You can find townhomes throughout the region and in ever increasing numbers. 

The nature of the townhome is that it allows for increased density and with land and construction costs increasing as rapidly as they are, town homes can provide a more affordable option than detached single family homes. 

The primary difference between condos and townhouses is that the owner of a townhouse owns the ground beneath them where a condominium does not. 

This makes them easier to finance than condos.

Things to note about Townhomes:

• In a townhouse, you own the land upon which you sit.
• They are usually connected on one side (or both) and thus noise (if not soundproofed properly) can affect your experience.
• Townhomes are often part of an overall community and often come with a clubhouse, pool, tennis court or other common amenities. 
• Townhouses also have dues, but they are typically less than in a condo because the burden of maintenance is the owner’s. In some cases, townhomes will have exterior maintenance included.
• Townhomes can be a good investment if the cost of land is expensive and the demand in the area is high. Most people prefer a single family home, so townhomes prove to be good investments in areas where the single family home is far more expensive. 

Condos, at least in Richmond, tend to be smaller than single family homes and as a result, they can be less expensive and thus a good option for an entry owner.

Things to note about condos:

• Condos are different from a single family in that the land and much of the structure in a condo is owned collectively. In a single family home or townhome, you actually own the dirt upon which the property sits.
• The condo will come with ‘dues’ which are your contribution to the expenses and upkeep of the building and grounds. They contain a small portion that goes into the bank for future repairs (the reserve account) so that when the roof needs replacing or exterior painting, there is money in the budget to do it.
• The condo association is effectively a small government that runs the condo. Residents vote on decisions and elect officers who run the condo (usually in conduction with an outside management group).
• Bad news –– the associations can get kind of prickly, especially over increases in dues or large repairs.
• Good news! Maintenance is typically nil and there are usually some additional amenities that make it a cool place to live (pool, exercise facility, security, elevators, parking, etc).
• An important thing to note –– the difference in how condo mortgages are underwritten can make a condo a bit of a challenge to finance. Ask your lender about the differences and how they may impact your ability to secure a mortgage.

{ PRO TIP } Condo mortgage finance is a specialty and very lenders know it well. Make sure that you are working with a lender who is versed in the differences between condos and single family homes. Ask them ‘What percentage of commercial density is allowable in a condo before a variance is required?’ If they can’t answer, then go find another lender.

Whether it is the impact of HGTV or the rapid price increases, the flip has become popular.

A flip is nothing more than a person who buys a home in need of updating and repair, does the work, and then remarkets the home at a higher price in the hopes of making a profit. 

{ PRO TIP } If you are considering a flip, check and see what the flipper paid for the home. If you see a $300,000 purchase price and a $375,000 listing price, you can be sure that the systems were not updated. $75,000 is not enough money to update systems AND install a new kitchen AND pay the carry costs AND pay commissions. 

Flippers serve a valuable purpose in that they can take a home that is either substandard or even condemned, and bring it back to life in order to provide a living option for an owner who does not have the ability to do the work. 

{ PRO TIP } ‘New plumbing and electrical’ can mean a lot of things. Did they bring additional power to the home or just add grounding to the existing wiring? Did they replace the drain line in the house or did they replace the sewer line all the way to the street? If the seller is vague on details and won’t merge the list of repairs into the contract, you might want to pass.  

However, the regulation and oversight for a ‘flipped’ home is suspect at best and the level of renovation is often hard to tell. 

Many ‘flipped’ homes are rebuilt correctly with permits issued and code violations updated. Other times, cosmetic flips are performed where the systems are not updated, only the visible items such as flooring, cabintety, counter tops, and fixtures are replaced. 

Before purchasing a flipped home, be crystal clear on the level of renovation and the reputation of the flipper. Don’t fall in love with the decor and how cute it might feel –– dig deep and find out what was actually done.

The lure of a new home is powerful and comforting on many levels. I think deep down, we all want to live in a brand new home at some point in our lives. 

But is it a good idea?

It can be if you really know what you are doing and why you are doing it.

Know this about new homes: You rarely steal them. Typically, each new home that sells will be priced at or above the most expensive last new home to sell. As neighborhoods build out, prices tend to rise (with the obvious exception of 2008-2011). So, if you are going to be seeking a new home, it is important that you are committed to being there for a while.

New homes tend to be broken down into two categories:

• Speculative (Spec) Homes

• The SPEC home is a home that was started before the buyer emerged. Typically, a builder will like to have a few SPECs standing so that a buyer who needs to be in a home in the next 90 days can still make some décor selections and take possession at a reasonable time

• Ground Up or Contract Houses

• Other times, a client will want to choose a specific lot and have a great deal of input as to what gets built. These buyers will literally watch their home get built from the ground up and wait anywhere from 6 months to a year for it to be completed.

Types of Builders

Like the spec vs. contract job, there are also basic types of builders:

• Custom builders
• ‘Semi-custom’ builders
• Production Builders

Custom builders

As one would imagine, the custom builder builds fewer homes per year and builds very few that are alike. They also tend to operate in the upper price points and not in large scale subdivisions. 

A good custom builder can take your plan or theirs (or even a series of ripped pages from a magazine) and build something to the buyer’s tastes.

Custom builders build the fewest homes per year, but tend to biuld at the highest price points.

Semi-Custom Builders

The semi-custom builders tend to build 20 to 40 houses in a year and will have a cadre of plans that they can modify to the purchaser’s tastes. 

They will build at the upper middle price ranges and try to position themselves as higher quality than the production builder, but less expensive than the true custom builder. 

