What you must know before you sell your house!

Determine your needs:

1. Why do you need to sell? This is probably one of the most important questions you have to ask yourself. And only you will be able to provide the answer. The answer, however, can involve multiple reasons and there may also be financial and emotional issues to contend with. Let's discuss some of the reasons that may cause you to sell your house:

a. Your housing needs have changed; your family is shrinking or growing; you want to change your lifestyle (for example, from single family residence to a townhome on a golf course or vice versa) or emotionally you just need a change.

b. Your employment needs have changed: employment opportunities force a job change, or a promotion may cause you to relocate across the country or move across town.

c. Your financial needs have changed: it may be advantageous to sell at this time due to economic or market conditions; a financial windfall or loss, or other financial obligations may also require you to sell your present house.

2. Should you sell now or should you wait? Two often cited cliche's are: "No one can accurately predict the future," and "Hind-sight is 20/20." Knowing this, most people still put off hard decisions until they are forced by outside conditions to take action. And some of the most powerful decision making conditions are caused by surges in the financial and real estate markets. Because of brokerage, there is a market dynamic that affects real estate transactions. What this means is that there is buyer and seller activity in real estate at all times. And whether the predominant conditions favor buyers or sellers, someone will make money in the "market" regardless of the conditions. However, if you are knowledgable in the market, or if you hire someone who is knowledgable in the market, then you have a very good chance of being part of a win-win situation. In any event, talk to your real estate advisor if you have any questions about present market conditions.

3. Time is of the essence. How serious are you is also measured by how soon you can put your house on the market. Immediately (within the next 30 to 45 days) means you are very serious; within 3 to 6 months you are moderately serious, and 9 months to 1 year or more indicates that you haven't yet made the personal commitment. In real estate, the clock starts ticking the moment you decide to market your house. For example, there are contractual deadlines that must be met and there can be serious consequences if the time limits are exceeded.

4. If you vacate before you sell should you rent it in the interim? Sometimes circumstances force you to move out of your house before it sells or before escrow closes. You may want to leave the house vacant: 1. if you have a buyer and the close of escrow is only a few days away; or 2. if you have just listed your house for sale with a real estate agent and you can maintain the financial obligations - this maintains the house in a move-in ready state. However, if you have any financial difficulties maintaining two households, then you may want to rent it for a short time. Ask your real estate agent if he/she can manage the rental for you.

5. Relocating. Often you must sell your house because you are moving out of the area. In this case you may or may not know the housing and market conditions of your next home. This is an excellent opportunity for you to talk to your real estate agent and ask them to give you relocation assistance. Your agent can make the long distance calls to arrange for someone to meet you at your destination and provide a short orientation for you and your family. In addition, your agent can arrange to have information on things to see and do in your next place of residence. You'll find having a knowledgable and friendly face to help you get situated will be a welcome relief.

6. How do you find out about schools? The easiest and most reliable source for information about schools is to go to the school district you are interested in and ask them for the most recent School Accountability Report Card (SARC). Or do a search on the Internet, as you know most everything is on the Web nowadays.

7. What sets your house apart from the rest of the neighborhood? Many people like to think their house is the best in the neighborhood. And it is for you! But how does a prospective home buyer look at your house? The following is a list of some of the factors that are important to prospective home buyers.

Factors important to Prospective Home Buyers:

-Location
-Price and Terms
-Number of Bedrooms
-Square Footage of Home
-Size of Lot
-Closet Space
-Proximity to Schools
-Proximity to Church
-Proximity to Shopping
-Built-in Appliances
-Built-in Storage
-Nearby Transportation
-Age of Home
-Special Features
-Air Conditioning
-Solar Heated Pool
-Ceramic Top Range
-Microwave Oven
-Name Brand Appliances

Preparing Your House for Sale:

8. Make a list of your house's features. What makes your house a home? Think back to why you bought it in the first place and start making a list. Is it the way the house is set on the lot, or is it the way the morning light comes through the bedroom window, or maybe a particular architectural feature. Well, all of these features will most likely appeal to one or more prospective buyers too.

a. Special Features: Certain features fall in a category of their own. These may include a wine cellar, a central vacuum system, a gourmet kitchen, or imported stained glass. Money and energy saving features also qualify; for example, better insulation, and solar heating.

9.Preparing your house for sale. To get the highest fair market value for your house, you may need to consider performing minor or major repairs. If your house is older and there is a lot of new construction in your area, you may even consider doing some remodeling. However, before you do any major repairs, or especially remodeling, be sure to consult with a professional who can advise you as to the costs/benefits before making any major financial commitments.

