Today we are going to examine some common topics in Real Estate that get misunderstood.
1) Waiving the Appraisal
With many buyers needing to insert aggressive terms into their offers for seller consideration, the appraisal is a popular angle. Either providing a shortfall guarantee or waiving the appraisal contingency are the two most popular routes. For this piece, we will discuss waiving the appraisal contingency. Many sellers think this means no appraisal will take place, but in reality, it means the buyer is agreeing to pay whatever the difference ends up being between appraised value and the contractual purchase price. The buyer’s lender will still require an appraisal for their financing purposes.
2) Selling As-Is
This is a big one… over the years, our industry-standard contracts have shifted verbiage when it comes to the buyer’s inspection period, due diligence and even seller warranted items. Essentially, every home is now sold “as-is”… however, unless a buyer waives their inspection period altogether, inspections are still performed and a buyer can make requests. The seller is not obligated to make repairs most of the time, but a buyer can ask and then have the final say on whether to proceed with the transaction or not. Very rarely does a buyer actually waive the inspection period completely, but we routinely see the boilerplate 10-day timeframe shortened in the initial offer.
In the past, warranted items existed that meant a seller was required to fix certain items if discovered through inspection. That caused a whole lot of confusion and thus everything turned into a negotiation, as it stands today.
3) Earnest Deposit
When a seller accepts an offer, the buyer then needs to deposit “good faith” money into a neutral 3rd party escrow account. This is called the Earnest Deposit and it is protected by the various contract contingencies. In Arizona, the standardized contracts are quite favorable toward the buyer when it comes to these funds so it is rare for a seller to claim them. Whereas many sellers assume that if a buyer cancels (for any reason), the earnest deposit would be automatically forfeited. Unfortunately for them, it doesn’t work this way.
The usual contract contingencies would be inspections, appraisal, financing, clear title, disclosure, etc.
Even if the buyer is in breach, the seller would need to deliver a “Cure Notice” to the buyer side, which explains the breach and gives the buyer 3-days to remedy. If they didn’t remedy during that time, then the seller would have a claim for the deposit (most of the time).
4) Down Payment is the Only Upfront Cost to Buy a Home
In addition to the Down Payment, there are “closing costs” for a buyer. These are the Title, Escrow, Recording and Financing Fees. The total will vary depending upon loan program, closing date, price point and more, but it’s safe to assume $6,000 + is the starting point. During escrow, a buyer will also have inspection and appraisal costs totaling around $1,200.
This is mainly aimed at first-time homebuyers, but sometimes others forget or they could have bought when market conditions were different and sellers gave concessions toward a buyer’s closing costs. In today’s market, that just isn’t realistic.
5) What you Qualify for is What you can Afford
This one is IMPORTANT. Just because the loan officer says you can qualify to purchase with a $600,000 loan amount doesn’t necessarily mean you are going to like the payment that comes with.
We highly encourage all of our clients to prepare a household budget and see what is comfortable for a total monthly payment so then we can reverse engineer what that payment equates to on a price point. After all, nobody wants to be house poor!
