Real Estate Glossary – Earnest Money

WHAT IT IS

Earnest money is the amount of money a buyer submits with an offer to purchase a house. You actually write a check (or a copy of the check) and send it with the purchase offer.

Earnest money proves the buyer is ‘in earnest’, or serious about buying that house. If the seller accepts the offer, the earnest money is immediately deposited with the escrow/title office. It becomes part of the purchase price of the house.

A personal check is usually acceptable for earnest money.

Working with a lot of Canadian investors lately has taught me that many Canadians call it the “Deposit”.

HOW MUCH IS RIGHT?

A really common question I’m asked by buyer clients (especially first time buyers) is, “How much earnest money is the right amount?”

Technically, I’m not supposed to tell you. At least that’s what I remember from my rookie training classes. If I’m remembering correctly, I think this was a rule dreamed up by the legal eagles in our profession. They worry that if Realtors simply tell clients what to offer, how much to put down, how much earnest money to offer and so forth. . . . well, we’re essentially price fixing and could be sued later by disgruntled buyers who are having buyer’s remorse.

I used to be a paralegal and have lawyers in the family, so I’m pretty ultra-sensitive to the myriad of ways agents get themselves sued. Since I like to keep on the right side of my company’s legal department, and since I haven’t got a brass farthing worth suing me over, I won’t state a ‘proper’ earnest money amount here.

But it’s typical to put 1% to 2% of the purchase price up as earnest money.

HOW MARKET CONDITIONS CHANGE EARNEST MONEY

2005 and early 2006 were boom-boom years in the metro Phoenix real estate market. Sellers received multiple offers after only days or hours on the market. Sale prices were frequently above list price, and buyers often waived many of their usual inspections and contingencies just to secure the house. This is an extreme seller’s market.

In a seller’s market earnest money often amounts go up. Buyers are competing against each other to buy the few properties available and increase their earnest money and/or down payments to make their offer look better than others’ offers. I commonly saw earnest money amounts in the tens of thousands. It wasn’t unusual to see earnest money amounts that were 4% or 5% of the purchase price, or more.

Today we’re in an extreme buyer’s market. In many cases earnest money amounts have dropped as a result. I’ve recently seen purchase offers for average priced homes ($200,000 to $300,000-ish) with earnest money of only $1,000 (that’s less than 1%).

Properties that first time buyers typically buy (condos, any property under $125,000-ish) often bring earnest money amounts at $500 and under. Some cash-strapped first time buyers using FHA loans even ask that earnest money be refundable at close. They often apply that money to the closing costs. (see more about buying with little or no money down here.)

EARNEST MONEY EXAMPLE

For example: Buyer looks at a house with an asking price of $299,900. Buyer makes an offer of $280,000. That $280,000 is made up of – (1) $3,000 earnest money, (2) $40,000 cash down payment, and (3) a promise to get a home loan for the remaining $237,000.

RULE OF THUMB

One rule of thumb about earnest money is, “put up as much earnest money as you can afford to risk.” The risk bit is important. Earnest money is forfeitable if the buyer breaches the contract. In plain English this means that if you, the buyer, back out of the purchase after your Due Diligence period, the seller has the right to keep your earnest money as compensation for the lost time on the market.

Related Posts -

• see all FAQ file posts here
• see all Glossary posts here
• Real Estate Road Signs – “Buy With $500 Down”

Household Quickie – Shower Curtains

Image courtesy of I Can Has Cheezeburger

Haven’t had a Household Quickie posting for a while. Also, I’m still suffering with the writer’s block that crept through the blogging Realtors’ world a few weeks back.

So today I turned to my favorite humorous cat website (is there more than 1 of these I wonder?) for inspiration.

And whammo! It came immediately.

One of the best household care tips I ever got was this: when your plastic shower curtain liner gets icky with mold, scum and other unmentionables, pop it into the clothes washer with some towels. Add bleach if the towels are white and the liner is clear or white plastic.

It just that simple. Out of the washer comes a load of clean towels, ready for the dryer, and a shiny clean, like-new shower curtain liner.

Now I’ll admit that shower curtain liners are a mere $5.99 at Target online, but with all the recent talk of economic crisis, belt-tightening, sacrifice and so forth….   Saving $5.99 is better than buying a new liner and tossing the old (mildewy) one into the trash. They aren’t biodegradable, ya know?