Minor repairs - these are things that you can do relatively inexpensively. Sometimes all that is needed is a little effort and some elbow grease. Minor repairs may include:

-General cleaning of the kitchen and bathrooms.
-Painting - be sure to properly prepare all surfaces and use the correct paint and equipment for best results. See remodeling below.
-Replacing broken or missing electrical outlet covers.
-Replacing or repairing screens.
-Cleaning sliding door tracks and windows.
-Tightening or replacing door knobs and hinges.

Major repairs - these are repairs that may require the help of a licensed contractor. Some of these may be discovered during preliminary inspections. Be sure to get more than one estimate before you contract with anyone, and make sure that they don't do anymore than what is needed to meet building codes and permit requirements. Ask for references and verify them.

Major repairs may include:

-Repair or replacement of the roof.
-Repair or replacement of wood damage caused by termites.
-Repair or replacement of plumbing, electrical, or structural items.

Remodeling - you may decide to upgrade your home and bring it up to comtemporary standards. Remodeling can involve both minor and major changes to the interior and exterior of your house. For example, you may decide to add rooms, or modernize your kitchen and baths. Some remodeling may add substantial value to the price of your house, but others may end up costing you money that could otherwise be used for the down payment on your next home, so choose which projects you decide to do wisely.

10. How much is your house worth? Your real estate agent is your best source to obtain a comparative market analysis. A house that is priced close to fair market value will sell faster than one that is over-priced. That's because although most buyers expect to negotiate the price and terms, they won't even consider looking at a house that is out of their price range. Although you may be willing to consider all offers, the buyer doesn't know that and you may have eliminated any chance of finding the buyer who is looking for a house just like yours. Over-pricing is also the single-most reason why most real estate listings expire before they are sold.

11. Working with a real estate agent. When you sell a house using an agent, you are engaging a professional who works full-time for you on 100-percent commission. Your agent also maintains a relationship of trust with you that is important in helping you find a buyer for your house. And, your agent is there to manage the entire process of bringing about a meeting of the minds between the seller and buyer and to coordinate all of the other participants in the house selling process.

a. Reasons you should work through a real estate agent:

-Marketing - more homes are bought through agents than by any other means.
-Objectivity - a fair market price is more likely to be obtained when your emotion is removed.
-Negotiation - last minute details can more easily be resolved.
-Avoid confrontational situations - it is sometimes difficult for a seller to give up a very personal part of their lives, especially to someone they don't know.
-An agent works with qualified buyers - Qualified buyers are not just looking. This has advantages for both buyers and sellers. For example, a buyer will save time and effort by previewing homes that are in their price range and that meet their requirements. Buyers can take advantage of a property that is favorable in price and terms (the so-called deal) when it comes on the market. Also, qualified buyers are looked upon more favorably by a seller. And when a seller knows that the buyer is serious there is more willingness to negotiate and accept a reasonable offer.
-The buyer has someone to call on after the sale is completed.

b. Selecting an agent. Your agent will most likely have a broad background in business and industry. Many agents have significant professional experience or education. An agent who has personal experience in buying and selling various types of real property can also be a great asset to you, and this makes them especially qualified to help you with your real estate decisions.

c. Let your agent do the legwork. It is important that you do your part by regularly staying in contact with your agent. Your agent expects you to call periodically, and you should think of this arrangement as being the same as if you were an employer. You wouldn't want to hire someone and then do their work for them would you? So don't be afraid to pick up the telephone and call your agent whenever you feel the need. Let your agent work for you. Whenever you have a question call your agent first instead of calling other agents or brokerages. This will eliminate adding confusion to an already complex process.

12. Showing your house. To sell your house - it must be seen. Exposure to the most number of people will increase the likelihood of you getting a buyer who is interested in your house. The most common methods of showing your house are through broker/agent showings, flyers and other forms of advertising, and through current technological advancements, such as the Multiple Listing System (MLS) and the Internet.

a. Caravans and open houses. The real estate agent who has your listing will pitch your house to other agents and will schedule your house to be seen during a caravan (tour) of homes for the agents in the office. This allows your house to be seen by several agents at one time. And if an agent is working with a buyer who is looking for a home in your neighborhood and price, you may get an offer. Your agent will also arrange to hold one or more Broker's Open House. This is an open house targeted primarily to all brokers and agents. Of course, any prospective buyer is also welcome. Open Houses are generally scheduled in concert with newspaper advertisements, flyers, and other promotions to attract likely buyers. These methods of showing your house are more or less effective depending on a variety of factors. When, how many, and the effectiveness of open houses should be discussed with your real estate agent.

b. Lockboxes. Lockboxes provide an excellent means of exposing your house to a particular buyer who is qualified and interested in seeing your house. With the advent of computerized security lockboxes, the advantages of a lockbox far outweigh the disadvantages. Although anyone can purchase a lockbox (for personal usage only), not everyone is given the privileged access codes to enter your house for showing. Only licensed real estate agents are provided witht the computerized and registered codes. And anyone who has entered your home through the lockbox system can be identified through the computerized lockbox security system.

