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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.

Property Management 101

Property Management 101

What Second Home Owners Need to Know

Most of the  homes in Port Aransas are second homes for vacationers. Most, but not all of those owners want to generate some rental income from their property in addition to the benefit of having a place at the beach for their family and friends to enjoy.
Unless the owner lives nearby and has the time and resources to manage the property himself, he/she needs to secure a qualified property manager. This is an important decision and comes with a fairly hefty price tag. Most of the property management companies are locally owned and operated and can attend owners, renters or properties in a timely manner.

IN-HOUSE PROPERTY MANAGEMENT
The condominiums that have a front desk that checks in guests are known around here as condo-tels.  Buyers need to realize that these mandate the use of their designated property managers—some of which are onsite. Generally this costs quite a bit more than a third-party management company: 37-50%.  Smaller family-owned management companies are often cheaper and more attentive just because of their size.  Rates are more like 18-21% vs. 20-25% for larger local companies with lots of properties in their rental pool.

Examples:     http://www.barefootrentalsporta.com/

                         http://www.visitporta.net/

Condos, townhouses and houses without a front desk usually permit the owner to choose their own management company, but that is changing. Some complexes are unifying the property management end by specifying a third-party management company, too.

WHAT’S INCLUDED?
So what does the owner get in return for this cut of their rental revenue? Mostly convenience! Some of the services they offer are:
• Secure online booking and payment
• Online guest comments
• Marketing through professional website with high quality pictures and descriptions of all properties
• Facilitate guest relations
• Professional housekeeping service –guests pay for this
• Inspection of property after each rental
• Stocking and restocking of needed supplies like soap, paper towels, trash bags, linens and toilet paper
• Professional service technicians and sub-contractors to address issues like AC, plumbing, lighting, etc.
• 24/7 access for renters and owners
• Unique access key codes for entry for heightened security and guest tracking (some but not all have this)
• Provision of a rental history to owners to determine amount of gross rental income generated
• Maintenance of burglar and smoke detectors
• Changing air filters

WHAT’S NOT INCLUDED:

• Extra linens
• Hurricane/storm refunds after the rental has commenced
• Liability for renters’ personal property

The convenience of having a second home rented and maintained frees owners to enjoy the property when they want—provided they place their intended stay dates on the calendar.

SELF-MANAGEMENT

Some people choose to manage their own properties but must be available 24/7 to attend to guests and maintenance issues. Most owners of vacation homes do not live in or near the area and find this to be an impractical solution. Some companies like VRBO and Home Away offer online booking and management services for a fee and are considered middle-men. Most local management companies in Port Aransas pay these companies a fee to help them find vacation renters. It is usually cheaper to book directly with the management company instead of going through these vendors, and the customer has more control/recourse–much like finding a cheap air fare on Expedia, etc., then booking directly through the airline.

PROPERTY MANAGERS WITH REALTOR AFFILIATION:

There are several excellent property management companies here in Port Aransas, many that work in conjunction with a Real Estate brokerage so that when an owner wants to sell their vacation home or buy one they’ve stayed in, they can contact the realtor through the management company. Most notably:

• Port A Escapes:  http://www.portaescapes.com/site/Home/31837/default.aspxColdwell Banker
• Port A Beach House:   http://www.visitporta.net/ Keller Williams
• Silver Sands Rentals:   https://www.silversandsvacationrentals.com/ Silver Sands Realty
• Starkey Management:   http://www.starkeyproperties.com/Starkey Properties

The link to their real estate side is on their websites.

OTHER GREAT LOCAL COMPANIES ARE:

Barefoot Property Rentals:  http://www.barefootrentalsporta.com/

TurnKey  https://turnkeyvr.com/port-aransas-texas

Life in Paradise    http://www.lifeinparadise.net/

LONG TERM OR ESTATE PROPERTY MANAGEMENT

Another option to consider if the property is not used as a short-term rental, is a long-term rental or estate property management. This is a specialty concierge service for luxury homeowners who do not live here full time, but do rent their property for two weeks or more.

Contact my friend Christian Taylor at http://islandtimepropertymanagement.com/

Her website gives a thorough description of the many service options available.

 

DO YOUR HOMEWORK FIRST
As when choosing any product or service, the buyer should do the necessary due diligence—check online reviews, get a personal recommendation and/or interview the property managers on the phone or in person. This is a highly competitive business and a huge expense to the home owner. The consumer has lots of choices and should do their part by being informed. Bigger isn’t always better. Management companies that are small and/or family owned sometimes provide a higher level of personal service because they have fewer properties to oversee. And when you or your guests call/text, it’s often the owner of the business whom you’ll speak to.

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.

Port A Property: What Matters Besides Location?

When considering buying a vacation home in Port Aransas, whether for family use and/or vacation rental, there are many factors to consider. Other than the first three rules of real estate: Location, location, location…. what’s number 4 and 5?