Besides $5.99 buys a really big Starbucks’ coffee. Or a really small sandwich for lunch on the go, once the real estate market picks up again.

Glossary – Fixtures

My broker Jay Thompson explained “what’s a fixture?” on his real estate FAQ blog, which I’d like to expand on. Normally I think everything Jay does is perfect and no expanding is needed. Buuuut, I’m running a little low in the inspiration department, even lower in the time department, and I realized that I haven’t written a Glossary post in a long while. Plus, some new trendy household items can cause confusion.

Briefly, fixtures are items attached to the house using screws, nails, glue or similar means. Where things get a little tricky lately is with items some of the newer must-have pseudo luxury items, such as:

• satellite dishes
• flat screen TVs
• those fancy new bathroom mirrors that look like art because of their beautiful frames
• the trendy new bathroom cabinets that look like a piece of free-standing antique furniture and often have (expensive) marble tops

Two other possibly confusing items are

• above ground pools (OK, they’re uncommon these days, but not extinct by any means)
• heavy concrete patio benches or garden gnome type decorative items

If you follow the rule of thumb – is it attached using screws, nail or glue – all of the items in the first list are attached, are therefore are fixtures and therefore must stay with the house when it’s sold. Following the rule of thumb again says all the items in the second list aren’t attached and therefore go with the sellers.

If one were of the attorney persuasion, one could make an argument that the antique-look bathroom cabinets aren’t technically attached, it’s the plumbing that’s attached, and so the plumbing stays but the cabinets don’t… and [insert lawyerly babble here].

Court room arguments aside, I’d bet that most sellers with these items in their home expect to take at least some of the items when they move out. In my experience, satellite dishes have become almost disposable and most sellers expect to leave them behind, while most buyers expect them to stay.  So we generally have agreement there.

But sellers often spent lots of time and money tracking down the fancy schmancy bathroom mirrors and expect to take them with, while buyers don’t want to spend said time/money tracking down a replacement and therefore expect the mirror to stay. Many buyers don’t want the above ground pool… but then again many sellers don’t want to take it down and take it with and are secretly hoping the buyers will just take the darn thing and spare them the misery of dealing with it. And so on.

It can put you in a pickle if you assume too much on either side of the deal. Save time and trouble up front! Sellers – it’s best to specify in the listing agreement, and the MLS, and on flyers in the home whether these items go or stay. Better yet, get it out of the house and replace it with something that stays. Buyers – ask your Realtor to specify in the written purchase offer whether you expect these things to go or stay.

When’s The Money Due?

Like a lot of metro Phoenix Realtors, lately I’ve been working with lots of out of town buyers (especially Canadians). These buyers are often used to the way purchase transactions are handled in their hometowns, but somewhat baffled by the way we do things in metro Phoenix.

From the standard AAR contract, line 13, “Close of Escrow (“COE”) shall occur when the deed is recorded at the appropriate county recorder’s office.”

Notice it doesn’t say anything about the buyers and sellers being present. Recordation is handled by the folks at the escrow office who record the sale documents online with the Maricopa County Recorder’s Office.

Many buyers from the East Coast, the Midwest and even Canada are used to “closing” describing a giant conference table with the Buyer, the Buyer’s Realtor, the Buyer’s attorney, the Seller, the Seller’s Realtor, the Seller’s attorney a notary public and a title officer. Oh, and donuts too.

Buyers and Sellers in metro Phoenix don’t have to hire lawyers to represent them. They can, but don’t have to. Documents can be handled via express mail and email/fax. Money can be wired. No need to come to Arizona for your Arizona closing.

If buyers do plan to come to town for their closing, it could be helpful to arrive about 2 or 3 days before closing and plan to stay for 2 to 3 days afterwards too. That way you can sign the documents in person, pick up the keys in person, and then spend a few fun days moving stuff in and decorating.

Now, down to brass tacks. When’s the money due?

Earnest money is due immediately upon contract acceptance. Usually the buyer’s Realtor delivers it to the escrow officer in person or through a messenger. The escrow officer issues a receipt for the money received. Personal checks are acceptable unless negotiated otherwise by the parties. Buyers should note that their earnest money is cashed right away, so it must be liquid funds.