c. Multiple Listing Service (MLS) and the Internet: The MLS is one of the most versitile and useful tools available to a licensed Realtor. This service provides the means to search and preview homes for sale; real estate data can be manipulated and analyzed; and it saves time and effort when presenting information about your house to prospective buyers. The MLS is not free and only licensed agents that belong to a Board of Realtors can have direct access to this real estate data.

d. The Internet is the latest technological tool that real estate agents can take advantage of to market your house. With public access to the Internet, almost anyone can obtain information about real estate. For example, information about homes, rentals, land, and investment property is available for viewing. Theoretically, anything you want to know about real estate is readily available.

13. Be loyal to your agent. Over the course of your listing agreement, your agent will invest a lot of time and effort marketing your property. Also, your agent will come to know more about your property than anyone else. But more importantly, your agent was selected, interviewed and hired by you.

As in any employment arrangement, you have certain expectations which you should discuss in advance. You must also establish a basis for open communication throughout the entire time of the listing. But remember, just because you haven't heard anything in a couple of weeks, doesn't mean that your agent isn't working on marketing your house. Many of the details should be transparent to you. That's why you have an agent!

However, you have an obligation to call your agent from time to time. Also, your agent is acutely aware of the marketability of your property. Sometimes, that means giving you the "bad news." In this case, don't shoot the messenger, instead talk it over with your agent, and weigh your options.

Also, unless there is total lack of communication, or a major personality clash which causes you and your agent not to see eye-to-eye, give your agent the benefit of your loyalty. This translates into more things being done to market your house. And the end result will be less headaches for you and more money in your pocket.

Important Note: Your real estate agent works on 100% commission with all expenses coming out of their pocket whether your house sells or not.

The Buyers:

14. The prospective buyer. There are several kinds of buyers and understanding the prospective buyers motives and knowing where buyers come from will give you an edge.

a. Investors/Speculators. These are the professionals. They are experienced buyers who are looking for a market return on their investment or they are speculating for a "good deal." In either case they are very strong negotiators. They can also afford to walk away from any transaction that does not meet their investment criteria. Investors/Speculators may also be well versed in creative financing. Sometimes, you will meet amateurs who say that they are investors. But a few simple questions can expose any misperceptions. When dealing with a professional, it might be a good idea to consult your agent.

b. First Time Buyers. These are people who recognize the advantages of home ownership. They may have been saving for a long time to acquire the down-payment, or they may have preferred renting for various reasons and just now realized the benefits to be gained by owning their own home. In either case, first-time buyers may be uncertain about their home buying decision. Remember your first time. First-time buyers recognize the commitment of buying a home and they want to be sure that they're not making any mistakes. As a result, first-time buyers will generally want to work through a real estate agent. Also, first-time buyers are not always restricted to buying the so-called "starter" home. Their incomes and lifestyles may even allow them to buy a premium home. How does your home appeal to a first-time buyer?

c. Move Up Buyers. These are buyers who may be familiar with your neighborhood. They are the best source of leads. They have already been through the home buying process at least once and they have some idea of what to expect. Move up buyers, may need to sell their present home before they can purchase yours. They may also be working through a real estate agent, so you or your agent need to coordinate all aspects of this process very carefully.

15. Qualifying your buyer. A qualified buyer is the only real buyer. Some prospective buyers do have their own financing already in place. Others, are not aware of the requirements for purchasing a house. Even though a buyer is theoretically supposed to arrange for their own financing, in practice the financing is normally arranged by the seller or the seller's agent. Some real estate agents like to pre-qualify prospective buyers themselves. However, since there are literally hundreds of different financing programs available to a buyer depending on the lending institution, it is better to have a loan officer conduct the pre-qualifying interview and completion of the loan application.

The advantages of working directly through an independent loan officer is that most buyers feel more comfortable disclosing their personal financial information with the one who is arranging to loan them the money. Also, there is no conflict of interests as when the real estate broker and lender are affiliated.

The Lender:

16. The lender. The lender is often the critical element which enables a buyer to successfully purchase a house. Generally if financing cannot be approved, there isn't going to be a sale. Therefore, it is often to a buyer's advantage to have a back-up lender. Most real estate agents work with several lenders and your agent can recommend one or more competitive lenders to the buyer.

Offer and Negotiation of Terms:

17. Lease with option to buy. This is often proposed by buyers who don't have much cash for a down payment or closing costs. Although you as a seller may consider this, unless you are prepared to be a land-lord, this really doesn't accomplish your objective which is the outright sale of your house. This is also a form of creative financing that requires a great deal of finesse to ultimately get the buyer to conclude the transaction at the end of the lease with the necessary funds to purchase the house. Tread lightly here.

