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Frequently Asked Questions


BUYING

SELLING
GENERAL

BUYING

How do you know "how much" house you can afford?

There are several ways to gauge how much you can afford to spend on a house. But, before you go house-hunting, get pre-qualified for a mortgage so you'll know in what price range you can shop.

It is not unusual for first-time buyers to be somewhat baffled about how to estimate what mortgage payment they will be able to handle each month, plus how much money they'll need for a down payment and closing costs.

That's why it is a good idea to get pre-qualified through a lender before you even start to look for a home. Pre-qualification lets a buyer know exactly how much a lender is willing to loan them. Obviously, with pre-qualification in hand, the buyer can save a lot of time-and frustration. Pre-qualification does not obligate buyers to take a loan from the lender, nor should it involve any fees (until later, when they actually apply for the loan).

At the same time, you must understand that pre-qualification is not pre-approval for a loan either which is a much more involved formalized process that results in an actual letter of credit from a lending institution for a specific loan. Depending on your unique circumstances, you may wish to consider pre-approval as an option, but it is not necessary-consult with your real estate professional to decide what's right for you.

The less formal process of pre-qualifying on the other hand is a tremendous tool for buyers to have when making an offer. Usually, pre-qualified buyers have an edge when making a purchase offer because the seller knows that the buyer is pre-qualified, and that there is at least one lender ready to make it happen.

In addition, it allows you the flexibility to choose the mortgage that is best for you at the time of actual purchase-which is sometimes months down the road. That can be important given the volatility of interest rates.

When a lender pre-qualifies, they are more concerned about the buyer's paying ability than the price of the property. For this reason, lenders are interested in more than just a buyer's income. They also want to know how much existing debt a buyer has, what their on-going financial obligations happen to be, and what the buyer's monthly budget looks like.

Lenders use an established debt-to-income ratio, usually between .28 to 1 and .38 to 1, to calculate the amount of the loan they are willing to give to a buyer. For instance, a lender who uses a .3 to 1 debt-to-income ratio has determined that payments toward debt reduction-including existing debt plus new debt associated with buying a home-cannot be more than 30% of they buyer's gross monthly income.

An important factor that may influence a lender to authorize a loan with a higher debt-to-income ratio-(where debt payments take a higher percentage of a buyer's income)-is a larger down payment. Buyers who put a larger percentage of the purchase price down (5%, 10%, 15%, 20%, etc.) are considered better "risks," because the theory is that the more a person has actually invested in the purchase, the less likely they are to default on the loan.

Buyers usually discover that the pre-qualification process will produce a home purchase price that is roughly 2 1/2 to 3 times their gross annual income. The 2 1/2 -to-3 guideline is only a general rule of thumb, however, and it doesn't take a buyer's full financial situation into consideration. Since the lender's calculations will also consider a buyer's actual debts and ongoing expenses, the loan pre-qualification amount may be higher or lower.

Regardless of the price bracket a buyer targets, they should keep pre-qualification in mind.

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How much should you budget to own your own home?

Aside from the down payment, the three largest expenditures involved with the purchase of a home are usually your monthly mortgage payment, insurance and taxes. Obviously, the amount of your mortgage payment depends upon your down payment, rate of interest and the price of the property.

Take, for example, a home that has a $100,000 mortgage. An 8% fixed mortgage for 30 years, will run approximately $734 per month. What about taxes? The rate will oftentimes vary from city-to-city, but generally you might expect your yearly tax bill to total around 2% of the purchase price.That means, for a home with a market value of $100,000, yearly taxes might run around $2,000. A local real estate agent can help prospective homeowners refine these figures.

In addition, it is important to keep in mind that there are many additional expenses incurred with home ownership, some of the most obvious are utilities and trash collection. Smart homeowners should also budget for one other item--maintenance and upkeep of the home. If possible, a small amount should be set aside each month to pay for those "rainy day" repairs such as painting, plumbing (hot water heaters, garbage disposals), adding storm windows (to improve energy usage), insulation (in attics), etc. And, if you live in a home long enough there are inevitable repairs-e.g., the cost of roof replacement.

But home ownership is not just a one way street-that is, aside from spending money on repairs and maintenance, homeowners can profit from their property. The most significant benefit is the tax deduction. It is no secret that among the last real income tax deductions available to consumers today are the interest paid on the home loan, and the property taxes. This can amount to thousands of dollars in deductions each year.

And, of course, the primary benefit of home ownership is appreciation-equity that builds every month. A home, aside from being a place that provides shelter, can be a profitable investment, and the rising value of the property oftentimes provides another "savings" account.

So, when it comes to buying a new home, remember one thing...the purchase of a property requires budgeting and planning-but it can also provide the buyer with a long-term investment and a return that is hard to beat.

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How do you go about finding a mortgage?

The commotion of house hunting is finally over. You found just the right house, and your offer has been accepted. It was a great buy. Now, just one more hurdle-getting a loan-and you're home free.

Often, buyers are so eager to get this "final detail" behind them, they rush through this portion of the transaction, and end up with less-than-ideal terms. Borrowers, however, have something lenders want-their business. This positions them to negotiate the best possible price (cost of loan), terms and service.