A semi-custom builder will also include more upgraded features as standard the production builder.

Production Builder

The Production Builders can be found in the middle price points (or lower) where absorption is greatest and will build upwards of 50 houses in any given year. 

{ PRO TIP } I once had a client walk into the selection center of one of Richmond’s production builders and walk out with a price that was close to 25% more than when he walked in. The crowning upgrade was the remote control that could turn on the shower while lying in bed so as to not have to get out of bed and then wait for the shower to warm up. 

These builders will often have their own showrooms, complete with design staff, whose goal it is to get you to upgrade to the house that looks like the model you fell in love with. 

Production builders make their money in volume and efficiency (and upgrades) so customization is not their strong suit –– and they will KILL you with change orders.

{PRO TIP} Production Builders are masters of the model home. I once went to a new neighborhood where the sign read ‘From the $400’s’ but the model was listed at $1.1M. While that isn’t illegal, it felt misleading. If you go to a model, assume that almost everything you see is NOT standard. 

Negotiating With Builders

Negotiating with each type of builder differs as well.

Negotiating with a production builder is like negotiating with Target; you don’t so much negotiate as you watch for sales. By keeping an eye peeled for incentives (usually to coincide with quarterly or yearly production goals) you can probably get a slightly better deal from a production builder. Look for notices like ‘Hardwood floors throughout if you contract by x/x/xxxx’ or ‘Upgrade to our Wolf and SubZero package with a full price offer!’

If you want a deal from a semi-custom builder, find a spec home. Usually, a semi custom builder uses a credit line to finance their spec homes and if they have too many, they cannot start the next one. If they have a spec sitting, they are better off selling it to you at a slight discount and start the next one. 

{ PRO TIP } Ask a builder what their most popular plan is because odds are, they have built it so many times that they know their costs well and have engineered waste out of the plan. A builder’s most popular plan typically offers the best value. 

The true custom builder generally won’t negotiate too much, especially if they are building an entirely new plan. If you can build something close to what they have built before, they can usually sharpen the pencil a bit and find some room to work with you on price.

{ PRO TIP } When you negotiate with a builder, you are negotiating with an expert. The entire builder life is one big negotiation and any builder worth their salt is still standing because they are good at it. Builders negotiate with banks for credit, with suppliers for materials, with contractors for labor, with the county for permits and inspection, with developers for land, and of course, with clients, over and over again. Don’t try to trick them –– it makes them NOT want to work with you. 

So if you are going to build a new home, do your homework, have a plan, and know that the house you build should be the home that you live in for some time.

Oh, and it is kind of fun…

So you want to buy a fixer upper? Cool, we have bought a ton of them. It can be fun, but it can also be a total pain. Beware.

{ PRO TIP } Most people tend to overestimate the cost of easy items and underestimate the cost of expensive items. People tend to think that wallpaper removal, painting, and / or refinishing floors is far more expensive than it actually is –– but things like moving walls is easy. 

The term ‘fixer upper’ can mean many things and generally, the term means something different to each and everyone. If you are a contractor, then your version of ‘Fixer Upper’ is different from a professional decorator’s version.

I tend to think of Fixer Uppers in the following categories:

• ‘Painter Uppers’
• ‘Wall Openers’
• ‘Rehabs’

The Painter Upper

As you would expect, a Painter Upper is really a cosmetic renovation. A home in need of paint, flooring (carpet, vinyl, wood), some drywall repair, and maybe an appliance or two all fall into the category of Painter Upper.

In reality, you are only replacing items that are non-structural. You don’t really need a handyman or contractor to oversee, you just need installers and/or a Lowe’s Credit Card.

The Wall Opener

When you have to open up the walls to fix plumbing, electrical, or structural issues, the risk increases dramatically. If you need to open up the walls to renovate a home, you better be sure of what you are doing. 

Once the walls are open, all of the trades (framing, plumbing, electrical) will probably be needed and the cost (and time) just jumped. I have seen (and had to deal with) what seemed a benign repair jump in expense substantially when the true cause of the issue was found.

{ PRO TIP }The HGTV shows make it seem like you can move walls and fix foundations for hundreds of dollars. Do not think that the costs they illustrate are in any way accurate. Watch these shows for inspiration and / or entertainment only. 

The Gut Rehab

The last type, the Gut Rehab, is a big project. 

How can you tell if you are about to be involved with a gut renovation? If step one involves the word ‘demolition,’ you are in a big project. 

While you may hope to save some of the structure (and save some money), you really know that all new plumbing, electrical, drywall, flooring, fixtures, and kitchens/baths are part of the rehab. I might also classify putting an addition on a home as a Rehab because the process is pretty similar.

In Rehab (or addition), you will probably need to have a licensed contractor oversee the work and you will need to get permits. An unpermitted job or one where no licensed contractor is used is a huge risk to you.

The bottom line is that Rehab is not the right idea if you are new to ownership. The risk far outweighs any upside.

At the end of the day, all resale homes will require some level of fixing up. The key is knowing what repairs/renovations are investments and what are expenses. A good Realtor will be able to tell you what improvements are likely to bring value in excess of their expense.

{PRO TIP } Financing a rehab is also different and often requires more cash than just the down payment. While options exist to finance rehabs (a HUD 403k loan, for one,) generally speaking they are hard to navigate, extremely inflexible, and otherwise not a great option for a beginner. Big rehab projects are often not the right first time purchase. 

This can be a great idea or a terrible one.