18. Don't be afraid to make a counter-offer. An offer is usually accompanied by a Purchase Contract which dictates the price, terms, and conditions under which the offer is tendered. In addition, the buyer should submit a deposit of approximately 3-percent earnest money as good faith with their offer. More if possible. There is no hard and fast rule as to how much the initial offer should be, but put yourself in the position of a buyer for your house, and don't over-react to any offer. Your real estate agent is ethically obligated to present all offers. This is because, one never knows what circumstances may exist to cause a seller to accept a particular offer. Be prepared to make a counter-offer.

19. Be a strong negotiator. More often than not, your counter-offer can be the difference between success and failure. The ball is now in the buyers court. This can go back and forth several times but it cannot go on indefinitely. Remember the essence of good negotiations is to be willing to give up something that you can do without for something that is more important to you. Sometimes this process is very easy, almost effortless, but other times it can be excruciating, and this is where your real estate agent can provide you with invaluable service. One thing you can emphasize is a buyers home warranty. Ask your real estate agent about this!

20. Agreement and acceptance of the offer. Once you and the buyer have agreed on the final price, terms, and conditions it is now up to your real estate agent to coordinate and meet all of the deadlines necessary to successfully complete the transaction.

21. Closing costs. As in all business transactions there are certain associated costs. Note: Points are negotiable between buyer and seller.

a. Buyers Normal Cost. These include:

-Loan Fee
-Appraisal Fee
-Credit Report
-Document Fee
-Tax Service
-Impound Account (if applicable)
-Fire Insurance Policy
-Lender's ALTA Policy
-1/2 Escrow Fee (non-veteran)
-Prepaid Interest
-Tax Prorations
-Mortgage Insurance (if applicable)

b. Seller's Normal Cost. These include:

-Pay-off existing loans
-Interest due on existing loans
-Demand Fees
-Reconveyance Fee
-Transfer Fee
-Title Insurance Policy
-1/2 Escrow Fee (100% for veterans)
-Pest Control Report and Clearance
-Tax Prorations
-Real Estate Agent Fee

c. Additional Cost on VA/FHA Financing. These include:

-Warehousing Fee
-Document Fee
-Photo Inspection Fee
-Tax Service
-Underwriting Fee

22. Disclosures. Most 1 to 4 unit properties are required to have a Transfer Disclosure Statement (TDS) about its condition. More lawsuits are filed over non-disclosures than any other area of real estate. Make sure you take time to complete this statement fully and carefully. Civil code says that a buyer has 3 to 5 days after receipt of the Transfer Disclosure Statement to rescind the contract. This document is usually given to the buyer soon after entering into the contract. Other documents that are required include the Federal Investment Real Property Tax Act (FIRPTA), Earthquake, and Lead-Based Paint Disclosure notices, etc. Failure to supply any of these disclosures may be grounds for rescinding the contract or at the very least causing unnecessary delays in closing escrow. Ask your real estate agent if you have any questions.

FULL DISCLOSURE - IT'S THE LAW

Recent legal decisions and new legislation provide that the seller has a responsibility for revealing to you the true condition of the property. The concept of selling a property "as is," with the buyer assuming all responsibility for determining the property's condition, is not acceptable in the present marketplace. The sellers must disclose the known condition of the property to the buyer. This information should be made available to the buyer as soon as possible.

CHARM OR IRRITANT?

Having lived in this property, the seller has become accustomed to the peculiar conditions that may have developed. But for the buyer, that peculiarity may be more than a mere inconvenience. It may be an irritant that the buyer cannot tolerate. It is important for the seller to review the condition of the property with the real estate agent and take special note of any problems on the Disclosure Statement. Civil Code Section 1102 requires that the seller provide the buyer with a completed "Real Estate Transfer Disclosure Statement."

ALL SYSTEMS GO

A basic assumption in every sale is that the house and systems in the house are functional. For example, the roof will hold out the rain and sun, the hot water heater will provide hot water and the heater will provide heat. If it is known that any of the systems do not function properly, such facts should be included in the purchase agreement and acknowledged by the buyer.

"AS IS"

An "as is" purchase is perfectly acceptable, as long as the buyer understands exactly what the "as is" condition entails. Thus, it can be said in the purchase agreement that the buyer accepts the roof and the plumbing and the electrical system in their present condition and acknowledges that they have defects. This acknowledgment provides a defense for the seller if it is later claimed he did not disclose the problems.

ENVIRONMENTAL HAZARDS

It is required that the seller discloses any knowledge of environmental hazards in the home or area such as asbestos or pollutants. The buyer will be provided with a Real Estate Transfer Disclosure Statement filled out by the seller as to his awareness or knowledge on this subject as well as a full report from an accredited reporting agency.