Any cash down payment is due on closing day. (Buyers paying all cash should apply this paragraph to their situation.) Arizona is a good funds state, which means that money for closing real estate deals must be “immediately available.” Cashier’s checks and wire transfers are acceptable. Contrary to logic, cash is not acceptable. Buyers who send a wire transfer should note that the USA Patriot Act slowed down the US wire system significantly. Expect your wire to take an entire day to transit the system. It will probably take less than 8 hours, but if it takes the whole day, at least you’ve planned ahead and not delayed your own closing. Got insomnia? You can read all 132 pages of the actual Patriot Act here. By the way, if you read the entire Act (and especially if you actually understand it) you should run for Congress immediately.

Buyers getting a home loan should be aware that by signing the standard AAR purchase contract you’ve agreed to sign all loan documents “no later than three (3) days prior to COE” (line 69). This language has been in place for 3 years, but I still sometimes encounter lenders who aren’t aware of the requirement. Buyers should also note that lines 68 of the standard AAR purchase contract binds them to two further responsibilities: (1) making diligent and timely efforts to provide their lender with all the documentation requested, and (2) ensuring that their lender provides status updates to both agents. This means that the seller’s Realtor is approved to talk to the buyer’s lender about the progress towards getting a loan approval.

That should cover all the angles on getting money to the table in a metro Phoenix residential real estate purchase. Got more questions? See the FAQ files or related posts below.

• Cash Buyers Should Prove Liquidity When Offering
• Buyers’ Info on the Valley of the Sun

Down Payment Assistance Coming Back?

Longtime readers will know that I’m a big supporter of and believer in the Down Payment Assistance programs (“DPAs”) like AmeriDream and Nehemiah, which were effectively killed by the housing stimulus package passed by Congress back in July 2008.

Below is a quote from a press release sent out today by AmeriDream, talking about the effort to re-instate DPAs which is making it’s way through Congress right now. Known as H.R. 6994, it’s a bill designed to reauthorize and reform Down Payment Assistance programs nationwide. The bill got a particularly important Thumb’s Up today from the vitally important House Financial Services Committee.

Ann Ashburn, President of AmeriDream, said today: “Today’s committee vote was a positive step toward preserving downpayment assistance, but our work is far from over. Now more than ever, members of Congress need to know that Americans are watching their vote on H.R. 6994. I encourage members of the public the tell their representatives in the House and the U.S. Senate that a vote for H.R. 6994 is a vote for the next generation of homeowners.”

Related Posts

• AmeriDream’s End
• HUD Continues Efforts to Shut Down DPAs
• AmeriDream Gets Judicial Reprieve
• How DPAs Work

Or Visit SupportHomeOwnership.com

Cash Buyer? Got Your POF?

POF? What’s that? Proof of Funds. By the way POF is an acronym I use, it’s not used by everybody or even by every Realtor or lender.

It might sound basic and redundant, but cash buyers sometimes don’t think about the fact that they really should provide a proof of funds statement when they make an offer to purchase real estate in the metro Phoenix region.

Why Use a POF?

There’s nothing in the Arizona Association of Realtors’ (AAR) Purchase Contract that requires that proof statement. But it’s just good business and a good idea to do so.

When buyers who are getting a mortgage loan make a purchase offer on a metro Phoenix property, they must provide a document called an LSR or Loan Status Report. It proves that the buyer has (at the very least) talked to a mortgage lender who verbally reviewed the buyer’s assets, liabilities and income and has come to a preliminary decision that the buyer is good for the loan. In fact the AAR Purchase Contract actually states on lines 62 and 63 that the Buyer’s LSR is attached to the purchase offer.

Cash buyers aren’t getting loans (of course) and so there’s no LSR to back up their ability to purchase.

Sellers are entitled to make a decision about accepting, countering or rejecting a Buyer’s purchase offer based on not only the price offered but the Buyer’s ability to pay for the home. Buyers who provide proof that their purchase funds are in liquid form present stronger offers.

With many bank owned homes in the metro Phoenix region selling in days or even hours, it’s important to demonstrate the strength of your offer right up front. The savvy seller/Realtor combination is going to counter an offer without a POF attached with a request for it anyway so it’s easier to get it done upfront.

What’s Sufficient as Proof of Funds?

Recent bank statements are the best and in this day of internet banking, are often the easiest to obtain. The statement should be dated within 30 days of your offer date.

Brokerage statements are a good POF too.