Let's look at price, or the cost of the loan. The first thing to do is find out what the current rates are, information readily available in your newspaper or from your real estate agent. When comparing rates, figure the annual percentage rate (APR), which includes interest, extra fees and costs amortized over the life of the loan. Also determine the number of points, if any, that the lender will charge to make the loan. (A point is equal to one percent of the loan amount.)

Next, consider what loan options the lender offers. There are six or seven basic types of loans, which vary in their duration. Check how rates are calculated (fixed versus variable), and whether charges are fully amortized over the life of the loan, or whether you'll have to pay points up front and/or balloon payments at the end. Is there a prepayment penalty clause?

Which terms are best for you depends on such factors as what changes you expect in your income, how long you plan to own the home, and what you predict will happen in loan rates in the years ahead. For example, if you only plan to reside in the home for a year or two, starting with a lower Adjustable Rate Mortgage (ARM) might be the best choice. If you have no plans to move, and feel that inflation will rise rapidly, a fixed rate would obviously be better.

Finally, and perhaps most importantly, consider speed and service. Buyers shouldn't have to wait days for approval and weeks for closing just because the lender is slow.

Remember, qualified buyers are great prospects for lenders-so give your business to the lender who demonstrates they not only want it, they deserve it.

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How difficult is it to qualify for a mortgage if you have a past credit problem?

Credit problems can make it harder to qualify, but it's quite possible for buyers with poor credit to obtain a home loan.

Anyone who has had a financial problem-whether it was a matter of late credit payment, delinquent taxes, or even a judgment that was filed-should expect this data to be a factor when applying for a mortgage.

How critical a factor? Minor lapses will probably have little or no effect. However, buyers with serious problems may still qualify for a loan, but they may have to pay a higher rate of interest or provide a larger down payment.

There are three steps that a person with past credit problems should take before applying for a loan. First, request a credit profile from one of three major credit reporting agencies. In fact, it's best to request a report from all three, since not all creditors report information to the same agencies. TRW will furnish a complimentary copy once a year on request, at (800-392-1122), Equifax (800-685-1111) and Trans Union (800-408-1050) will also furnish reports for a nominal charge.

Second, the buyer should optimize his or her credit profile by citing prompt payment of rent, utilities, and other bills not reported on the credit profiles.

Finally, the buyer should be prepared to provide comprehensive and candid explanations for any late payments to the loan officer. This is important because problems not reported by the buyer but discovered by the lender will reflect unfavorable.

Many lenders are understanding about one-time problems such as the loss of a job, a medical emergency, etc. Buyers with patterns of delinquent payments might want to consider adding six months or a year of flawless credit to their track record before pursuing their home-buying plans. Discuss this with your real estate agent. They can offer excellent suggestions.

So remember-if you are thinking about purchasing a home, but are worried about your past financial record-don't give up. There are solutions, lenders and agents who are in business to help.

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What are the five most common mistakes made by first-time buyers-and how can you avoid them?

A good home-buying decision is one that fits your lifestyle and your budget-a house you'll be able to resell when the time is right. Sound simple? Not always. Here are five common mistakes frequently made by first-time buyers-and how to avoid these pitfalls.

  1. Looking outside your price range. To avoid disappointment, contact a real estate agent who can help you pre-qualify before you start looking for a home. The agent can also provide valuable insight on taxes and other expenses associated with a home (utility bills, etc.)
  2. Buying on impulse. Buyers-especially first-timers-may be impressed by the first two or three homes they view. Look at a good selection. List the positives and negatives. Narrow the prospects to three or four, and then return for a closer look. Evaluate more than just the property. Look at the surrounding area and community amenities. Is this what you-and your family-want and need?
  3. Not planning ahead. Think seriously about any personal changes you are planning in the next five to seven years. For instance, if you are planning on having children, consider how the home will meet both your current and future needs. If a double-income is necessary to qualify for financing-and make your payments-do your plans foresee an income sufficient to continue making payments?
  4. Failure to focus on location. Don't just focus on the house, examine the neighborhood. Is the area safe, well-maintained, moderately quiet and close to work, stores, and schools? Find out about zoning and what new construction is planned on any vacant land in the immediate neighborhood. Will the property be easy to market when you are prepared to sell it?
  5. Failure to understand the home buying process. Once you select a home, get involved. Find a real estate agent willing to spend time with you, and don't hesitate to ask questions. Have them explain the negotiation, financing and escrow processes and other elements involved in the transaction. Home-buying involves knowing the price, and what's inside and around the property. Consider all your options carefully. This may be the most important financial transaction of your life.

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What's the real difference between a new home and an old one?

While each offers its own style and charm, the difference usually boils down to two things: (1) how the home fits into the buyer's lifestyle; and, (2) the condition of the property.

Homes that are 10 years old or less are generally better insulated-or have dual-glazed windows or thermal panes-which translate into lower heating and cooling bills. And, in today's rising energy cost environment, these considerations are significant. Although there are some exceptions, homes that have been built with all-electric systems, generally have higher utility bills.

Homes that range between 15 and 20 years old may be in need of new water pipes, especially if the old ones were galvanized and if a water softener was used. Water softeners and galvanized pipe can be deadly and, after 15-20 years, re-plumbing is usually required. Have a plumber or general contractor inspect the pipes. Needless to say, it can be expensive to re-plumb an entire system.