WHAT IS ESCROW?

An escrow is created when money and/or documents are deposited by two or more persons with a third party and which are to be delivered upon the happening of certain conditions. The third party is known as the escrow agent or escrow holder.

The authority given to an escrow holder is strictly limited by the instructions provided by the parties involved. Consequently, an escrow holder acts on mutual instructions deposited into escrow and DOES NOT represent any party. The escrow officer is authorized by instructions to allocate funds for items during the escrow period, such as real estate commissions, title insurance, liens, recording fees and other closing costs. Instructions also specify the method of collecting funds, proration issues, time limitations and all terms of the transaction until the mutual instructions are met.

The statuary definition of escrow is found in Section 17003 of the California Financial Code and reads as follows: "Escrow" means any transaction wherein one person, for the purpose of effecting the sale, transfer, encumbering, or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such third person until the happening of a specified event or other performance of a prescribed condition, when it is then to be delivered by such third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.

STEPS FOR A SUCCESSFUL ESCROW:

1. When you open escrow, be sure to specify a title insurance company. Also, be sure to ask for your Escrow Reference Number to use for all future communications.

2. Read and understand the Preliminary Title Report. If you do not understand an item, call your escrow officer.

3. Communicate with your escrow officer. He/she must be instructed when to order payoffs, releases, etc. It is important that you keep him/her informed as to loan approval and related issues.

4. Inform your escrow officer if any changes occur. All changes should be in writing. Remember, with rare exceptions, escrow acts only on mutual instructions.

5. It is important to understand the fiscal tax year, debits, credits, prepaid interest, impounds and due and delinquent dates in order that this information will be easily understood by all parties.

6. Check each signature for accuracy as to middle initials and spelling. The Buyer/Seller must sign exactly as shown on the documents. Make sure all required documents are signed and notarized when applicable.

7. Double check all papers and documents before returning them to your escrow officer for verification of the following:

a. They are signed correctly. All changes must be initialed.
b. Vesting is as requested by the client.
c. Correct addresses are supplied for all future correspondence.
d. All telephone numbers are correct.
e. All addendem's are executed.
f. All funds held by the broker are deposited into escrow.
g. Buyers/Sellers have noted if their closing statements/funds are to be mailed or picked up.
h. The Notary Public completes the acknowledgment, signs it and places the seal clearly on the documents.
i. Closing funds are by certified/cashiers check or wire.

WHO PAYS WHAT:

The seller can generally be expected to pay for:

-Title insurance premium & escrow fee
-Real estate commission
-Document preparation fee for deed
-Documentary transfer tax any city transfer or conveyance tax
-Any loan fees required by buyer's lender
-Payoff all loans in seller's name (or existing loan balance if being assumed by buyer
-Interest accrued to lender being paid off, statement fees, reconveyance fees and prepayment penalties
-Termite inspection (according to contract)
-Termite work (according to contract)
-Home warranty (according to contract)
-Any judgments, tax liens, etc. against the seller
-Tax proration (for any taxes unpaid at time of transfer of title
-Any unpaid homeowner's dues
-Recording charges to clear all documents of record against seller
-Any bonds or assessments (according to contract)
-Any and all delinquent taxes
-Notary fees

The buyer can generally be expected to pay for:

-Title insurance premium
-Escrow fee
-Document preparation (if applicable)
-Notary fees
-Recording charges for all documents in buyer's name
-Termite inspection (according to contract)
-Tax proration (from date of acquisition)
-Homeowner's transfer fee
-All new loan charges (except those required by lender for seller to pay)
-Interest on new loan from date of funding to 30 days prior to first payment date
-Assumption or change of records fee for takeover of existing loan
-Inspection fees (roofing, property inspection, geological, etc.)
-Home warranty (according to contract)
-City transfer or conveyance tax (according to contract)
-Fire insurance premium for first year

YOURS OR THEIRS - The Personal vs. Real Property Dilemma:

The distinction between personal property and real property can be the source of difficulties in a real estate transaction. The purchase contract is normally written to include all real property; that is, all aspects of the property that are fastened down or an integral part of the structure. For example, this would include light fixtures, drapery rods, attached mirrors, trees and shrubs in the ground. It would not include potted plants, freestanding refrigerators, washers and dryers, microwaves, bookcases, swag lamps, etc. If there is any uncertainty whether an item is included in the sale or not, it is best to be sure that the particular item is mentioned in the purchase contract as being included or excluded.

24. Inspections and home warranties. Your agent knows various inspectors and he/she can provide you with one or more recommendations. For example, it is highly recommended that the buyer pay to have a building inspection to ascertain that the house is sound before they make a commitment on a resale property (this is not required for new houses). However, if the house has deficiencies, you may be willing to make repairs or offer additional incentives to encourage the buyer to purchase the house despite the inspectors report. In either case you'll know about how much it's going to cost you to fix it up. Other inspections that are required include: roof inspection, termite inspection, and sometimes soil and geological inspections, etc.