First, understand that a foreclosure is not a ‘thing’ as much as it is a condition. 

Foreclosures are properties that, due to the default of the borrower (meaning they quit paying), are now owned by the lender. Since the lender has no interest in living in the property, they need to sell it and typically end up taking a discount to do so. 

You can more or less buy a foreclosure at two points:

At The Courthouse – Some people will literally go to the courthouse steps and bid to purchase the property as-is, right alongside the bank that ordered the foreclosure. When you do this, you are buying with little to no guarantee about condition and will only have had a brief period to do a visual inspection.  Most times, the bank will elect to buy the property back to themselves (sounds weird, I know) and then decide whether or not to fix it up, wholesale it, or just get it habitable.

Through MLS – If the bank buys it back at the courthouse, then as soon as they know what they have and develop a reasonable plan of action, they will list it with a Realtor, place a sign in the front yard, put it in MLS and sell it. So most foreclosures are purchased in much the same way that non-foreclosures are purchased. 

But What Are You REALLY Buying?

The issue with foreclosures is that most assume a foreclosure is a good deal –– and this is not necessarily the case. While the foreclosed home may be discounted for the pricing a non-foreclosure would command, if the repair costs exceed the discount, then what purpose did the purchase serve? Why buy a home for $150,000, spend another $50,000 to fix it up only to have a home worth $200,000? People do it all of the time.

Remember – Foreclosures come with additional layers of risk, both from a title standpoint (especially now that we have millions of contested foreclosures proceeding from the crash) and from a renovation and repair standpoint. While the repairs may look cosmetic, you really never know. Once a homeowner loses the incentive to maintain the home in the face of foreclosure, things can get ugly quickly. There are a lot of horror stories about what owners in the throws of divorce, job loss, and subsequent foreclosure have done to the homes they were losing (ductwork can get abused in the worst ways…)

Do You Want a Foreclosure or Do You Just Want a Deal?

So when I hear someone say that they want to buy a foreclosure, what I’m hearing is that they want a deal and are looking to add value via renovation or repair. 

Finding homes which are in need of repair can be found through multiple channels, not just foreclosure, and a smart Realtor/Buyer team can use advanced search techniques designed to identify properties where value can be created through subdivision, substantial renovation and/or addition or tear down.

• Motivated Sellers – Often, Realtor remarks will include ‘Motivated Sellers.’
• As-is Property – When you see ‘as-is’ it usually includes some work is needed.
• Short Sales – If you are willing to stick it out, here is the list…
• Foreclosures – As discussed above…just because it is a foreclosure does not make it a good deal… but here is the list.

A final note: The type of foreclosure also matters. Fannie Mae, Freddie Mac, FHA and VA all handle the sale of foreclosures differently, but with a defined set of protocol and will often resale the property with financial incentive on the mortgage side that can have real value. Buying a Fannie Mae foreclosure with a low down payment and low interest rate can be more impactful than negotiating several thousands off of the price. 

If you think ‘big picture,’ you can find value in all aspects of a transaction.

A willing buyer and a willing seller, neither of which is under undue pressure to buy or sell, establish fair market value. In effect, all of the valuations discussed below are an attempt to reach Fair Market Value.

Unfortunately, those who have input on your value don’t always get it right –– especially in rapidly changing markets. 

If you get a mortgage, you are going to get an appraisal. The bank charges you about $500 to send out an appraiser to examine the house and compare it to other similar recently sold homes. If sales A, B, and C indicate that you are paying a fair price, the appraiser will note that the property you are buying meets or exceeds the price you are paying. Suffice it to say, probably 95% or more of the homes under contract meet or exceed appraisals. In reality the appraisal process is a moderate annoyance.

When appraisers get it wrong: This can be an issue because there is no good (or quick) way to combat the appraisal. Typically, unique properties or new properties which push prices will run for most risk of this happening.

The appraisal is used by the bank to set the maximum loan amount, so if an appraisal comes in low, it just means the buyer may have to make up the difference in cash. If cash is a constraint, then a missed appraisal can be a big deal. 

{PRO TIP} When a home receives multiple offers (say 20 or so) and the seller chooses an offer that is lower than several others (maybe the closing date suited them better or maybe the purchaser was a cash buyer), that fact is not reflected in the comparable sales. In other words, an appraiser won’t know that the $400,000 sale could have been as high as $425,000 had the seller accepted a riskier, but higher, offer.

Use these estimates with caution; they don’t mean much. If you want to know roughly how much it costs to buy a 4 bedroom home in Salisbury or Wyndham, then yeah, look at Zillow.

Without giving too much detail, just know that Zillow’s estimates do well when the market is static, there are numerous recent sales that are similar, and the age of the houses is tightly banded. When Zillow has to estimate house values with irregular lot sizes, varied ages and / or architecture, or where values shift quickly (urban areas), then the accuracy decreases quickly. 

We like to tell people that Zillow is a tool that should be used IN YOUR ANALYSIS, not a tool that should be substituted IN LIEU OF YOUR ANALYSIS. 

{ PRO TIP } Zillow’s algorithm uses the asking price as an input to its valuation. So what a seller is asking for a property impacts the Zillows estimate. Really?

The assessment (or TAX assessment) is the level at which the local municipality (town, city, or county) will tax your property to pay for schools, fire and rescue, and other county services. Your assessment is the county’s (or town’s) estimate of the value of the property.

{ PRO TIP } When you see a low assessment relative to the sales price, odds are that the property has been improved since the last time it was sold and the county doesn’t know about the improvements. This probably means the work was probably performed without a permit. No permite is not necessarily an issue if it was done by a licensed contractor, but it does lead to some additional questions to ask. 

