Big Bear is mainly a second home market, so I don’t often get the opportunity to work with first time buyers. This makes my job easier in many ways as I usually don’t have to explain every step of the process and what it entails.
Lately, however, I have found myself working with some clients who are first time buyers and I have been answering many questions I take for granted folks already know. For a first time buyer the process can be intimidating and a little overwhelming. I thought I would take this opportunity to answer some basic questions I have been asked lately and hopefully make someone else’s home buying experience a little easier.
1. What is the purpose of the appraisal and who pays for it? The appraisal is ordered by the buyer’s lender for the express purpose of determining the value of the property the money is being loaned on. If the value is too low, the lender will, in most cases, refuse to fund the loan unless the borrower can kick in the funds to make up the difference, or the seller agrees to renegotiate the selling price. Because the appraisal fee is generated by the buyer’s lender, the buyer is responsible to pay for it. Unless the seller has agreed in the contract to credit the buyer some closing costs that is.
2. Does the seller have to make repairs to the home I am buying? In short, no. The contract spells out clearly that a home is sold in “as is” condition and the seller is in no way required to make any repairs on the property. That being said, most traditional sellers are usually willing to make some repairs in order to make the transaction close smoothly. With bank owned or short sale properties, it is usually very difficult to get any kind of repairs done. With short sales, the seller is in financial distress and does not have the funds available to make any repairs. With bank owned homes, it is usually the bank’s policy not to do any repairs of any kind.
3. What are closing costs and who pays them? Closing costs are the monies required at the end of the escrow to close the deal. They are everything from title insurance fees to taxes. Typically each side generates their own closing costs and are responsible for paying them. If you are getting a loan, that is where the majority of your closing costs are going to come from. In many cases, you can get the seller to pay your closing costs by raising the price of your offer. However, if the property is very close to value, the higher price can make the home appraisal come in under value.
4. What is escrow and who pays for it? Escrow is basically a neutral third party that coordinates the whole transaction and makes sure everything runs smoothly and correctly. The escrow company works with the lender, insurance, title, and buyer and seller to make sure all the pieces are put into place at the right time and all the money is distributed to the right people in order for the transaction to close correctly and on time. Usually the buyer and the seller each pay their own costs for the escrow process. However, in some cases, either the buyer or the seller will agree to pay for all escrow fees.
5. What is a home inspection and am I required to have one? A home inspection is a general summary of the property’s condition. It is not required, but highly recommended. The home inspection, in my opinion, is the most important part of the home buying process. You wouldn’t buy a car without taking a test drive and you shouldn’t buy a home without having it thoroughly inspected by a licensed professional. A home is a large investment and it is imperative you know what you are getting yourself into. Even brand new homes usually have a number of things wrong with them, let alone a house built in 1940. I have put homes into escrow only to discover during the home inspection that the foundation was sinking in one corner and the whole floor, joists and all, needed to be replaced. Without that home inspection, my clients would have been forced to spend many thousands of dollars to correct those problems. Luckily, we found them and were able to get out of a rotten deal. Because the home inspection is being done for the benefit of the buyer, the buyer hires and pays for the services of the home inspector. Believe me, it is well worth it.
I hope I have been able to shed some light on these basic questions that are actually very important to understanding the home buying process. The best thing you can do for yourself is to do your homework and find a knowledgeable, honest, experienced Realtor who specializes in the area you want to buy in. Google their name and find out everything you can about them before you contact them. If you do a search and nothing comes up, move on the next one until you find somebody you feel comfortable with.