THE INSPECTION - WHAT TO EXPECT:

When an offer is made on your home, the purchase contract will likely contain provisions allowing various inspections of the property. The purpose of these inspections is to educate the buyer as to the physical condition of the property they are purchasing. While these inspections do no provide guarantees of the condition of the property, they do provide valuable information to the buyer. It is important to remember that your purchase contract may provide for withdrawal from the contract if these reports are unsatisfactory to the buyer, but inspections should not be considered an open door to re-negotiation of the purchase price.

STRUCTURAL PEST CONTROL INSPECTION:

Often referred to as a "Termite Report" the Structural Pest Control Inspection is conducted by a licensed inspector. In addition to actual termite damage, the report will indicate any type of wood destroying organisms that may be present, including fungi (sometimes called "dry rot"), which generally results from excessive moisture.

Section 1 Conditions:

Most pest reports classify conditions as Section 1 or Section 2 items. Section 1 conditions are those which are "active," or currently causing damage to the property. Generally, Section 1 items need to be corrected before a lender will make a loan on a home.

Section 2 Conditions:

Those items which are not currently causing damage, but are likely to if left unattended to are Section 2 Conditions. A typical Section 2 item is a plumbing leak where the moisture has not yet caused fungus decay.

Who Pays?

Your purchase contract will specify who is responsible for the cost of the inspection and making these corrections. This is a negotiable item and should be considered carefully. Your agent will advise you as to what is customary and prudent.

PHYSICAL INSPECTION:

The Physical Inspection clause in your purchase contract, when initialed by both parties, allows you the right to have the property thoroughly inspected. This is usually done through a general home inspection. While home inspectors are not currently required to have a license, most are, or have been, general contractors. The inspection and the resulting report provide an overall assessment of the present condition of the property.

What is inspected?

The home inspection covers items such as exterior siding, paint, flooring, appliances, water heater, furnace, electrical service, plumbing and other visible features of the property. This is a general inspection and will often call for additional inspections by specific trades, such as roof and furnace inspections.

If conditions warrant, the home inspector may recommend a Structural Engineer's Report. Such a report would identify structural failures and detail recommended corrections.

Who Pays?

Typically, this inspection is paid for by the buyer.

GEOLOGICAL INSPECTION:

You may also elect to have a Geological Inspection to educate yourselves as to the soil conditions at the home you are purchasing. This inspection is performed by a geological engineer and involves not only physically inspecting the property, but also researching past geological activity in the area. The primary purpose of a geological inspection is to determine the stability of the ground under and around the home.

Who Pays?

Typically the buyer pays, but as with other inspections, this is negotiable according to the purchase contract.

HOME WARRANTY:

Home protection plans are available for purchase by the seller or buyer. Such plans may provide additional protection of certain systems and appliances in your new home. Your agent will provide you with different brochures detailing different options.

Home warranties are becoming more popular with both buyers and sellers. These warranties include both standard and optional coverage plans. Standard plans cover unknown pre-existing conditions on such items as your home's plumbing and electrical systems; central heating system; range, oven, exhaust fans, built-in microwave oven, etc. Optional coverage can be purchased for an additional charge to cover your home's central air conditioning system; pool/spa equipment; clothes washer and dryer, kitchen refrigerator, etc. In addition, a sellers home warranty can also be purchased, generally in conjunction with the purchase of the one year buyers policy. The cost of a home warranty is relatively low when measured against the benefits derived from having it.

A home warranty is very attractive to prospective buyers and is considered by many to be essential as part of the home purchasing decision. Ask your real estate agent to provide you with more information about this very important service.

25. The appraisal. As part of the closing process, it is necessary to request an appraisal to verify the market price of your house. The purpose of the appraisal is to express an opinion which justifies and provides an audit to the lender that your house sold within fair market value as of a certain day. Your real estate agent should have priced your house to sell based on comparative market data. This information should have been discussed with you as part of the listing presentation. Also, the appraiser may ask you or your agent to show the basis of your pricing analysis.

Sometimes the appraisal will be slightly above or below the selling price. If it is above, it doesn't mean that your house would have sold for more money. It just means that the funds will be loaned relative to the selling price and terms. However, if the appraisal is below the selling price, you may ask for a review and your agent may possibly provide additional information to favorably affect the appraisal. On the other hand, you may have oversold the house. The down-side is that you may have to do a little last minute negotiating to finalize the sale.

