their most recent sales.

If an agent is closing deals at far below the original asking price consistently, that might be a red flag.

How Busy Are They?

Make sure you ask in advance how often the agent will contact you and how they will keep you informed of potential buyers. If you’re going to be working with one of their associates at times, you should know.

How Familiar Are They With Your Neighborhood?

A real estate agent is not just marketing your home – they’re marketing your entire community. If they have closed nearby sales before, they are familiar with the selling points of the neighborhood as well as the right price range for properties similar to yours.

How Much Commission Do They Expect?

Normally you will pay the agent about 6 percent of the sale price. If you find one that offers their services for a low percentage, you should know why. Are they just trying to stay competitive? Or do they expect you to do a large share of the marketing yourself?

Do They Have A Plan?

The real estate agent should be able to tell you exactly which marketing techniques they would use for your home and how they plan to promote the listing. They should come to the table with ideas from the very beginning.

Now that you have a clearer idea of the basics, use the internet to find trusted real estate agents in your area. Then pick up the phone and begin your journey toward becoming a successful home seller today.

Considering a Major Home Addition? Why a Detached Garage Can Drastically Improve Your Resale Price

Considering a Major Home Addition? Why a Detached Garage Can Drastically Improve Your Resale PriceBefore you make a major structural change to your property, it is important to consider how this will affect your resale value. While there are many steps that you can take to improve your property, the addition of a detached garage may be beneficial to you and may drastically improve your resale price when you are ready to sell.

You can contact a trusted real estate agent today to obtain customized information about how the addition of a detached garage may affect your property’s value.

Adding Square Footage to Your Home

As a property owner, you may be well aware that one of the most common ways the value of your property is determined is by the market rate for price per square foot of homes in the area.

While factors such as age of the property, condition of the property and amenities in the neighborhood may affect whether your property’s price per square foot is above or below market average, the kind of the improvements has a direct impact on property value.

While adding a detached garage adds overall square footage to the property, it generally won’t be considered at the same rate as finished square footage within the home.  However, outbuilding improvements do add value to your property and a real estate agent can help you to determine the true financial gain you may experience through this addition.

Increasing Appeal to Potential Buyers

Properties that are more appealing to potential buyers may sell for a higher price. When you add a detached garage to your property, you may be adding style and function to the property by adding a place to park vehicles and to store items like seasonal items and lawn equipment. You can also create a detached garage with a workshop or another functional area for added appeal.

Transforming Existing Space

Some home additions will add a detached garage to a property because a garage was never constructed on the property, but others will be added because the homeowner wants to transform the existing garage attached to the home into a more functional area. For example, a new home addition, may turn the existing garage into a living room, a bedroom or another functional area. With the addition of a detached garage, the property owner can retain the benefits of having a garage while also improving the functional use of the main area of the home.

The addition of a detached garage can benefit you and your family in a number of ways, and it can also improve the resale value of your home. By speaking with a real estate agent, you can get a better idea about how this addition will affect your property.