In reality, the assessment is about collecting maximum tax revenue. The county or town attempts to value property high enough that the owner thinks, “hmm… yeah that sounds about right,” but also not so high that they complain. If the county can perfect this number, then they will maximize their revenues and minimize challenges.

Two things to note about assessments: One is that if the home has sold recently, then the county will usually set the assessment equal to the sales price. So recent sales will usually make the assessment more reflective of market value. Secondly, not everyone tells the county about improvements they make to a home, so often these are not reflected in the assessed value.

The assessment is not a particularly useful number other than for “back of the napkin” types of valuations.

A CMA is more of a Realtor’s version of valuing a property –– and when done properly, is the most accurate of all of the methods. 

{ PRO TIP } A good CMA should include some adjustments for pending sales and inventory levels –– not just past sales. You can gain a lot of insight when you know how to use other measurements as indicators of market conditions. 

A good CMA not only takes into account past sales, it takes into account current market conditions (not just past ones) and can use all sorts of additional information to arrive at a more accurate price for a home.

Whereas an appraiser is hamstrung by strict protocols in how the value is derived, a CMA is far more open ended in how values can be reached. 

{ PRO TIP } In markets where pricing is moving quickly in either direction, appraisals tend to depart from FMV and cause either over (or under) valuations. These poor valuations cause issues with financing and have absolutely caused otherwise solid transitions to blow up because the appraised value came back at less than the sales price. 

The name on the sign works for the seller. 

While they are bound by the same code of ethics and fair housing laws, their job to get the seller as much money for the property as possible. 

A good listing agent can make a log cabin look like it’s the Taj Mahal (at least on paper) and make sure you pay as much as possible –– and with terms that strongly favor their client. 

Why? Because they work for the seller.

When you call the name on the sign, you are calling the seller’s advocate, not your own. It is akin to asking your spouse’s divorce attorney for advice –– do you really think you will get an objective response?

Most people elect to have a licensed home inspector do a ‘whole home inspection’ within the time frame specified in the contract. (The American Society of Home Inspectors or ASHI is the professional group that most reputable inspectors belong to.)  

{PRO TIP} Inspections are difficult to navigate and can be some of the biggest stressors in any purchase. Inspection reports can seem daunting for both buyer and seller, but odds are there isn’t anything that can’t be fixed. Far too often, emotions override logic and a series of small items cause a perfectly good contract to blow up. An inspection should focus on big issues (roof, foundation, mechanical equipment) and not little items (doorbells, squeaky floors, or drippy faucets.)

Typically, this entails the inspector checking out the entire house –– literally from the top (roof) to the bottom (crawlspace) and handing you a report of the home’s condition, including needed repairs and their estimated costs. 

Know that the inspector can only inspect what they can see (meaning the inside of the walls go largely un-inspected) or what they can reasonably reach.  

Often, an inspector will tell the buyer that they should ‘have a licensed HVAC tech service clean the unit’ or ‘have a roof inspector check for leaks in the SW corner’ if there is something a little beyond their capabilities. The inspection report is what will drive the second round of negotiations over what items will be repaired or credited to the buyer.

The closing attorney is the person who actually legally transfers the home from the seller to the purchaser. 

Effectively, the closing attorney takes all of the documents between buyer and seller, bank and buyer, and title insurance and buyer, puts them all together, gets you to sign everything, collects and distributes all of the money, and then records everything at the courthouse to make it official. 

Some elect to save money by allowing the title company to close the transaction, but we typically recommend an attorney.

To expand on the point above, a real estate transaction can be legally closed by either an attorney or by a Title Company. 

A Title Company typically costs slightly less and can basically provide the same service with one major exception – legal advice. If a closing begins to go poorly (inspection dispute, lender delays, personal property issue) the Title Company cannot offer legal advice unless they have an attorney on staff. 

In the large majority of closings, the attorney who is closing the transaction will offer free advice related to the transaction and can either keep a deal together or minimize the likelihood that a small dispute escalates into something far more expensive. 

Generally speaking, the difference in cost is anywhere from $100 to $300, and having legal advice built in as part of the closing fee is generally worth the incremental cost.

If you are using a mortgage company, you will have been in quite a bit of contact with your mortgage professional. We will talk more about the lender in the ‘pre-qualification’ section of this post.

Okay, not your appraiser –– it’s the bank’s appraiser but you still pay for it. 

The appraiser is a neutral third party who gives their opinion on the value of the home. They are required to submit their estimate of value on a standardized appraisal form. 

They select the three most comparable recent sales and compare them back to the home you are buying. 

Hopefully it will support the price you are paying. While the flaws in this process are numerous, it is the way the game is played. We discussed the appraisal in the section labelled ‘Appraisals’ in ‘Valuations.’

Another scenario (and this happens ALL of the time): You are out in the car and you see a home. You don’t want to bother your buyer’s agent so you call the listing agent directly. 

This can get you in trouble because, if you have signed a contract with your buyer’s rep and the listing agent shows you the home, they may be entitled to the entire commission and you might be responsible for compensating your buyer’s agent. 

If you are going to call on a sign –– or walking into an open house without your agent –– then make sure to tell the listing agent you are working with a buyer’s agent. Most agents will ask if you have your own agent, but not all do. 

At the end of the day, you are not bothering your agent if you ask them to show you a home. It is their job.

Being Pre Approved is better. 