THE APPRAISAL:

Having an idea of what is involved in appraising a piece of property can greatly help in maximizing the appraised value and avoiding costly details and re-inspections. The appraisal process consists of several steps. The following are the major steps in the sequence normally followed by appraisers:

1. Research the subject property as to size, bedrooms, bathrooms, year built, lot size and square footage.

2. Gather date of recent sales in the subject property's neighborhood. The appraiser needs to locate at least three similar sized homes that have sold and closed escrow in the neighborhood. The homes need to be within one mile of the subject property and sold within the past six months. These homes are considered the "comparable properties" or "comps" for short.

3. Field inspection consists of two parts: first the inspection of the subject property, and second, the exterior inspection of the comparable properties which have been selected to estimate the value of the subject property.

The subject property inspection consists of taking photographs of the street scene, front of the home and rear of the home which may include portions of the yard. The appraiser will make an estimated value of the home. He will also draw a floor plan of the home while doing the inspection.

The inspection of the comparable properties is limited to an exterior inspection. For features that cannot be seen from the street, the appraiser has reports from Multiple Listing Services (MLS), California Market Data Cooperative (CMDC), county public records and appraisal files along with other sources to help determine the condition and amenities of the comparables. After the field inspection has been completed, the appraiser must determine which comparable properties most resemble the subject property, making slight adjustments in value for any differences between them. After making required adjustments, the appraiser must go through the reconciliation process with the three comparable properties to determine a final estimated value. This method of estimating value is called the Direct Sales Comparison Approach to Value, and it accounts for nearly all the considerations in determining value of single family homes.

It is important to consider that the appraiser will be taking photgraphs of the street scene and of the front of the subject property. The street scene gives the lender some kind of idea as to the type of neighbordhood in which the home is located. The photograph of the front of the home gives the lender an idea of its condition and curb appeal. And lastly, a photograph of the back of the home and part of the rear yard is taken. Many homeowners do not take care of the rear portion of their homes and back yards, so for this reason, the rear photograph is required.

In most cases (over 90% of the time), what you see in the condition of the exterior of the home will be repeated almost exactly in the interior.

An appraiser will call in advance to set up the appointment to inspect the home. At that time, any information about the home's size, number of bedrooms, number of bathrooms, pool, enclosed patio, etc., should be supplied. The more that is known about the property prior to the inspection, the better the appraiser can focus on researching the most similar comparables.

26. Title Insurance. It is necessary for the seller to transfer clear and marketable title to a house or property. This is done through a title search and by insuring against any title defects. The seller is required to purchase a title insurance policy which is given to the buyer at the close of escrow. Also, the buyer is required by the lender to provide an additional policy covering the lenders interest in the property.

UNDERSTANDING PRELIMINARY REPORTS:

What is a Preliminary Report?

A Preliminary Report is a report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances thereon which will not be covered under a subsequent title insurance policy.

What role does a Preliminary Report play in the real estate process?

A Preliminary Report contains the conditions under which the title company will issue a particular type of title insurance policy. The Preliminary Report lists, in advance of purchase, title defects, liens and encumbrances which would be excluded from coverage if the requested title insurance policy were to be issued as of the date of the Preliminary Report. The report may then be reviewed and discussed by the parties to a real estate transaction and their agents.

Thus, a Preliminary Report provides the opportunity to seek the removal of items referenced in the report that are objectionable to the buyer prior to purchase.

When and how is the Preliminary Report produced?

Shortly after escrow is opened, an order will be placed and the title company will begin the process involved in producing the report. This process calls for the assembly and review of certain recorded matters relative to both the property and the parties to the transaction. Examples of recorded matters include a deed of trust recorded against the property or a lien recorded against the buyer or seller for an unpaid court award or unpaid taxes.

EXPLANATION OF A PRELIMINARY REPORT:

A Preliminary Report will usually contain the following elements:

1. The name of the person or firm that requested the Preliminary Report (PR).
2. The address of the subject property.
3. The Title Company's file number.
4. The applicant's file number or reference number.
5. A paragraph stating that no liability is ever intended under a PR and indicating what should be requested if the customer desires assumption of liability prior to policy issuance.
6. The most recent date and time that the public records have been researched. In other words, a lien or Deed of Trust recorded after the date shown should not be disclosed on the PR.
7. The name of the title officer who produced the PR and who may answer questions about the report. (Requests for information about the status of the escrow should be directed to the escrow officer.)
8. The office address and telephone number of the Title Company issuing the PR.
9. A paragraph specifying the form of title insurance policy that the PR was issued to facilitate. Some exceptions may be added or deleted on the basis of the type of coverage requested.
10. A paragraph describing the interest in the land that is covered by the report. For example: A fee, a condominium, a leasehold.
11. A paragraph telling you that in addition to the standard printed exceptions, there will appear in the title policy exceptions which pertain specifically to the estate in question.
12. A legal description of the property, which should be used for preparing any document that will be recorded.
13. A note providing information regarding transfers of title recorded within the last six months. Any deed or other instruments that transfer title would be reflected here.
14. A site or plot map of the property described in the report.