In my opinion, letters from your bank(er) are acceptable, but not nearly as convincing as the first two, which show not only that the Buyer has liquid funds, but where they’re located. A letter from a banker usually doesn’t specify just how liquid the funds are. The last thing Sellers (and Buyers for that matter) want is to get to the closing day only to find out that the Buyer’s purchase funds are in a retirement account that can’t be touched for weeks.

Your Realtor should be careful to obscure all account numbers, personal ID numbers, social security numbers and the like from the POF document. Really with-it Realtors shred these documents when the deal is complete and before putting the file into archives. I provide client with a short video of me shredding their documents as part of my closing gift.

Got POF? Then let’s shop!  Search the metro Phoenix MLS here

See all entries in the FAQ files here.

AmeriDream’s End

A provision of the recently enacted housing stimulus package kills of Down Payment Assistance programs as of October 1, 2008. (read more at AmeriDream’s website)

Another provision of the bill raises the minimum down payment on an FHA loan from 3% to 3.5%.

Hmmmm….. we’re in the middle of the biggest housing downturn in decades,  banks are nervously tightening up lending standards and so lending to fewer people, there’s a glut of vacant foreclosed homes on the market which are dragging down the value of every home, and many sellers are so anxious about not selling that they’re more than willing to help a buyer with the down payment.

Amidst all this Congress decides it’s a good time to say “No, you have to save even more,” and “the seller can’t help you, even if they want to.”

Yep, sounds about like our Congress. <shaking head in disbelief>

I’ve done a lot of DPA loans; several where I represented the seller. In each case, the seller was happy they finally got their home sold at all, given the current market. Many of these sellers told me that while they wish they didn’t have to give any concessions to the buyer, at least they felt good that the money they gave up went to the worthy cause of helping someone else step into the American Dream of home ownership.

On the bright side, I’m hopeful that HR 6994, a.k.a. the FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008 will be passed into law soon and DPAs will be back. HR 6994 re-authorizes DPAs and mollifies the naysaysers by letting HUD charge risk-based insurance premiums on the mortgage loans.

Fixing Your Credit? Here’s a Great Resource

I’ve been reading CreditBloggers in my feedreader for a while now and finally (Doh!) it dawned on me that my readers might find the site useful. I’m adding it to my blogroll and linking to them here.

Need to fix your credit? Want to understand more about how the credit scoring system works? Want reliable information on credit scams? Check out CreditBloggers.

Related Posts – Find A NonProfit Credit Counseling Service Near You

First-Time Home Buyer Tax Credit Fact Sheet

The following information is courtesy of Andrew Little, a favorite lender of mine. His team is super sharp, are excellent communicators, and have their fingers on the pulse of the first time homebuyer market in the Valley.

Contact info: Andrew Little, Sales Manager, Countrywide Bank FSB. 480-384-4012. www.aLittleMortgage.com or Andrew_Little@Countrywide.Com

Part of the Housing Stimulus bill passed in late July is a tax credit to first time homebuyers. Here’s the breakdown of the in’s and out’s of the bill.

Who is Eligible

• The $7,500 tax credit is available for first-time home buyers only
• The law defines a first-time home buyer as a buyer who has not owned a home during the past three years
• All U.S. citizens who file taxes are eligible to participate in the program

Income Limits

• Home buyers who file as single or head-of-household taxpayers can claim the full $7,500 credit if their modified adjusted gross income (MAGI) is less than $75,000
• For married couples filing a joint return, the income limit doubles to $150,000
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit
• The credit is not available for single taxpayers whose MAGI is greater than $95,000 and married couples with an MAGI that exceeds $170,000

Effective Dates for the Tax Credit

• First-time home buyers would receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 and before July 1, 2009
• To qualify, you must actually close on the sale of the home during this period

Tax Credit is Refundable

• A refundable credit means that if you pay less than $7,500 in federal income taxes, then the government will write you a check for the difference
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $2,500 payment from the government
• If you are due to receive a $1,000 tax refund from the government, your refund would grow to $8,500 ($1,000 plus $7,500 from the home buyer tax credit)
• Buyers can take the tax credit in their 2008 or 2009 tax return
• If you purchased the home in 2008, the tax credit is taken on your 2008 tax return. If you buy in 2009, you have the option of taking the credit on your 2008 or 2009 tax returns.

Types of Homes that Qualify for the Tax Credit

• All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a home in the prior three years. This also includes newly-constructed homes.