Pre-approval means verification of credit, income, debts, and assets. Becoming pre-approved means the lender has been able to verify that what you said in the conversation is true and that you are reasonably certain, provided nothing in the financial picture really changes, that you are qualified to purchase the house you choose within the budget allowed.

Being pre-underwritten is the highest level. It takes it even one step further by not only verifying the information supplied, but actually running all of the income, debt, and asset verifications through the underwriting. 

{PRO TIP} Did you know that your credit score changes based on what you are applying for? Your credit score for purchasing a car or opening a credit card is different from the one you use to purchase a home. Credit score services don’t like to tell you that.

Going through the pre-underwriting is especially important when job changes have occurred recently, commission (or a bonus) is a large percentage of the income, or there are other issues which might give an underwriter pause about giving you credit for your full job history or all of your income. 

Remember, the amount of income you think you make, the amount of income the IRS thinks you make, and the amount of income FHA/Fannie/Freddie think you make can all be vastly different.

You need to insure the home against damage from fire, storms, or other events that could affect the value of your home. This is nothing more than ‘accident’ insurance for your home and can be obtained by any number of property and casualty insurers. 

The bank needs to know the property is (or isn’t) located in a flood plain and would require flood insurance. The ‘flood cert’ tells the bank that your home is / is not in a flood plain and if so, what type of flood plain it is in. 

If you are getting a mortgage, the bank will typically want to pay your taxes for you (as well as your insurance.) Why? Because if a borrower doesn’t pay the taxes, the county (or city) can seinze the house and sell it to pay the back taxes. If that happens, the bank loses.

Someone needs to record the transfer in the public record so that everyone can tell who owns what –– and recording has a charge associated with it. Recording fees are a function of the sales price. 

The attorney or title company that handles the settlement will charge something for their work, too. Generally, a title company’s charge will be lower than an attorney’s charge, but title companies cannot offer legal advice unless they have an attorney on staff. 

Often, you will see charges labelled things like ‘origination fee’ or ‘underwriting fee’ or ‘document review fee’ on the closing statement. These are fees that the banks charges you to loan you the money (yes, it pads their margins a bit.) If there is a fee on the closing statement that was not disclosed, the bank can get in a lot of trouble so generally speaking, these fees were disclosed early in the process. 

In the escrow section, you will see charges to the borrower (typically) for taxes and insurance to be paid in the future –– even though the bill is not due yet.

If the bank is going to pay the taxes and insurance on your behalf, then they want to collect enough to be able to pay with your money when the bill is due –– and not have to pay with their own money.

In effect, your mortgage payment will include 1/12 of the cost of insurance and taxes so that when the bill comes due, the money is in the escrow account to pay the bill.

Your escrow account will rise and fall and periodically require adjustment as the taxes and insurance adjust. 

The prorations section on the closing statement is where charges are ‘zeroed out’ between the purchaser, seller, lender, and any other party to the transaction.

As an example, if the seller has already paid the taxes for the year, but the settlement date is in April, then the seller would be entitled to a credit back for the taxes that were paid for time they are not going to own the home. 

The proration section will have a series of credits for things like taxes, heating fuels, or other items which are paid irregularly throughout the year. 

Title Insurance is an insurance policy you buy to protect your basic ‘property rights.’ Title Insurance legally insures that when you take title to the property, no one else can lay either an ownership or monetary claim against the property. 

If a title insurance company issues a policy, they are in effect saying that the title to the property is clean and if someone comes back later with a legitimate claim, then the title insurer will have to pay the claim.

{ PRO TIP } Title Insurance will become increasingly important when many homes bought at foreclosure auctions during the period of 2009-2012 trade hands again in the coming years. Many were foreclosed on by mortgage holders using less than scrupulous methods –– and it can be assured that many foreclosures will be challenged in the courts. It is wise to purchase the ‘Enhanced Title Policy’ as the insurance grows with the value of the property.

Yes, the loan process is a bit complex. Mortgage lending is the intersection of law, financial markets, insurance, and government guarantees –– and yes, the fees add up. 

Know that all of the fees you see on the closing statement should have been disclosed in detail by your lender at the time you made your official loan application, if not before.

In an ARM, the rate is subject to change at specified intervals based on the specific index it is tied to. 

Typically, the language in the ARM document will also contain caps, meaning that the mortgage rate can only adjust by a maximum amount in any given adjustment period. 

Typically ARMs are either 1 year (meaning the rate adjusts yearly), 3, or 5 years.

It should also be noted that ARM products, in addition to specifying the intervals at which the loan adjusts, also tie the rate to an index. Treasury rates, the LIBOR (London Interbank Offer Rate, which is similar to the US Federal Funds rate) or the Prime Rate are all indexes, which are used to determine rate adjustments.

In addition, you will see hybrid products, which combine elements of both the fixed and ARM mortgages. Hybrids often offer a fixed rate for a period of time (say 5-7 years) and then turn into a 1-year ARM. 

Market conditions and mortgage company speculation will often drive creation of hybrid loan products, which come into the market and leave with regularity.

It is also tempting to call the institution you bank with. This option is preferable to dealing with an online lender, but still not your best option. 

Banks do tend to have mortgage departments, but these departments are more than often filled with individuals who are more or less ‘order takers’ than they are mortgage experts. Banks also tend to have limited product lines and fewer options for the first time buyers. 

That said, many of the smaller local community banks do have good mortgage officers who know their stuff. Generally speaking, if the number you dial is an 800 number with an extension, you are not going to be served well. 