Check the built-in fixtures and appliances for any signs of damage. Flush toilets, test all the water taps and the electrical sockets, open and shut the windows, and try all the lights. A window that will not open may be a sign of a more significant problem-for example, a wall may have shifted, or worse yet, it could indicate a problem with the foundation itself.

It is also a good idea to ask the seller for copies of past utility bills. Examine them for some insight into what you can expect monthly gas and electric costs to be.

Although newer homes may be free of significant physical or structural problems, there are other things to consider in making your decision. Generally, room size and yard size tend to be smaller in some newer homes. While, on the other hand, they usually offer the benefit of the latest building and design technology. Many new homes also have more windows and natural light incorporated into their design plan, allowing for a more spacious feel and efficient energy usage.

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Should a buyer get a professional inspection for the home they are buying?

Definitely. Hiring a professional home inspector can save a great deal of grief for buyers. The one exception would be when the home is new and carries a written warranty by the builder.

Many buyers mistakenly believe that the only reason to have a home inspection is to make sure that the house they're buying doesn't have defects serious enough to warrant backing out of the transaction. But there's more to it than that.

Certainly, an inspection will usually reveal major problems that may even surprise the seller. The obvious ones are corroded plumbing, antiquated and unsafe electrical systems, or structural and foundation problems. And, the discovery of such problems may cause the buyer to re-think his or her offer.

Although a competent inspector can uncover deal-crushing defects, these problems are usually not commonplace. Typically, the seller will already have told the buyer about anything major. More often, inspections reveal less serious problems; problems that may not be serious but can be aggravating.

For instance, there could be a minor electrical defect, or inferior ventilation of a heating system or fireplace. If so, the buyer is usually in the position of having the purchase price reduced, or the defect corrected. More important, it also prevents the minor problem from developing into a major disaster a year or two down the road.

There is, of course, the possibility that the home inspection will produce another outcome: everything is fine. In this case, they buyer gains piece of mind, confident about the major investment he or she is about to make. That, too, is an enormous benefit for the cost of the inspection.

Now, how does a buyer find a home inspection? By asking their real estate agent, friends, or lender. Inspectors are also listed in the Yellow Pages under "Home Inspection Services." But, a word of advice-don't hire a contractor. Contractors earn their living doing repair and renovation work, so their recommendations aren't likely to be as objective as those of a professional inspector.

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Is real estate a wise investment?

In the long run, there are fewer investments that have shown a better return.

However, the key to investing wisely in real estate is understanding how the industry differs from others. For example, when the defense industry dips, it usually shows a national decline and the stock prices of defense-oriented firms drop across the board. The same is true of most industries. They are impacted nationally.

That is not the case with real estate, which is actually an industry and investment driven by local conditions. One community may suddenly lose a manufacturing facility, and almost overnight the market is flooded with properties for sale. An excellent example is southern California. Several years ago, when defense cutbacks began an excess of homes went up for sale, increasing the supply and lowering demand. There, it was a buyer's market. At the same time, Bakersfield, a community less than 150 miles from Los Angeles continued to experience high demand for real estate. With supply short, it was a seller's market.

Obviously, the key to successful real estate investing, like stocks and bonds, is to buy low and sell high. But, how do you know when the "low" has been reached? Or, for that matter, how can you judge when your property may be peaking in value?

Some investors rely partially on the media. They read the daily newspaper, watch television and follow the trends. Although the media provides a good deal of information, remember that by the time things are printed or broadcast, the news may be old. For instance, you will find statistics frequently quoted in the media that have been supplied by the National Association of REALTORS (NAR). But, NAR statistics-like most-tell you where things have been, not where they are going.

So what can you do? First, check local economic indicators. If, for example, a community depends on defense spending, and there is a government cutback, you can be assured that your area will be impacted. Even if the community does not have a major defense contractor, it may have subcontractors.

The local chamber of commerce can frequently help. They usually have information on which companies are moving in and out of an area. Logically, the relocation of a firm into a community generally indicates that demand for real estate in that marketplace will increase-while if firms are moving out of the area, housing demand will often shrink.

Aside from economic indicators, check real estate trends and cycles. Talk to a real estate agent. They can provide statistics on how quickly homes have sold, how prices have fluctuated in the past six to 12 months, and projections of future home sales. They can show you how today's market compares to last year's. Are sales headed up? Down? The same?

The answers will not only help you determine what the market is like in your area, but they will also be critically important in helping you determine when-and where-to make your real estate investment.

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Does a home warranty protect a buyer in the event something goes wrong after they have purchased a property?

Sometimes.

That's because home warranties are oftentimes misunderstood-and not every warranty provides the same protection. All warranty companies are not equal, either.

Warranties, of course, were designed to protect buyers from problems that emerged after they moved into a dwelling. For example, if a major appliance breaks or the roof leaks, the ideal warranty kicks in and pays for the repairs.

On the surface, this sounds simple and straight-forward. But, most of the time it is not.

First, all warranties differ. Aside form the obvious differences-the amount of deductible required-they may also vary insofar as what is covered and what is not. For instance, with some warranties if the hot water heater works on the day of closing, but suddenly does not work six months later, then it may be covered. And, with other policies if the water heater was not in good working condition when the home was purchased, and it breaks a week or two later, there is no coverage.