The exceptions to each parcel of land are different due to the unique nature of real property. Below is a discussion of some of the more common exceptions that you may see during your review of a Preliminary Report.

1. PROPERTY TAXES. Each year on March 1 the lien of the following year's property tax attaches to the land, pursuant to California law. Property taxes are assessed on July 1 through June 30 fiscal year. The amounts shown in the PR are for proration purposes.
2. SUPPLEMENTAL PROPERTY TAXES. Each of several types of transactions as specified by Chapter 3.5 of the R&T Code can trigger a reassessment which would result in a supplemental tax bill being issued.
3. EASEMENTS. Easements are a right to use the land of another for specific purposes. Easements can be created in a number of ways, including dedication on a subdivision map or a Grant of Easement to another party.
4. CC&R's. Covenants, Conditions, and Restrictions are limitations on the uses that may be made of a parcel of land. For example, many CC&R's contain restrictions stating that a property may only be used as a single family dwelling and allowing neighbors to take action against persons running a hotel out of their suburban home. Some restrictions contain a reversionary clause, which states that violation of the restrictions will cause the title to the property to revert to the person imposing the restrictions. Most contain a clause assuring a lender that a violation will not act to impair the lien of the lender.
5. DEED OF TRUST. The Deed of Trust is a security device for a lender. Under California law, the Deed of Trust allows a relatively quick and easy way for a lender to obtain real property with which to satisfy a delinquent loan. The PR shows the recorded information about the Deed of Trust.
6. MECHANIC'S LIEN. Under California law, workmen who provide materials and / or labor to a property owner are entitled to use the real property to satisfy the debt. This type of lien also alerts the title company to the possibility of ongoing construction work which may affect the priority of a new Deed of Trust.
7. ABSTRACT OF JUDGMENT. This type of lien is issued pursuant to a court order for the payment of a debt.

WHAT IS TITLE INSURANCE?

What is title insurance?

A title insurance policy protects a real estate owner or lender against any loss or damages they might experience because of liens, encumbrances, or defects in the title to said property, or of the incorrectness of the related title search.

How does title insurance differ from casualty insurance?

Casualty insurers (car, life, health, etc.) assume risk for future events by collecting monthly or annual premiums. A title insurance policy insures the past of real property and the people who owned and own it for a one-time premium that is paid at closing.

Who needs title insurance?

Purchasers and lenders need title insurance to know that the property they are involved with is insured against various possible defects. Whether it's a sale, refinance, construction loan...the seller, buyers, and the lender all benefit.

What does title insurance cover?

Title insurance protects against claims from various defects such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements, and other items that are specified in the actual policy.

How is a title insurance policy created?

After the escrow officer or lender opens the title order, the title insurance provider begins a search of the public records including the County Recorder, Federal and State Agencies, and County and City Offices. A preliminary report is issued to the customer(s) for review and approval. All closing documents are recorded upon escrow's instruction. When recording has been confirmed, demands are paid, funds are disbursed, and the actual title policy is typed and sent to the insured.

What types of policies are available?

A standard CLTA "owner's" policy insures the new owner, and the home-builder, and an ALTA CLTA "lender's" policy insures the priority of the lender's interest. Ensure that your title company offers an extended coverage ALTA-R (residential) policy to owners of residential 1 to 4 unit properties. The Homeowner's Policy of Title Insurance covers many more areas than the ALTA-R (check with your insurer to see if your property qualifies for this excellent coverage). Many title companies issue extended coverage automatically on qualifying properties at no additional charge. Special binders, guarantees and endorsements are also available.

COMMON TITLE OBSTACLES:

The following items require additional clearance and processing time for escrow and title. Avoid delays as soon as possible.

-Bankruptcies
-Business Trust
-Clearing Child / Spousal Support Liens
-Clearing Liens, Judgments
-Establishing Fact of Death - Joint Tenancy
-Family Trust
-Foreclosures
-Last Minute Changes in Buyers
-Last Minute Changes in Title Coverage
-Physical Inspection Findings - Encroachments, Off-record Easements
-Probates
-Proper Execution of Documents
-Proper Jurats, Notary Seals
-Recent Construction
-Transfers / Loans Involving Corporations / Partnerships
-Use of Proper Power of Attorney

PREPARE TO MAKE YOUR MOVE:

27. Get ready to move! Your move begins the moment that you decide to sell your house. You've got to prepare yourself mentally and then start packing. Once you do this, it won't be long before you are on your way into your new house.

Article provided by Fidelity National Title Company.