In the same way that large banks are not the best option, credit unions also tend to be limited in their scope and skill.

The credit union mantra is to have you believe that by using their services, you are receiving a benefit that you would not otherwise receive. The opposite is actually true as the credit unions have far fewer mortgage products to offer their members, and the rates they offer are essentially the same as everywhere else. Credit unions serve a valuable purpose in many respects, but their mortgage departments are not a focus and their representatives are not mortgage experts. 

Beware.

A mortgage company is, as the name suggests, a company that does nothing but mortgages. 

A good and experienced mortgage company will have 4 to 5 times the number of loan products that a credit union or online lender will have, their loan officers are required to be licensed. Each and every time a licensed mortgage officer issues a commitment letter, they are putting their reputation on the line. 

In addition to the typical loan products, good mortgage companies will have access to grant funds, shelf loans, VHDA, non-warrantable loans, ALT A, and other specialty loan options that banks and credit unions don’t.

This where the property being purchased is described using the legal description found in the tax records. Often it will be a subdivision name and the lot number. This legal description is different from the street address and it essential for identifying the correct property for the contract.

This is the section that addresses anything that will convey with the sale of the property that is not considered part of the real estate.

{ PRO TIP } The best way to think about personal property vs real property is that if you turned a home upside down and shook it, whatever fell out would be considered personal property. Lenders expect to see refrigerators and washer/dryers referenced in contracts, but don’t like to see boats, lawnmowers, furniture, or other items that can be easily removed from the property mentioned in a contract –– unless it is typical for the region (beach houses, for example) 

Items that are attached physically to the property are usually considered to be part of the real estate, while other items that are not built-in or screwed down are called personal property. 

Certain appliances you may want are not permanently attached such as refrigerators or washer/dryers and should be asked for in the personal property. 

There is a long list of items in this section of the contract that are considered to be fixtures and will automatically convey such as dishwasher, stove, window blinds, ceiling fans.  

If you want to purchase furniture or electronics, you would typically write a separate agreement called a ‘Bill of Sale.’ The lender does not want to see personal property items of large value as part of the contract price because they could be removed from the property after the sale and lower the value of a property.

One of the biggest decisions you will make is the sales price for your offer. We discuss in other sections of this guide how you arrive at this number. This is one of the most important elements of writing a winning contract but not the only way to compete.

{ PRO TIP } A contract is a 15-20 page document when completed, but only one section is dedicated to price –– which should tell you how many different ways there are to construct an offer. A shrewd purchaser and agent can use the remainder of the terms to craft the winning contract.  

When there are multiple offers on a property and you are trying to write the most competitive offer you can, the escalation clause can be used. This clause says that you are willing to increase your sales price if there are other offers higher than yours. You set the parameters for the escalation of the price with your terms.  

{ PRO TIP } Most people feel that the highest price always wins –– this is not true. A seller is under no obligation to accept the highest price. A seller may accept (or reject) any offer presented and does not have to give a reason as to why. Losing to a lower offer can be frustrating, for sure, especially when you feel as if you made the highest offer –– but realize that the other terms have value to sellers, too. 

Typically you will agree to match the highest written bonafide offer net of any concessions (like a closing costs credit). Not only do you match the price, but you also agree to beat the highest offer by adding a margin to the price. You also establish a maximum price with your escalation cap.  

For example, your starting offer may be $300,000 but you have an escalation clause to match the highest competing offer plus a margin of $2,500 up to a maximum sales price of $325,000. If the highest offer is $315,000 your sale price will be escalated to $317,500 because you add the $2,500 margin to the highest competing offer. You are only triggered to the amount of the highest offer plus your margin.  

You will only go to your maximum if the triggering offer plus the margin take you that high and you will get a copy of the triggering offer to verify the terms of the competing offer that triggered your escalation.

The financing type is a key aspect to your offer. 

{ PRO TIP } Often, purchasers will write the offer as if they are paying cash for the home, even though the plan is to obtain a loan. This is legal to do, the difference is that if they are unable to obtain a loan, they have no rights to use the financing contingency as a way to extract themselves from the contract without penalty. 

Offers can state that the purchaser will be obtaining a mortgage, or that the purchaser will pay cash for the home. Of course, sellers love all cash offers because it means fewer steps and potential roadblocks to closing on the sale.  

Most first time buyers will need a loan to purchase a home and there are many different loan types that you can choose from depending on your financial situation (e.g. credit score, cash available).  

Sellers tend to prefer offers with conventional financing with larger down payment amounts to the lower down payment loans. 

In addition to the loan type, the financing section of the contract includes the terms of the loan such as the percentage of the down payment, the cap for the interest rate, the cap for discount points used to reduce the interest rate, and the time frame during which the purchaser will be allowed to secure the loan.

This is a section that allows the purchaser to request that the seller pay a portion of their closing costs. 

Any closing costs paid on behalf of the purchaser will be viewed as a concession by the seller, meaning that the seller will view closing costs paid the same as a price reduction.  

Seller closing costs assistance can be a good way of reducing the cash needed by a purchaser to qualify for and close on a home, just know that the concession paid by the seller affects the seller’s bottom line. 

{ PRO TIP } You will often hear an agent refer to a ‘Net’ offer, meaning that the price offered needs to be adjusted by the amount of the concessions requested. An offer for $350,000 that also requests $5,000 in closing costs and a $2,000 allowance for painting is the equivalent of a $343,000 offer to the seller. 

If you are obtaining a loan, the lender will require an appraiser to offer an opinion of the value of the property to make sure that what you are paying for the home is consistent with market values. 