Complex? Confusing? It can be. Even though the language in the warranty must spell out exactly what's covered, it isn't always the easiest document to understand. Thus, step one in evaluating any warranty should be to take it to your attorney to help you decipher the legalese. It may be well worth the hour or so that it will cost you in legal fees.

Next, is the warranty company financially sound? In many states, warranty companies can be doing business, despite the fact they do not have the funds to back up their policies. Thus, step two when evaluating a warranty is to take the policy to your accountant or a local CPA. Have them check out the warranty company's financials. Can they pay the claims?

Warranties can be critically important when it comes to new construction, too. Obviously, the reputation of the builder is an important consideration. However, problems with new homes can be enormously expensive if they are not covered by a warranty.

There are two types of defects when it comes to new homes-patent or latent. Patent are those problems which can be seen. Cracked plaster, a fence that is off-kilter, etc.

Latent problems develop later, and may not show up for five or six months. Ground shifting, for example. Latent problems are usually more expensive than patent problems. Thus, the warranty for a new home can be one of the most important documents executed during the buying process.

Whether you're purchasing a new home or a resale, remember that warranties definitely have a place when it comes to protection and peace or mind in the real estate transaction-but make sure that you check them out carefully.

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Is a pre-closing inspection -- that is, an inspection of the property by the buyer before they move in -- really important?

Yes, it is. The intent of a pre-closing inspection is to give the buyer one last opportunity to verify that they are getting all that was promised in the sales contract. Although buyers still have legal recourse if they discover-even after closing-that the condition of the home is not as it should be. The best time to identify problems is before closing, when the seller will be motivated to correct any deficiencies in order to close the transaction.

Typically, a buyer takes possession of a property one to three months after signing the sales agreement. But, a lot can happen before the actual move-in. Appliances and fixtures can break down, and walls, carpets and doors can be damaged during the seller's move-out. Sometimes the seller will simply have forgotten that he or she had agreed to leave the refrigerator or window coverings with the house. Whatever the reason, problems identified before closing have the best chance of being remedied.

If possible, schedule the inspection right before the closing, such as the day before. Ask your real estate agent to attend the inspection with you. What should you be inspecting? Using a copy of the sales contract as a checklist, first make sure that all items that should be in place (appliances, built-in furniture, window coverings, fixtures, etc.) are there.

Test each appliance to make sure they work properly. Bring along an electrical clock or radio to test each electrical outlet. Test all electrical switches and the garage door opener, if there is one. Run the garbage disposal and turn on every water faucet, checking under the sinks for leaks. Flush the toilets. Inspect the floors, carpets, walls and doors for recent damage.

If you discover that something is damaged or missing, make a note of it and inform your agent immediately. In most cases, the seller is usually able to take care of small problems immediately, either by making a needed repair or offering compensation to handle it. And, if there are major problems the seller can even sign a statement acknowledging the deficiency and agree to correct it. Although pre-closing inspections take time and may be inconvenient, they are important and well worth the buyer's time.

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What are "contingencies" and why are they important?

A "contingency," is an escape-clause that is added in-writing to a contract which allows a buyer to back out of the transaction if certain conditions aren't met.

Some contingencies, often called `riders'-like attorney approval of the contract, or the passing of a home inspection-are obviously designed to protect buyers from a poorly written contract or a defective home.

Other purchase contingencies may hinge on the buyer's current living situation, or his or her cash-flow.

For example, when it comes to contingencies many first-time buyers can be better prospects for a seller's home than move-up buyers. Why? Because offers from homeowners usually are contingent upon the sale of their present home. And, even if a move-up buyer has an offer for their home in-hand, their buyer's offer may be contingent on another contingency (or sale)-and so on down the line. If one transaction in the chain falls through, they all might.

Cash offers can also be more attractive to sellers. Why? After all, the seller will get their money at closing whether or not the buyer has cash or takes out a loan. True, but cash offers don't require lender approval, and loan approval is never a certainty-and may delay or prevent closing. (Incidentally, for this reason, buyers who get pre-qualified for a loan have an edge over other buyers. A pre-qualified buyer is the same as a cash buyer.)

Buyers offering a larger-than-customary amount of "earnest money"-(a deposit that accompanies an offer)-can be more appealing too. More money deposited along with the signed contract often demonstrates greater sincerity and motivation to close the transaction.

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SELLING

How much is your home worth?

In today's fluctuating real estate market, answering that question can be extremely complex. Generally, there are four criteria that can help homeowners determine an accurate-(as well as maximum)-selling price for their home.

The first: investigate area trends. Check with a real estate agent to determine the current selling price of homes in your area. Real estate firms generally survey properties in the surrounding areas and translate that to computerized reports divided into specific communities. Compare your home with similar homes that have sold. This should provide you with an idea of what homes are being sold for as opposed to what they are listed for.

Next, pay attention to "migration" trends and see if people (and businesses) are moving in-or out-of the area. One of the best ways to track movement is to read the business section of the local newspaper or talk to the Chamber of Commerce. If there is a lot of movement into the community, chances are home prices will be going up at a relatively rapid rate. Obviously, if there is heavy migration out, prices will be flat or could even drop.