Payback Provisions

• The tax credit essentially serves as an interest-free loan to be repaid over 15 years
• For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. However, the buyer doesn’t have to start repaying the credit until two years after the tax year in which the credit is claimed.
• If the home owner sold the home, then the remaining credit would be due from the profit of the home sale.
• If there was insufficient profit, then the remaining credit payback would be forgiven.

For more details on the tax credit, go to www.federalhousingtaxcredit.com

Related Posts

1. Housing Stimulus Package Passed
2. Don’t Have Down Payment Money? Maricopa County Could Help

Home In Five Money Gone

Remember back just 2 days, when I wrote about the Home in Five program that makes Maricopa County buyer’s down payments?  In 1 short day, the entire allocation of over $3 million was gone. Wow! 

You can get the inside scoop on how fast this happened by reading my colleague Shailesh Ghimire’s Arizona Mortgage Guru post about the Home in Five money going fast.

The County seems to release more money periodically (usually 3 or 4 times a year), so hopefully they will do so again soon. I’ll keep you posted!

Home In Five Makes Your Down Payment

One of the provisions of the housing stimulus package kills AmeriDream by doing away with the federal law loophole that allowed sellers to make buyers’ down payments. With that program on the chopping block, what’s left for first time buyers with good credit and a good job history but little ready cash?

Maricopa County’s Home in Five program might be just the thing for these cash-strapped first timers. The County has just released $3.45 million in funding for their program, which gives buyers a 5% gift for their down payment and closing costs, and provides a fixed-rate, 30-year mortgage at a very respectable 6.59% interest rate. Think of that! Your down payment is a gift. Your closing costs are a gift. You never pay the money back!

Want to use this program? Act fast. The money is released several times a year by the county, and it always goes fast.  Funds are available on a first-come, first-served basis. Update July 31, the money is gone. But the program will probably get more money later in the year, so keep reading.

There are income limits and purchase price limits to be aware of (see below). Buyers must have an executed purchase contract to be eligible for the money. Your purchase must be complete by December 15, 2008.

You can find all the info you need at the County’s Home in Five website. You can talk to a lender experienced in handling these loans by calling one of my preferred lenders, Jeannie Bolger of Suburban Mortgage, at (602) 216-2300 ext 115.

Income Limits for Eligible Borrowers

Family of:	Non-Targeted Areas	Targeted Areas
Two or fewer	$64,524	$74,203
Three or more	$74,203	$77,542

 

Purchase Price Limits 

	Non-Targeted Areas	Targeted Areas
New or Existing Housing	$311,625	$380,875
Duplexes	$350,988	$428,985

First time buyers – Don’t miss out! Home in Five is a super way to take advantage of the current buyers’ market in the metro Phoenix area. Want more advice for your unique situation? Please feel free to call or email me. We’re in a great buyers’ market but that doesn’t mean everyone should buy now. I can help you decide if it’s the right time for YOU to buy.

Housing Stimulus Bill Passed, President Says He’ll Sign

President Bush lifted his veto threat and the House passed a housing stimulus package on Wednesday.  Some key provisions of the bill include:

1. $300 Million to help homeowners facing foreclosure refinance their mortgages into FHA loans. The lender would have to agree to take a loss on the original loan and lender participation in the plan is voluntary.
2. $3.9 Billion in block grants to help local communities buy up (often vacant) foreclosed homes, rehab them, and resell them. Fred Karnas, Arizona’s Department of Housing director says Arizona can expect to receive about $100 million of that money, based on a formula that favors states with the greatest number of foreclosures.  With the median home price in the Valley hovering the mid-$200’s, this will help the city buy about 500 homes. (AZ Republic)
3. $15 Billion in housing tax breaks, including a $7,500 tax credit to first time home buyers. This provision applies only to buyers who purchase between April 9, 2008 and July 1, 2009. The full tax credit is available only to homeowners making less than $75,000 (or couples earning less than $150,000). Finally, the tax credit must be paid back, interest-free, over the next 15 years.