PRICE:
Topping that list, of course, is price. Talk to your lender to see what you can qualify for. Better yet, check your cash reserves and see what you could purchase outright. As Dave Ramsey says, “Cash is king!” You can usually drive a better bargain with cash; the closing costs are much lower and the time to close is much quicker.
If buying a property for rental income, get your hands on a rental history.

Keep in mind that you’ll only see the “Gross Rental Income.” Your smile may fade somewhat when you start deducting fixed costs such as management fees, property taxes, interest paid on mortgage, opportunity cost, HOA fees, insurance and maintenance. (More on that in my next blog.) If the property is zoned for short-term or nightly rentals (R-2) but has not been in the rental pool, try to obtain a rental projection. You can usually get one for free or a nominal cost from a local rental management company. Ask your agent for help on this.

AGE OF THE PROPERTY:

Materials:
Once that’s decided, consider the age of the property because newer properties have less wear and tear from other renters/owners. Modern construction methods and materials are better. Salt is a killer corrosive and takes a heavy toll on any metal surfaces outside, including screws and bolts, door hardware and garage doors. Exterior surfaces covered in Hardy Plank® siding or stucco stand up better in the briny air than wood. While brick is a good option, it often doesn’t convey a “beachy” feel to your coastal home.

When it comes to roofing, choose galvanized steel, aluminum or tile. It’s more expensive than composite shingles but lasts longer and stands up to the punishing ocean winds. The AC unit takes a beating in salt air, so newer properties’ AC will be in better shape.

Instead of pressure-treated wood trim, decking and railings, newer properties use vinyl railings and Trex® decking. Both look great and last longer because of sun and wind resistance and don’t attract termites and other wood-destroying insects.

Properties built before 1978 have the possibility of the use of lead-based paint and the seller must verify that either it’s been repainted since then (!) or that they have no knowledge of the use of such paint. Contemporary homes and condos use impact-resistant windows that can withstand high velocity winds and flying debris. They are usually vinyl or vinyl-clad and are more energy efficient.

Design:
Besides the practical matter of better technology and building materials, newer homes look….well…New! They use pastels or intense cheerful colors that fit the tropical theme and architecture, especially here in Port A which is distinctively coastal–as opposed to colonial, modern or traditional. Port A’s style isn’t trendy, though. It’s been around for the past 10-20 years because of its timeless good looks. And if the current building boom is an indicator, it’s a style that will persist.

Newer properties usually have more modern interior features such as open floor plans, low-entry tile showers, granite tops and stainless steel appliances, glass tile backsplashes and nickel or bronze finish plumbing fixtures. They employ other up-to-date design features like wood-look ceramic or vinyl flooring. Many are finished out with shiplap siding on the interior walls and/or ceiling. This not only looks great, but can stand up to the heavy wear and tear by renters much better than sheetrock.

Although carpet is warm, cozy and quiet, it’s not a great choice at the beach. You just can’t keep the sand out! So most newer homes use little or no carpet, instead opting for hardier flooring such as ceramic, laminate, or vinyl strips.

Trends: 
Another trend is emerging in Port A, especially in the luxury market: living areas on upper floors. Since the price of lots is expensive, larger homes go vertical which best optimizes your slice of the ocean or marsh view. The kitchen, dining, and living areas are typically on the second floor, and if there’s a third floor, that’s where you’ll find the master suite. Guest rooms and storage are on the ground floor. If the home is really high-end, you can access those upper stories via your own personal elevator!

Because of the threat of flooding, many newer homes are built on stilts. They may or may not have garages or storage rooms on the ground floor. Otherwise, there’s a parking area under the home which also serves as outdoor living area that’s shaded. If the ground floor wasn’t originally finished out for living space and you enclose it later, it (and its contents) may not be covered on your insurance policy.

Assessments:
Older properties are more expensive to maintain in the short run and in the long run. If you buy a condo, house or townhome with a Home Owner’s Association (HOA), you might find higher dues to keep the property in good shape, especially those older properties nearer the water’s edge. Also, thumb through the “sticky pages” of the deeds and covenants package and ask your real estate agent to find out if there’s an “assessment” planned. To cover major renovations like new roofs, exterior painting, pool updates or parking resurfacing, HOAs bill the owners. Depending on how old the property is and how long they’ve deferred these maintenance issues, this assessment could climb to $5000-$10,000 or more per owner. Usually but not always, when a property is sold, the seller pays for some or all of this cost. Bottom line—-consider the age of the property! …..It’s a thing.

For more buyer tips:      http://myfavoritebeachproperty.com/index.php/buyers/

To read my Zillow reviews:    https://www.zillow.com/profile/lisahood25/#reviews

Why choose Keller Williams?    http://www.kw.com/kw/mvvbp.html