Remember, too, that two side-by-side homes can command radically different prices. Part of the reason can be attributed to certain features that may enhance the value of the home in the buyer's eyes. For instance, older homes that have been upgraded with new fixtures, windows or room additions command higher prices than homes that remain unchanged. In many cases, with minimal expenditure, these price-enhancing features can be added and sellers can often increase the property's value by thousands of dollars. Unchangeable elements such as lot size, or single story versus two-story can, of course, impact the value of adjoining homes.

Perhaps one of the most critical elements in selling a home, is pricing. By carefully following the local real estate market, or contacting a real estate professional, not only can sellers determine the right time to sell but, most importantly, they can also ascertain the correct price to list the property at to get it sold.

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Why do some homes sell quicker than others?

They are priced right. Pricing is usually the number one determinant as to how short-or long-a home will be on the market. Obviously, the property has to be priced competitively, but do not set the price based upon what you heard a neighbor received for their home. Adjacent homes can be radically different. They both may have the same floor plans, but improvements, a more desirable location in the tract, and other seemingly small variations can make a significant difference when it comes to price.

In determining the right price, one of the most important traits you need is objectivity. Homeowners, naturally, have an emotional attachment to their home, and because of their feelings they oftentimes overestimate what their home is worth. Despite the attachment, try to be practical and logical. Make a competitive study of recent sales that are comparable to your home. Evaluate price per square foot, age, condition, location, schools, and extras.

Remember, that the value of your home can be impacted by developments that are not yet in place. Is there vacant land nearby? If so, what businesses, or structures will be erected there in the future? Is it a desirable addition to the neighborhood? If there is vacant land, visit the local planning and zoning commissions to see what might be built or, check with a local real estate professional to help you find out what development plans might be in the offing. He or she should also explain the elements that go into pricing and why. And, ask the associate about a CMA (Comparative Market Analysis) and what it means.

Remember, too, that little things can make a big difference once the home has been priced. Cosmetics are crucial. Spruce up the property as much as possible. A little exterior paint, some new shrubbery, and making sure that the house is always neat and clean can make a tremendous difference. The most important impression is the first-and the first thing buyers see is the exterior. It should look good.

To get an idea as to how price is determined, contact a local real estate professional. Ask them to carefully choose an associate who knows your neighborhood.

In today's market, there are buyers-for homes that are priced competitively. A lack of "action," usually indicates that your property is one of those that has been priced incorrectly. Most important, be objective. Try to look at your property as if you were a buyer going through it. What do you like? Dislike? How does it compare to other properties in the area? Is it worth more? Less? Answer those questions objectively and you will not only be on the way to pricing your home correctly...but to selling it too.

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Thinking about selling your home? If so, there are two ways to go about doing it -- sell it yourself or engage the professional services of a REALTOR.

Obviously, the advantage of selling the home yourself is you do not pay a commission. But, statistics show when you team up with a real estate professional, the chances of selling your home in a shorter time span (and frequently for more money) are much better.

There are pros and cons to each technique. To determine which road you are going to take, start by asking yourself one question - If you needed a medical operation would you perform it yourself, or have a professional do it for you?

Selling a house in today's market is not like it was a decade ago. The market, as well as consumers, are much more astute and the laws more complex. Liability and disclosure can complicate the sale.

Perhaps the biggest obstacle a seller faces when they decide to market their own property is emotional attachment. Many owners are blind to flaws that a real estate professional can see. And, a good Realtor goes further and recommends steps the homeowner can take to make the property more appealing-a fresh coast of paint in the kitchen, replacing a rusty mailbox, or removing clutter to make the home appear more open. The objective view can be the difference in making a sale.

An experienced Realtor can also provide a seller with a Comparative Market Analysis, so the owner knows what the home is actually worth, instead of what they feel it's worth.

It's important to interview at least three Realtors before you actually list the property. Make sure they work full-time-part-time dabblers in the profession are people you should avoid at all costs. Ask them if they have a marketing plan for your home. Inquire about the number of transactions they closed last year, and then compare those results to the other agents you have interviewed.

The decision to sell your home is one of the most important financial decisions you will make. Take it seriously.

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Which home improvements will add significant value to my property and which won't?

While some home improvements can add significant dollars to the resale value of a residence, others are barely worth the investment. So how can homeowners decide which improvements will add significant value and which won't? Here's a few tips on cost-effective improvement; upgrades that can make the difference in the sale price and add value to your property.

As a rule, kitchens and baths are the two areas that most often make the difference in a sale. They make the most impact on buyers, and definitely impact what buyers perceive the property is worth. But, kitchens and baths are not inexpensive to upgrade.

The national average for remodeling an entire kitchen is more than $20,000 with some running upwards of $30,000. Complete remodeling can include cabinets, floors, counters, sinks, appliances, lighting fixtures and new windows.

But, there's a way to put a new look on this important area without spending significant moneys. For a relatively low cost, homeowners can make spot improvements. For example, for as low as $1,000 the existing countertop can be replaced with a Formica top. For $2,500 to $3,000, the existing cabinet faces can be replaced with solid oak faces. Homeowners can buy a new sink at a home furnishing store and have a contractor install it for approximately $300 - $400. The end result is improved appearance-and usually a higher selling price for relatively minimal expenditure.