The bill addresses Fannie Mae and Freddie Mac’s recent woes. The bill will:

1. Grant an unlimited line of credit to stabilize mortgage giants Fannie Mae and Freddie Mac and allowing the federal government to buy equity in those institutions. (AZ Republic). The Congressional Budget Office estimates that there’s a 50% chance F & F will weather this crisis without resorting to using this money. The two companies back or own $5 trillion in U.S. mortgages — nearly half the nation’s total. (NPR)
2. Create an independent regulator to ensure sound management and operating standards for those lending institutions, including the power to limit the compensation o the companies’ executives. (AZ Repub and LA Times)
3. Impose a new cap on the size of mortgages that Fannie or Freddie can buy or guarantee. In certain high priced locales, the cap will be $625,000, while other in areas the cap will be up to 15% of the median home price. (NPR)

Herbert Kaufman, a finance professor at ASU who used to work at Fannie Mae in Washington, said the legislation should help to lower mortgage interest rates. (AZ Republic).  This is the most interesting to me. Metro Phoenix housing prices have dropped enough in many neighborhoods to be affordable again for folks who were priced out of the market during the boom-boom years of 2005-6. The combination of lower rates and lower prices could be just what the doctor ordered to get metro Phoenix real estate moving again.

The bill includes some important changes to the FHA loan program. 

1. The required down payment on FHA loans is increased from the current 3 percent to 3.5 percent.
2. Another provision of the bill effectively shuts down AmeriDream and Nehemiah Corp, and nonprofits like them, who help sellers pay for buyer’s down payments. The bill bans federal insurance for mortgage loans if the seller pays the buyer’s down payment through a nonprofit intermediary. Can’t get mortgage insurance? You’re not getting a mortgage.

As big as AmeriDream is, they probably don’t have the financial wherewithal to insure mortgages by themselves, so in effect they’re out of business. But this could present an opportunity for a new breed of for-profit companies to issue PMI (private mortgage insurance) on loans where sellers made the buyer’s down payment.  There is a documented slightly higher risk of default among buyers who didn’t save their own down payment. But there are probably also companies out there willing to underwrite that risk.  Give it time.

Interestingly, neither AmeriDream nor Nehemiah has any press releases or other info posted on their websites today. As long time readers of my blog know, I’m a big supporter of these programs, and am very sad and discouraged to see them go. HUD has been trying to get rid of Down Payment Assistance programs since at least October of last year. I’m saddened, but somehow not at all surprised, that HUD very quietly used this popular housing stimulus bill to kill the programs when every other means they tried didn’t succeed. See my entries of October 21, November 1, December 30, March 3 and June 17 for more history.  

Update, 5:30pm Jul 24: My colleague, blogging Realtor Jamie Geiger has more information about the demise of AmeriDream type programs. Jamie is a great resource for buyers and sellers on the far East side of the Valley. I can’t help you out east of Scottsdale Road, but Jamie can!

The following news sources were used in compiling this article:

• AP News Wire, July 23
• Arizona Republic, July 24
• LA Times, July 24
• NPR, July 23

 

What You Get for the Money ($75,000 to $90,000)

This is the 1st in what I hope & plan will be an ongoing series of posts about real estate price bands around North Phoenix. Essentially, I’m trying to answer the question I get from almost every out of towner who’s considering a metro Phoenix area real estate investment – “how much does it cost?”

This blog is focused on North Central Phoenix, where I live, work, and grew up. So the What You Get for the Money series will include only the ZIP code areas of 85020, 85022, 85024, 85028, 85032, and 85050. You can see these on a ZIP code map here http://maps.huge.info/zip.htm and here http://www.dreimaz.com/phoenix-zip-map2.pdf

Price Band $75,000 to $90,000
This is a challenging price band in almost every part of the metro Phoenix area, but especially so in the North Central Phoenix area (the ZIPs noted above).  In these postal codes, your dollar buys a smallish 1 or 2 bedroom condo.

In Phoenix, “condo” typically means it looks and feels like an apartment. These are usually 2-story stucco buildings, often with tile a roof. Usually, there are ground floor units and upstairs units, and about 4 to 16 units per building.

Most buyers and sellers think there’s a value attached to being on the upper floors (“no one above you” or “no one walking on your head” is common phrasing in the online ads). But it’s not a hard and fast rule that upstairs is “better”. I’ve had young singletons tell me they feel safer being upstairs, while buyers in their 40′s, 50′s and 60′s tell me they want something on the ground floor for easy access when they’re older and the old knees might go. Generally, having an end unit is also desirable, because only end units get light from windows on 2 sides of the condo.