This is critical to understand –– the maximum loan amount that the lender is willing to lend is set by the appraised value or the contract price, whichever is LOWER. 

The appraisal contingency section of the contract essentially states that if the appraised value of the property is lower than the sales price, then the seller can agree to lower the sales price, but is under no obligation to do so. If they do not agree to do so, the purchaser can legally withdraw from the contract without penalty. 

If the purchaser wishes to continue without a price reduction, then the difference between the sales price and appraised value will need to be made up with additional cash in the form of a down payment.

{ PRO TIP } In competitive markets or where multiple offers are likely, many buyers will elect to waive the appraisal contingency and know that they have the cash reserves to make up the difference in the event of an appraisal that is low. However, if cash is a constraint, the appraisal contingency unfortunately needs to be left in place.

The EMD is a portion of the sales price that is offered by the purchaser at the time the contract is offered. It typically is a small percentage of the offer (say 1 to 3%, but can vary greatly) and is the money that can be considered ‘at risk’ of forfeiture if the purchaser breaches the contract. 

The EMD is applied to the purchase price at settlement but it is paid when the contract is written and held by either the buyer’s broker or the settlement agent. The deposit is not to be confused with the down payment.   

The size of the deposit can indicate a buyer’s level of commitment.

Properties located within a homeowners association that is covered by the Virginia Property Owners Association Act will be required to provide a disclosure package to a purchaser.  

This package is required to have several elements including rules that govern the association as well as the budget. 

Once the purchaser receives the package, you have a 3 day review period and a purchaser has the right to rescind the contract during this 3 day period if they find anything unacceptable in the disclosure package.  

There is a similar law for condo associations –– any purchase of a condo requires the seller to provide the purchaser with a package of information (the Declaration, By Laws and the budget) sometimes referred to as the resale certificate. The purchasers have the same 3 day review period and right to rescind the contract if they find anything unacceptable in the condo resale package.

Many contracts require additional documents in order to fully express the intent of the contract. The addenda section is where you reference any addenda that were written and merged into the contract. Possible addenda include:

• Escalation
• COVID 
• Short Sale
• Sight Unseen 
• Lead Based Paint
• New Homes
• As-Is
• Right of First Refusal
• Post / Pre Settlement Occupancy
• Bill of Sale

Each of these addenda can be added to the base contract in order to provide additional clarity to the purchaser’s offer. 

The place and the date for the settlement to take place is written in the contract.  

The date should be a solid target but can have some flexibility if the contingencies cannot be satisfied by the date stated in the contract. If difficulties are encountered any change to the settlement date should be communicated to all parties involved. The settlement agent is also named here.  

It is a good idea to select the settlement agent when writing the contract so the closing process can be started as soon as possible. 

The settlement agent can be an attorney or a title company. Using an attorney, especially for your first home purchase, can be a good idea because they can give legal advice and explain legal documents while a title company is not able to give legal advice. 

When you make an offer on a home, you need to include a date and time at which the offer expires. Once an offer expires, the seller cannot accept the offer and bind you to it. 

Often, especially after protracted negotiations, the offer / counter-offer back and forth has caused the offer to expire and unless the deadline is extended, the contract is not valid –– meaning either party can walk away without penalty.

{ PRO TIP } Note that the expiration date does not mean an offer must be presented by that time, only that the offer is no longer valid after that time. Far too many uninformed agents (and their clients) feel that an offer that expires by 5:00 pm on Tuesday must be presented by then –– which is not true. The listing agent is required to present all written offers within a reasonable timeframe, not by the expiration date. 

Typically, a day or two (or sometimes the morning of), the buyer and the agent will do a walk thru of the property to make sure everything is in order.

It gives the purchaser the chance to inspect repairs, make sure any personal property that was a part of the transaction has not been removed, to make sure that all of the systems are still working properly, and to make sure the property was not damaged when the seller moved out.

{PRO TIP } In a shocking number of cases, systems seem to break between the inspection and settlement –– especially if the home has been sitting vacant for several weeks. This is especially true if the seasons are changing and both the heating and the cooling is getting triggered on the same day. 

In far more cases than not, everything goes well –– but not always –– especially when repairs are involved and the seller has been difficult. 

{ PRO TIP } You can always tell when you have a difficult or slack seller. If you get the sense that the work is not being done as agreed to, do the walk thru early. There is little you can do on the day of settlement other than not close, and that can bring in a host of other issues. Walk the property early and/or multiple times if you sense something isn’t being done.

If repairs are being done, make sure to get the receipts from the seller and make sure that if the repairs were supposed to be done by licensed contractors, the receipts are shown to be from licensed contractors. It is also wise to ask for repairs in difficult places to see (roof / crawlspace) are photographed as proof. 

{ PRO TIP } A license is a contractor’s lifeblood and can be taken away for a myriad of reasons. Using a licensed contractor is an insurance policy for you that the work performed was done in a workmanlike manner and to current code requirements. How an addendum for repairs is written is key and should include the language like ‘All repairs to be completed prior to closing by licensed contractors in a workmanlike manner that would pass without exception within the trade. All receipts and/or warranties shall be provided to the purchaser prior to closing.’

Any credit you are to receive for whatever reason (closing costs, repairs, other allowances) should appear on the CD. Make sure to consult with your lender on how these credits are to be legally inserted into the contract. 

Certain loan types have a cap on the amount of credits that a purchaser can receive and if you have agreed to a $5,000 credit, but your loan type only allows $2,000, then the $3,000 credit is lost. 