Other areas that influence price: Central air conditioning is an important feature for which buyers will usually pay extra. Room additions, on the other hand, may add value, but may not end up paying for themselves. Upgraded carpeting, top-of-the-line windows and vaulted ceilings can command higher resale prices, but it is unlikely that the seller will be able to recoup their original investment.

Existing features that have diminished with age can usually be repaired without a lot of added expense. Hardwood floors, for instance, cost $1.50 - $2.00 per square foot to refurbish, but it is a good investment because buyers are willing to pay more for the refinished appearance.

For older homes, people are more energy conscious, so improvements in the insulation of windows, doors and storm doors are smart investments.

In general, neutral, light and bright are the best rules to follow-a neutral decor, freshly painted walls and clean carpeting also help to sell a home faster.

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Is there any harm in a seller overpricing their property, and then dropping the price if it doesn't sell?

The answer is usually "yes." A high price conveys the message that the seller may not really be interested in selling. And, when a home is priced too high, agents and buyers usually just cross it off their list and move on. After all, there are plenty of other listings.

Of course, deciding the value of a home isn't an exact science, so it's understandable that a seller might put their home on the market with an asking price that is on the high side. Additionally, most of us believe that our homes are really "worth more" than the one down the block, around the corner or the one next door that was just sold. And, if we are wrong, we can always drop the price later, can't we? Yes, but by then, the seller may have not only lost potential buyers, but they may have also driven off interested Realtors-and Realtors are the prime source of buyers. Generally, they bring the buyers.

When a property is put up for sale, the first 30 days are the most critical. Statistics show that's when most buyers (and Realtors) see the property. Interest is highest at this time. But, the longer the property is on the market, the fewer the prospects (and Realtors). Thus, the initial period is critical-along with the proper pricing.

Some sellers, however, believe that if someone is really interested they will counter-offer. Some will, some won't. Some well-qualified buyers may just walk away. The bottom line is a high priced listing will turn many buyers off.

Still, a seller wants to be confident he or she is getting the best price for their home. The way to accomplish this is by talking to a real estate agent before listing the property. Ask for a comparative market analysis-that is, research what similar homes in the area have sold for recently. Compare your property to those, and have the agent help you calculate a fair market value. Be objective-even though it is your home. Remember, an over-priced listing will usually result in only one thing-an unsold property.

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If you're thinking about selling your home, how can you make it "bigger" and better looking without spending a cent?

One sure way for you house to appear larger-and more appealing-is if clutter is eliminated and furniture and household goods are reorganized.

In fact, the time to have a garage sale is before you put your house on the market, not after it is sold! When you decide to sell, start going through your closets and cupboards, eliminating items you don't want to keep. Do the same in the garage and backyard. Get rid of, or store, the odds and ends. It's interesting to note that the longer someone lives in a home, the more used to the clutter they become.

Unfortunately, closets, cupboards and garages brimming with "old treasures" make a home look small and cramped to a prospective buyer. Sellers should also carefully examine their furniture, and consign items that are not needed to the storage or the garage sale. Most homes occupied by the same owner for several years tend to be somewhat over-furnished. Erring on the side of space, not clutter, makes for a more marketable home.

Another "item" that adds to the clutter of a home are excess knickknacks. Scrutinize the kitchen for rarely used utensils/gadgets; miscellaneous items in closets and cupboards, even small furniture and throw rugs, that can be neatly stored. Pack or give away clothing that will not be worn as well.

Rearrange and organize. Remove as many articles as possible from the kitchen and bathroom countertops to the cupboards below-they'll still be within handy reach in the newly created space. Organize closets. Clear off your night stands and bureaus. Size up the arrangement of your furniture-any room for improvement there?

Examine the walls and windows. Do they need repainting or new window coverings? For some expert, objective advice, have your real estate professional go through the home. Realtors know what enhances a property's appearance -- and what hinders it. One last hint -- don't forget the outside. Sweep the garage and sidewalks, trim the lawn and bushes, wash all the windows, inside and out. It all helps to make your home look fresher, lighter-and larger.

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How can two, ten-year-old homes with the same square footage, nearly identical floor plans and only a few blocks from each other vary in price by more than $10,000?

Forgetting, for a moment, the interior improvements that set one home apart from another, there are exterior factors that also influence price. For instance, homes on primary ingress and egress streets (that is, the main streets that lead in and out of a tract) generally appreciate more slowly than those within the tract that are not on primary streets. Primary ingress/egress streets generate more traffic and are therefore, generally less desirable. Thus, they have lower prices.

Within a tract, a home on a cul-de-sac may generate a higher price for the same reason-less traffic. Cul-de-sacs are frequently like a maze and they discourage drive-throughs, which is, of course, a definite benefit to residential privacy.

Even properties on one side of a street can be worth more than a similar property across from it. Why? Certain communities, because of their name, are more prestigious than others. Beverly Hills, California, of course, is one. It is known worldwide for its high-end shopping, expensive housing and impeccable name. In sections where Beverly Hills is divided from other cities and/or communities by a street, the homes on the Beverly Hills side of the avenue command a higher price than those in the non-Beverly Hills city across from it.

Existing homes may differ radically in price for another reason-one homeowner wants to sell, and the other has to sell. The motivation for each is quite different, and so may be the pricing strategies.

