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Who Pays for What in Real Estate Deals?

New to Real Estate? Not sure who pays for what in the deal? Here’s a simple guide to help you understand the basics. Buying or selling property in today’s litigious world is a daunting task.  With so much real estate jargon, buyers and sellers can be confused when trying to complete a transaction.  I had an old Jewish diamond broker once tell me with a wink, “Everything’s negotiable.”  That’s certainly true in real estate.  So here’s a simple breakdown of some of the costs involved and who pays for what.

Your agent will provide you with a buyer’s sheet that lays out the closing costs, and by federal law you must receive what’s called a “good-faith” estimate of your closing costs from any lender you use.

As for who pays the closing costs, that’s where your negotiating skills (or your Realtor’s) come into play. There is no cut-and-dried rule about who—the seller or the buyer—pays the closing costs, but buyers usually cover the brunt of the costs (3% to 4% of the home’s price) compared with sellers (1% to 3%).

http://www.realtor.com/advice/finance/realtor-fees-closing-costs/

Real Estate Commission

By far the biggest expense in a real estate deal is the realtor’s commission. While there is not a set percentage in any market–and indeed is illegal for brokerages to try to fix these fees in their market–most agents charge between 5%-7%.  Most of the time, this cost is paid by the seller, so buyer’s are off the hook for this one. All the more reason for buyers to sign a buyer’s rep agreement with a reputable real estate agent; they get all their expertise and negotiating skills for free.    http://myfavoritebeachproperty.com/whychooseme/

The realtor fees are split between the buyer’s agent and the listing agent, with the brokers taking a percentage of each agent’s commission. In large franchises like Keller Williams and Coldwell Banker, a portion of the commission is paid to the franchise. If the deal was procured by another agent or referral company, then part of the commission is paid to them–as much as 25-35% as a referral fee.

So while the seller may chaff at the idea of lopping off a chunk of their net proceeds, they need to realize that their agent doesn’t normally walk off with a small fortune.

Title Policy

The title policy is a type of insurance that is normally paid by the seller to the title company to make sure that the property they are selling has a “clean title.” This is an important step to make sure no lawsuits are forthcoming. This usually costs about 1% and can be paid by either party.  Always close deals with a reputable title company like Security Title  http://www.ccsecuritytitle.com/?page_id=2  Courtney Hayden is who I normally close with–so professional and thorough! Another good one in this area is Bay Area Title Company  http://www.bayareatitleservices.net/locations.php    Heidi Martinez is so helpful and always answers my “dumb questions.”

Property Taxes

Like death, TAXES are inevitable and you can be sure Uncle Sam will be at the title company with his hand out. The property taxes are prorated–that means the seller pays for the portion of the taxes incurred while they owned the property and the buyer pays for what portion of the year’s taxes that they will be owning the house.  If they are financing the property, this prorated tax will be rolled into the mortgage.  If the seller owes back taxes, they will have to get current, and their taxes, current and late, will be taken out of their proceeds at closing.

Survey

Unless the seller has a relatively current survey, a mortgage company will usually require a new survey to be done. Depending on the complexity of the property, existence of a pool and/or out buildings, the price is usually less than $500. Usually the prospective buyer will ask the seller to pay for this.  Even if the buyer is paying cash, and there’s no lender involved, I recommend that buyers either get a recent existing survey from the seller or pay to have a new one done.

Origination Fees

This a cost that the mortgage company charges for setting up the loan and usually runs between 0.5% – 1.0% Since the buyer is the one securing the mortgage, they pay this and any other fees required by their lender.

Appraisals

This one can be a sticky wicket!  A licensed appraiser evaluates the house or land according to the condition, size, location and market condition.  I have been pleased with the services of Mona Singleterry https://singleterryappraisalreconsultingllc.appraiserxsites.com/ContactUs

If the appraisal comes in less than the selling price, there’s a dilemma.  Either the seller can lower the price to the appraised value or the buyer can fork over the difference in cash or the deal falls apart.  If the real estate agent or the seller disagrees with the appraised value, they can pay for another one to be done. If they want, they can write a letter of appeal and hope to have the amount adjusted in their favor. The appraisal is done and paid for well before closing.

Home Warranty

This is a special type of insurance policy that covers the major home systems like plumbing and air-conditioning and even appliances. This is sometimes offered by the seller as a concession to the buyer and costs about $400-$500+ depending on the coverage and deductibles.  This is optional but recommended.

Some good ones are Chase McRoberts at  First American    https://homewarranty.firstam.com/ and  Bethany Fawkes at Fidelity National  http://reach150.com/fidelity-national-home-warranty/review/46331/bethany-fawkes but there are lots of other good ones to choose from.