Depending on the type of home you are purchasing, often a warranty (or warranties) accompany the purchase. 

{PRO TIP} A product called a ‘Home Warranty’ is often provided by the seller as an insurance policy for appliances or mechanical equipment if it has a bit of age on it. The policies can be valuable if a purchaser’s cash reserves were used in the down payment and a major repair is required soon after closing. In new houses or recently renovated homes, a home warranty can be redundant if manufacturer’s warranties already offer coverage for most of the major systems. 

A new home comes with numerous warranties on both the home itself, as well as the manufacturer’s warranties on the mechanical equipment. 

Other times, a seller can purchase a 3rd party ‘home warranty’ that covers the existing mechanical equipment for up to a year.

You should receive a copy of any warranties at settlement.

The actual act of settling occurs when you sit down and sign all of the paperwork it takes to transfer property.

Make sure to bring a driver’s license or other picture identification in order to prove it was actually you that signed the documents. 

Block about an hour or even a little more if you like to ask questions. 

When you are done, you get the keys!

The CD should detail the check you will need to bring to the closing table. In effect, the check you will need to bring will be the difference between the price of the home and the amount of the loan after you adjust for credits and deposits.

Some purchasers would prefer to have the money wired to the settlement agent in lieu of bringing a cashier’s check or other certified funds from the bank.

If you prefer to wire funds, DO NOT RESPOND TO EMAIL WIRING INSTRUCTIONS. Scammers and other internet thieves have sophisticated algorithms that scan emails and identify you as a purchaser of a home. Once they have figured out you are buying a home, they will send false writing instructions and steal your money.

It happens far more often than you realize. 

If you are going to wire funds, please speak directly with a representative at the settlement office for instructions.

Possession begins at settlement, unless otherwise agreed to, in writing, prior to settlement.

In certain cases, a buyer may require possession before closing (called Pre-Settlement) –– and this always seems to happen at the last minute. Typically, a delay in settlement pushes the closing date beyond the time where the purchaser needs to vacate their property. With a seller’s approval, possession can be granted until settlement occurs.

In other cases, a seller needs to maintain possession after settlement has occurred. This is most common when the seller is building a home and it won’t be ready by settlement. Again, it can be agreed to by both parties. 

{ PRO TIP } A lot has to happen to make settlement work on the appointed date. A shrewd purchaser will leave a bit of a gap between when they settle on their new property and when they have to vacate the old one. Yes, it costs a bit of money to extend a lease or have some other option, but 1 in 3 settlements have some sort of delay and if you, as a purchaser, have nowhere to go and are forced to put your stuff into storage, it gets expensive and annoying quickly. Don’t assume that everything will go off as planned because so much is beyond one person’s control. 

Make sure you changed the utilities to your name. We cannot tell you the number of times a new owner called in a panic because the power is off and they don’t know what happened. 

Turning any utility back on is far more expensive (and annoying) than changing it over without interruption of service –– so invest the time several weeks in advance of settlement in getting the bills changed into your name as of the date of closing. 

Yes, sitting on hold with the power company is annoying, but having a dark home for a few nights is more so.

The Mid-Atlantic region is a humid region and instances of wood destroying organisms is fairly common in our market.

Part of the seller’s legal responsibility (unless otherwise waived) is to have a pest company inspect the home and make sure it is free of wood destroying organisms.

It is a good idea to have a regular (yearly) pest company come and check your home for termites or other pests that, if unchecked, can do significant damage. 

For not that much money, a contract with a licensed pest control company is a smart move. 

Make sure your Homeowner’s Association (or COA if a condo) knows you are now the owner. 

You will want to know about meetings, officer elections, by laws modifications, capital expenditures, maintenance, and / or other community news so that you can participate or be notified.

The HOA should know you are the new owner, but it is always a good idea to double check that they have your contact information.

Nothing is time proof –– so make sure to stay ahead of maintenance. When you are a tenant, you get to call the landlord when something breaks. As the owner, maintenance is now your responsibility. 

So make sure to keep exposed wood painted, HVAC serviced, gutters clear, siding power washed, drains cleaned, mortar filled, grout clean, filters changed, and trees limbed up and away from you home (to name a few).

{ PRO TIP } Your home inspection report is a great resource here. Most inspections note the useful life of the different materials on your home and will also list items that are still functioning, but you need to keep a close eye on. Take this list to heart. 

The benefits of ownership are many, but come with responsibilities, too. Don’t assume that houses last forever without your participation.  

Your agent probably has a team of people who can help you stay ahead of maintenance so that your home will last and big ticket repairs will be minimized. 

If you got a survey done on your home, keep a copy. 

Fences, utilities, yard maintenance, sheds, additions –– all of these become far easier when you know your property lines. 

Keep a copy of your appraisal, too. 

If you want to contest your assessment, open a credit line, or defend your home’s size to the next purchaser, the appraisal is super convenient to have laying around. 

After you’ve settled (and hopefully written your agent a great review online), your relationship with your agent doesn’t have to end. Homeownership is a big responsibility and although it’s an important investment and an exciting next step, there may be items that show up along the way that need repairing or replacing, an HVAC that breaks or roofing that needs fixing, and you may feel overwhelmed. Your agent can continue to be a great resource to you. They have a list of vendors that they’ve worked with who they trust and recommend. 

Even if you’re two years into living in your home and you just want to know your home’s value and/or the value of other homes in your neighborhood, you can always reach out to your Realtor for their expertise.