Some other factors that influence price: What commercial developments are adjacent to the tract? How (un)desirable are they? And, don't forget supply and demand.

The wise buyer checks one other thing-a community's master plan. This is a must, especially if a tract (or home) is surrounded by vacant land. Most communities have one. It is usually drawn up by planners within the city of county and approved by a local planning commission. Find out what is going to be built nearby and determine how it might impact the value of the tract. A real estate agent can frequently be of assistance in this area, too.

All this, of course, takes time and homework. But, it is well worth it, especially when you consider that the purchase of a home is usually going to be the largest, single financial investment most people make in a lifetime.

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Should you appraise your home before putting it on the market?

It isn't necessary, because rarely does an appraisal have anything to do with the price the seller will actually get for their property. Here's why . . .

First, to determine the asking price, a seller's agent will look at the "comps,"-the price for which "comparable" homes in the area have recently been sold. Based upon these prices, the seller should adjust what they are asking. For example, if similar properties in the area are selling for $210,000, then trying to get $250,000 usually does not make sense. Thus, before putting the house on the market, a seller should review the "comps," which can be obtained from a local real estate professional.

The appraisal process used by a licensed appraiser is more theoretical than a "comp," and doesn't predict what a buyer will be willing to pay. Why would anyone ever get an appraisal then? Although rarely needed by buyers or sellers, appraisals are normally required by lenders who are considering making a loan.

However, sellers of expensive, custom homes may get appraisals, because there may not be any homes in the area that compare. Buyers of these one-of-a-kind homes will also have more confidence in an asking price that is supported by an appraisal.

Before determining an asking price, sellers should give their agent a list of major improvements done to the home, such as a new roof or upgraded heating system. This will help the agent consider all the factors when recommending a price. It will also put him or her in a better position to sell the house-and all of its features-for the best possible price.

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What is an MLS?

MLS stands for "Multiple Listing Service," which is usually a computerized listing of virtually all the homes that are for sale in a specific area.

When a Realtor lists your property for sale, they pay a fee and your home is placed on the MLS system. The big advantage to sellers is that the MLS is the #1 resource used by buyers (and agents) to locate homes. Properties that are not listed (usually those being sold by their owners) are not on the MLS-thus there are many buyers and Realtors who will not be exposed to the home.

The MLS has become such a standard in real estate that no serious broker would think of trying to sell real estate without it. It would be like an accountant trying to work without a calculator. About the only residential brokers who might not use the MLS are those who exclusively handle foreclosed properties, or high-end homes owned by celebrities and the like.

The MLS provides a surprising amount of detail, depending upon the area of the country it may include the location (by zip code); size of the home (square footage); size of the lot; number of bedrooms and bathrooms; extra rooms such as a den, family room, formal dining room, or enclosed patio; amenities such as a backyard, fireplace, hot tub, pool, kitchen features, new carpet and drapes; capacity of garage; age of home; and. of course, the selling price and terms.

Buyers can narrow their house-hunting searches dramatically by using the MLS. For instance, their real estate professional can do a computer search and ask for a listing of all homes within a certain location and price range that have two or three bedrooms and that are not more than ten years old. Not only will this request generate a brief list of viable possibilities, it also helps buyers gauge, roughly, what they can expect to get for their money, and to compare the value of the homes listed.

Thus, the MLS is more than a system that lists properties. It's an aid to both buyers and sellers, and is a definite asset to consumers when it comes to real estate.

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GENERAL

What's the best way to find a good real estate attorney, and why would I need one?

First, let's look at why. If a buyer or a seller does not understand all of the terms and conditions of the agreement, an attorney should be consulted, preferably before any documents are signed. Ask your real estate agent for recommendations, then call the attorneys and conduct a telephone interview.

Ascertain what percent of their practice is devoted to counseling buyers and sellers of residential real estate and if they have been practicing real estate law for more than two years. It is usually not a good idea to use a lawyer who is a close relative or close family friend, unless a substantial portion of their expertise involves residential real estate law.

In addition, you should inquire about the attorney's fee up front. In many states, you can expect to pay about $150 to $300 per hour for their services depending upon their experience. According to one California attorney who practices residential real estate law, the average consultation to review a residential real estate contract should not exceed two hours.

If the buyer or seller desires to sign an agreement prior to the review of it by their attorney, it might be wise to add a provision to the contract stating, "the (buyer's or seller's) obligation to proceed with this transaction is subject to attorney's approval as to the form and content of the contract within five days of signing." However, since the law varies across the United States and Canada, it would be wise to contact a lawyer in your area for their opinion.

If you are confident you have properly selected an attorney to represent your interests, listen carefully to their recommendations and give them the latitude to perform the service for which they were retained.

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Do you have enough homeowner's insurance?

Unfortunately most homeowners are inadequately insured. In fact, many not only lack financial protection for the equity in their home, but for their personal property as well.

Why?

It usually happens because lenders only require home buyers to carry enough insurance to cover the value of the mortgage. Then, in the event of damage or destruction to the property-fire, flood, etc.-the lender's investment is covered. Unfortunately, this required insurance is only for the lender's money-it does not cover the homeowner's personal property, or their equity.

When deciding on insurance, homeowners should carry enough to cover the replacement value of the home, and all of its contents. The key word is replacement. As the homes appreciates, so will its replacement cost. Thus, the policy should be reviewed every year or two, adjusting the amount of coverage if appropriate.