Insurance

In areas near the ocean like the South Texas Coastal Bend, lenders usually require windstorm and flood insurance in addition to a regular homeowner’s policy. These can cost about 3-4% of the total cost of the home and are rolled into the mortgage.  If a buyer is paying cash, they can choose not get these additional policies and hope that Mother Nature shows mercy. Good luck with that!

PMI

Private Mortgage Insurance is charged when a buyer pays less than 20% down on the property when using a conventional loan.  It can cost between .3-1.5% of the loan’s value.  It can and should be cancelled when the buyer’s outstanding loan value drops below 78%.

For more information click here:  http://www.bankrate.com/finance/mortgages/the-basics-of-private-mortgage-insurance-pmi.aspx

Inspections

Even though most real estate agents check the “as is” box on the condition of the property, all buyers–even cash buyers—should do their due diligence when it comes to property condition.  This means hiring a professional licensed home inspector to go over that place with a fine-toothed comb–even if it’s brand new. Depending on the size and age of the property, this can run $350-500+.  Do not skip this step! 

After checking the roof, the foundation, electrical, plumbing and a myriad of other items, some inspectors will recommend getting additional inspections.  These might require the services of an HVAC technician, a foundation expert, a plumber (for hydrostatic test)  or a structural engineer.  These inspections are not cheap but could save a buyer thousands of dollars in the long run or prevent them from buying a bad property that’s not even fixable.

In addition to a basic home inspection, a buyer should hire a qualified pest inspector to check for the presence of or damage by wood-destroying insects like termites.  This usually costs less than $100 and well worth the peace of mind.

In the event that major defects are discovered during the Option Period (time between the offer is accepted and the closing), the buyer can request that the seller pay for some of the needed repairs.  Or they can reduce the price to cover the cost which I recommend because it is simpler to do and lenders usually prefer this option.

Sometimes the lender will require some repairs to be done as a stipulation for making the loan.  This is especially true when buyers are financing through the Veteran’s Administration as their standards are more stringent than other types of loans.  They will usually send their own inspectors and appraisers to evaluate the property.

If the buyer can not be satisfied with the solution offered by the seller, they have the right to kill the deal during the option period.

Other Fees

There are other charges incurred in a real estate transaction: recording fees, couriers, notary, document preparation fees and others.  These vary and usually can be negotiated.

Other Lingo Defined

This is by no means an exhaustive list of terms related to a real estate transaction.  Here’s a link to some other potentially confusing jargon:  http://www.realestateabc.com/glossary/

Be Aware of the Costs

Even the Bible warns of the danger of failing to count the cost before embarking on a building project. https://www.biblegateway.com/passage/?search=Luke+14%3A28-30&version=ESV

There are lots of costs associated with buying or selling property and as in any situation, consumers need to educate themselves in advance, so that there’s no surprises at the closing table. 

Who Can Help?

Always direct your question to the expert in their particular field.  For example, when you have title or closing questions, ask your escrow agent.  If you have mortgage issues or concerns, consult your lender.  Your real estate agent can and will answer questions about the contract and related documents. If you are still unclear about the explanation, hire a qualified attorney to explain it further.

For most people, a real estate transaction is the biggest financial undertaking of their lives.  It’s paramount to make sure you understand the language and terms of the deal before you sign anything.

What does LOCATION really means in Port Aransas?

What does LOCATION really means in Port Aransas?  Here’s the inside scoop!

We’ve all heard about the first three rules of real estate:  location, location, location, but when buying property in the South Texas resort community of Port Aransas, what all does that entail?

ZONING:

Since most people buying houses or condos here want rental income generation from their property, buyers must consider zoning.  Although there was talk in the Texas Congress about changing the rules, as of now, only properties zoned R-2 can be used for nightly or short-term rental.  Some neighborhood put additional restrictions on that to mandate rentals of a minimum of 14 days.  Even if a buyer primarily wants the home for their own family’s use, they should probably consider buying in an R-2 zone to rent occasionally or if their needs change.  Also, these properties are usually easier to sell.

The majority of the rental income is generated during the hundred days of summer—roughly from Memorial Day through Labor Day, plus a few days before and after.  During the off season, the rates go down and many of the properties will be rented by Winter Texans on a monthly basis.

If a buyer wants to move here permanently or know for certain that they’d never rent their home, then R-1 zoning is the way to go unless they don’t mind the constant influx of renters.  A few neighborhoods like Channel Vista, Palisades Drive and Island Moorings are zoned R-1.

OLD TOWN:                                                                                                                                                                                       

Many buyers prefer to buy within the boundaries of the original area of Port A known as Old Town, which is anything north of Avenue G.  But those properties usually command a higher price.  Since there are no laws governing what type of houses can be placed where, this area is a hodge-podge collection of older homes, new homes, mobile homes, businesses and fishing cottages.  But it is quaint and some people consider this area more prestigious and desirable.