Parking is usually a row of covered, assigned spots and you’re usually assigned only 1 spot. If you must have a garage in these ZIP codes, you’ll need to stretch your budget to at least the $175,000 to $200,000 range. Storage space is found in closets and cupbaords under staircases (aka “Harry Potter’s bedroom”). Many condos have balconies and/or patios with closets for additional storage.

Condo owners own space, not land, although in most condo complexes the individual owners jointly own the common area. The common area is where the postal boxes, pool, and any other amenities are located, as well as the streets, sidewalks and any landscaping.

Condo conversions are common in this price range. During the real estate boom of 2005-06 a lot of developers took older apartment buildings and turned them into condos, selling individual units and often making hefty profits. I’m no expert in building codes and so I hesitate to even write this, but I believe (?) that the building process is different for condos vs. apartments, and so the noiseproofing between neighbors is better in condos than in apartments. But everyone has their own limit for tolerating noise from the next door neighbors, so condo conversions aren’t necessarily bad, just different. (Any readers with authority on condo & apartment building codes? Please comment!)

At today’s writing, there are  17 properties for sale between $75,000 and $90,000. It’s important to note that of these 17, only 5 are not lender owned or short sales. They’re on a map and in a list below.

 

As you can see from the chart above, the spaces are small, 600 hundred to 1,100 square feet. I would normally say this price band buys you only 600 to 900 square feet, but with foreclosures pushing down prices, buyers might get a little more space for their dollar.

Below are some interior & exterior photos of properties typical to this price band.

      

The most popular financing in this price band is often an FHA loan. These loans allow buyers to put as little as 3% of the purchase price down. For cash strapped buyers, and especially for first time buyers, buying a small condo on an FHA loan can be a great launching pad to building real wealth.

First time buyers often combine an FHA loan with a Down Payment Assistance program. These allow the seller to contribute to the buyer’s down payment. You can read all about options for first time and cash-poor buyers here: http://northphoenixagent.wordpress.com/category/first-time-homebuyer/ and get some up to the minute advice on FHA loan program changes at The Arizona Mortgage Guru’s blog.

 

Shopping in this price band and want more info? I am happy to help you out! Just call and I’ll set you up with a custom MLS search that will email you whenever new listings hit the market that suit your needs.

Real Estate Road Signs – “Buy A House for $500 Down”

I’m noticing an uptick in the number of roadside cardboard signs that have something to do with real estate lately. You know the kind – here in Phoenix they’re usually hand-inked, on cardboard or oak tag, stuck in the ground with a stake.

Surely it’s a function of the bad economy, the looming recession, the credit crisis and the housing ‘bubble’.  Whatever, I figured it would make a good blog post. Here’s today’s Real Estate Road Sign:

Here’s the thing. A ton of people would qualify to buy a home – any home – with $500 down. The amount of the down payment is a function of 2 things – 1) the contract you negotiate with the seller, and 2) what sort of loan program you qualify for.

You don’t need to call somebody who advertises on the roadside to get a $500 down house. In fact, I submit that it’s probably not a good idea to get a home mortgage from somebody who advertises on the roadside with a cardboard sign. To buy a home with $500 down, you just need to speak with a reputable lender, and see if you qualify for a loan program that allows a low down payment.

Veteran? Done. You can buy a house with $500 down – use the VA loan program. eHow tells you how to figure out if you qualify, but I take no responsibility for their sponsored lender links.

First time homebuyer?  Done and done, and then some. You can buy a house with only $500 down – use a standard FHA loan. Or use an AmeriDream loan. Or use Nehemiah Corporation to buy your slice of the American Dream. Go through Maricopa County’s Home In Five program and get your downpaymnet as a gift. Try the Down Payment Guy website, which advertises homes for sale on the regular MLS that are owned by seller who agree up-front to partcipate in a program like these. But note that the DownPaymentGuy steers buyers to their approved stable of lenders, and you can use any lender you choose.

Not a first timer, but still cash-strapped? There are FHA programs you qualify for too. My favorite blogging lender Shailesh Ghimire explains FHA loans.

When you see a road sign like this one, remember 2 things: 1) You can work with any lender you want and still potentially qualify for a $500 Down home purchase.  2) Doing business with a “lender” who advertises on the roadside is probably not a great idea. Buying a “new in plastic, pillow top” mattress off a road sign might be OK. But selecting the single most expensive financial asset you’ll ever own in your life off a road sign is potentially a recipe for disaster.