A word of caution, however, do not insure for more than the value of your real and personal property, because an insurance company will not reimburse more than the replacement value of the property. Consult with a reliable agent to ensure that you have the correct amount of insurance.

The most common homeowner policies cover the home and its contents without requiring an itemization of all furniture and personal effects. Items over a specified value, such as jewelry and artworks, are generally listed separately and usually require an additional premium.

Remember, few homeowners think about the value of their home or the replacement costs-until a disaster hits. The key is to be pro active. Get the coverage you need-before you need it.

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What exactly is "escrow"-and what does it mean to buyers and sellers?

Escrow is a process that begins when the purchase offer papers are signed by both parties, and ends when the loan is approved and all the necessary requirements have been fulfilled by both the buyer and the seller.

The escrow holder is an intermediary, and an agent of both the buyer and seller. The escrow holder is given the buyer's deposit, and holds onto all funds until the agreement is finalized. They notify the seller when the deposit has been received and if the check has cleared the bank. And, the escrow holder also draws up a set of instructions, itemizing things that have to be done to the property before it is sold and the title is transferred.

For example, if the seller is required to supply a termite inspection, the escrow holder would track this obligation and make it is fulfilled before any funds are transferred to the seller. Findings in the termite inspection report must be corrected on or before the close of escrow. If the report calls for a plumber, roofer or other contractor, the agent would advise the seller and get authorization for work to be done.

The escrow company also interacts with the title company. The escrow holder receives a complete ownership history of the property and any liens on record in the preliminary title report. Anything that is out of the ordinary, such as condo liens, judgments, etc. against the buyer and the seller must be clarified prior to the sale of escrow.

The escrow process can be any number of days depending on what is agreed upon between the buyer and seller. To assure a timely closing, the buyer should do things like inform, the escrow holder of the name and phone number of their insurance agent as soon as possible. The homeowner insurance policy needs to be ordered early, so verification can be made with the lender. The lender will not fund a new loan without a homeowner policy. If there is a delay, the escrow process may be held up.

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What does your Realtor mean when referring to a "closing?"

A closing is the meeting where title and money are exchanged between the seller and the buyer, and the sale of a home is finalized.

At the closing all the progressive steps in buying a home-from the acceptance of the offer, title search, home inspection, buyer's loan application to approval, etc.-come together in a final transaction. The documents are ready to sign, the buyer is ready to hand over the purchase price, and the seller is ready to transfer title (and the keys!)

Usually held at the offices of a title company, the closing takes less than an hour, and sometimes less than 30 minutes. The meeting is always attended by the buyer, usually the seller (although his or her signature can often be obtained in advance), the brokers and/or attorneys, and, of course, the title company representative, who acts as the intermediary for the seller and buyer in the transaction.

What goes on during the closing? First the buyer reviews all the loan documents, which describe the loan amount, payments, and itemization of closing costs, including impounds for tax and insurance, etc. If everything is as it should be, the buyer signs the loan papers.

Next, the buyer reviews and signs the title documents, making sure the deed is recorded as desired (joint tenancy, tenants in common, community property, etc.) By the time the closing is held, the title company has already conducted a title search and verifies that the title is held by the seller, and that no liens are held against the property. If there are any obstacles or other conditions that could potentially undermine the sale of the property, the title company will tell the seller about them (in writing) at the closing.

Assuming, however, that the funds are in order, the deed is correct, and the title is clear, the final step is the disbursement of funds to the seller for the purchase price of the home, and the presentation of the keys to the buyer. The buyer may also receive a refund for overpayment of closing costs, which were paid out of his or her deposit check.

What should a buyer be prepared to bring to closing? That's easy: everything. The buyer should bring all of the documentation relating to the transaction, including a canceled check for the deposit paid with the offer, just in case the title company or lender asks for it unexpectedly. The title company should already have the loan funds in its possession, but the buyer needs to bring a cashier's or certified check for the purchase amount minus the loan amount (that is, the downpayment).

Ideally, the closing will go through "without a hitch." Some delays-such as receiving loan funds from the lender or an error in the loan documents-are unpredictable and therefore, uncontrollable. Other delays, however, can be avoided if they are anticipated and, if possible resolved ahead of time.

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What exactly are closing costs, and who pays them-the buyer or the seller?

First, the responsibility of who pays for closing costs is always negotiable. Local custom may dictate which fees the buyer will pay and those the seller pays.

Typically, the buyer pays for home inspection services and escrow, deed preparation and recording fees. He or she may also pay for title insurance, since this is required by the lender. The buyer is also responsible for any fees or costs associated with obtaining the purchase loan.

The seller customarily pays the real estate agent's commission, as well as costs associated with transferring an unencumbered title, such as a title search, reconveyance deed and documentary transfer tax. Often, a seller will sweeten the deal by offering a one-year home warranty.

Who will pay for what closing costs should always be clearly spelled out in the purchase offer. A creative sales associate will consider the cash, income and tax situation of the home seller and the buyer when constructing an offer. For instance, if the buyer is short of cash, the agent may ask the seller to pay the buyer's loan points up front in exchange for some other concessions from the buyer. In this scenario, the buyer and seller benefit-and both get what they want.

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