EAST vs. WEST

Since many locals and vacationers prefer to get around town on a golf cart, and no golf carts are allowed on state highway 361, many buyers choose to buy on the east side of the highway towards the beach.  Certain crossing areas are allowed, but this limited access hampers owners from using their golf carts somewhat.  With the increase in accidents caused by golf carts, the local police are cracking down on drivers who violate this local law.

For more info on golf cart usage, click on these links:

http://www.cityofportaransas.org/Golf_Cart_License_Plates.cfm

http://www.cityofportaransas.org/pdf/ORDINANCE%202009-16-GOLF%20CARTS.pdf

FLOOD ZONES:

Since Port Aransas is at the coast, it is basically sea level–which necessitates the purchase of flood insurance which is regulated nationally by FEMA.  If someone buys their home with cash they can choose not to purchase flood insurance.   Lenders require it. Most condominium complexes cover exterior insurance—including flood and wind—with the HOA dues they collect from owners.  But the elevation varies slightly, so even a few feet of difference can mean a huge difference in cost.  To find out the flood rating on a specific property, see this link:

http://maps.riskmap6.com/TX/Nueces/

Contact a reputable insurance agent to get a quote on insurance before making a final decision.  I heartily recommend my friend, Stephanie Waterman at Farmer’s Insurance.

https://agents.farmers.com/tx/corpus-christi/stephanie-waterman

HOA’s

When it comes to neighborhoods with a Home Owners Association, there are pros and cons.  Most condos and townhomes have an HOA, but some single family home neighborhoods do, as well.  They often cover big expenses like wind and flood insurance and other expenses like exterior maintenance, pool maintenance, landscaping and parking.  For houses, they can, but don’t always, regulate the type of building materials and colors that can be used as well as other architectural restrictions that serve to maintain the integrity and congruity of the neighborhood’s appearance.  But for some, those restrictions are too intrusive and owners chaff at the idea of additional expense of home ownership.  Occasionally the HOA plans a special assessment whereby the huge expenses like a new roof for a condo will be distributed among the homeowners.  As soon as they are aware of this, they notify the owners.  If a condo is for sale, usually the seller will pay this assessment or make arrangements to do so before it closes.

PROXIMITY TO WATER

Obviously, homes closer to the water cost more.  Sand dunes surround the coast here, so there are almost no homes that are actually on the beach.  Dunes are environmentally sensitive areas and cannot be removed or altered without great cost and complications.  It’s rarely done even for a walkway or a driveway.  Homes built directly behind the dunes have a beach view provided they are built up enough or will have a view from upper stories.  However, the closer a property is to the ocean, the higher the toll it from salt. There is another way to get a water view—purchase a home or condo located near the shipping channel or in an exclusive neighborhood like Island Moorings that have canals behind them.

BEACH ACCESS:

Since most people come to Port Aransas for the beach, having easy access is a plus.  Many condo complexes and neighborhoods have wooden or vinyl boardwalks that allow you to easily walk over the dunes in Port A.  Some even are made extra wide and sturdy so that you can drive your golf cart across.  Those are only accessible to the owners and guests of those neighborhoods.  Since the dunes are environmentally sensitive areas, it is forbidden to walk over them.  Besides, they are full of stickers and rattlesnakes, so that’s not advisable anyway.  If there’s no nearby boardwalk, having a beach access road nearby is the next best thing.

CORPUS vs. PORT ARANSAS

Several years ago, a portion of Mustang Island south of Port Aransas was annexed by the city of Corpus Christi.  The county appraisal district lists those properties as being in Corpus and they are taxed accordingly (2.4% as opposed to 1.82% in Port A).  Interestingly enough, the zip code is 78373—which is the Port Aransas zip code.  (Crazy, huh?)  The cut-off point is the La Mirage condominiums located at 5317 State Hwy. 361.  Anything south of that is Corpus—for better or worse.

GATED COMMUNITIES

Although crime is negligible here, being in a gated community does offer an added layer of security for a home owner.  This is particularly important for buyers who only stay at their home occasionally and fear for the safety of their property when it is sitting vacant for much of the year.  Several areas have security gates:  Beach Walk, La Joya and Village Walk and others.

BOTTOM LINE:

As in all real estate ventures, LOCATION is the number one factor in a purchase.  Knowing what that means in a unique resort market like Port Aransas is super important to beach house buyers.  Knowing who to call when you get ready is the easy part—call me!  I’ll make it easy for you to buy a little slice of paradise on the Texas coast.