Related Posts at NorthPhoenixAgent

• How Much Do I Need for a Downpayment
• Earnest Money Defined
• Buyer Beware – Backing Out Can Be Expensive
• Why Your Lender Shouldn’t Be Your Friend
• No Money For a Down Payment?

Related Posts By Other Excellent Bloggers

• FHA Mortgage Insurance Rates Now Higher If Your Credit is Bad (AZ Mortgage Guru)
• How Your FICO Score Determines Your Mortgage Rate (by the XBroker ; not light reading but well worth your time)

Spuds and SPDS

photo credit to yongzaho.en.alibaba.com

Sellers who use a Realtor to sell their metro Phoenix area home quickly become familiar with enough acronyms to make the Federal government proud (and confused). ER, SPDS, BINSR, CLUE. It’s enough to make any sane person wonder if their slightly daffy relation ran over a potato farm with the car and needs a ride to the hospital.

(That sentence is mildly smile-inducing inside my head; let me know if it evinces a grin in your neck of the woods.)

So, what’s a SPDS? And is it anything like the edible tuber that’s yummy when served with butter, sour cream and chives next to a big juicy Porterhouse? Read on, intrepid blog browser.

What Are SPDS?
Arizona law requires sellers disclose to buyers all known, material problems about properties they sell. The Seller’s Property Disclosure Statement (SPDS) document created by the Arizona Association of Realtors is a convenient form for doing this. Not working with a Realtor? You’re not exempt from disclosing what you know about the property. You’re just unlikely to have ready access to the nifty form.

Why Do I Need to Do This?
If you sell a property that has a material defect of which you were aware but didn’t tell the future Buyer, you could be liable to a lawsuit. Disclosing everything you know about the property you’re selling can protect you in the future.

What Should I Disclose?
The short answer is everything. The longer answer is that you should disclose everything that could influence a buyer’s decision to buy (or not buy) your property. This includes improvements you’ve made and problems you’ve had, as well as what you did to solve those problems. It also includes anything prior owners did to the property of which you are aware, or even things prior owners did that you suspect or only partially remember.

The bulk of the SPDS questions are phrased, “Are you aware of ….?”  If you aren’t aware, or don’t know the answer, you should answer “no”. Your Realtor is not allowed to fill out the SPDS for you, and is generally not supposed to tell you what to put on the SPDS.

On the last page of the SPDS form, you can add explanations. It’s OK to say things like -

• I think the prior owner replaced some of the PVC plumbing with copper but I only got verbal info on that.
• We had a tub leak in 2003. We repaired the leak and our insurance company replaced the drywall and carpeting.
• We converted the garage into a living room in 1999. We didn’t get permits or HOA permission but we had licensed contractors do the work.

Can I Disclose Too Much?
Don’t worry about ‘killing a deal’ by disclosing what you know about the property. If there’s something that’s so wrong with the property that it’s bad enough to be a potential deal-killer, you should be more worried about getting sued later for not disclosing it now. It’s better to be honest on the SPDS and discuss the property’s condition upfront with your Realtor. Then let your agent make recommendations about marketing the property so that it sells to a buyer who knows all about it and buys it anyway.

How Long Do I Have to do This?
By contract, Sellers (through their Realtor if they have one) must provide the future Buyer with the completed Disclosure Statement within 5 days of contract acceptance. Buyers, be aware that you should receive this document promptly. Ask questions if you don’t understand the answers! Sellers, remember that honestly and completing filling out the SPDS form will take a little bit of time and some record pulling. So, the sooner you complete the document after listing the home for sale, the better. The last thing you want is to be scrambling to fill out a SPDS form at the 11th hour. It’s kind of like waiting to start your 1040 tax form until April 14.

You Can’t Eat It, But It Can Help You Sell
A complete and honest SPDS will help your property sell. Even if the property has problems, know that every property will sell . . . IF it’s priced right and marketed correctly. There is a buyer for every home. You just need to inform your Realtor and the buying public so the right buyer can find yours.

Related Posts at The North Phoenix Agent

1. Inspection Period
2. Home Inpsections Explained
3. Stuff About Your Neighborhood Your Realtor Can’t Tell People

Related Posts at the Butterhomes Blog – Selling A Home Full of Lizards

Related Posts at The Phoenix Real Estate Guy – Info You Get During the Inspection Period, How to Buy Your First Home and Do I Really Need a Home Inspection?

See all the entries in the FAQ files here.