Real Estate 101: The Contract Package

In previous blogs, I've written about picking your agent, your lender, the pre-approval, and some of the basic questions you should think aboutwhen trying to find the right home for you and your family.


Hang on, folks, this is a long post.

Real Estate 101: The Contract Package

The average purchase contract and addenda package in Maryland is around 46 pages. There are a lot of things to cover but I'll attempt to give a breakdown of the documents that normally are a part of the contract offer. This is by no means an exhaustive list of everything that could appear in a purchase contract.

As a member of Maryland Realtors®, I use their sanctioned documents almost exclusively for my buyers. Other Boards of Realtors® in Maryland have the option of using their local documents. To make things easy, I'm not going to specifically address those. To dig deeper, feel free to Email Me.

Part 1: The Contract

This 11 page document covers the basics of your purchase. It explains the Who's (Seller, Buyer, Agents, Brokers), the What's (Dates of offer, settlement, financing, earnest money, inclusions, exclusions, and addenda made part of the contract), and the Where's (address of the property).

The What's and Where are the important focus here.  The contract sets the ground rules for how the transaction will proceed.

The first two pages of the contract outlines:

•  The Property Address

• The Parties to the Contract (Buyers and Sellers)

• The Type of Possession(ground rent or fee simple*)

• The Date of Offer

• The Proposed Date of Settlement… (when the buyer will take possession officially)

• The Earnest Money (EMD)** the Buyers will offer with the contract, how it is paid, and who will hold it on behalf of the buyer

• The type of Financing the Buyer will use to purchase the home…  Cash is considered financing for this purpose.

• Financing Contingency Timeline… The buyer has a certain time in which to apply for a mortgage and then a certain time in which to receive a financing commitment from their lender. Should the buyer not be able to obtain financing within this timeline through no fault of their own, there is a right of rescission specified.

• Alternative financing Contingency… The buyer is able to seek alternative financing programs provided that it doesn’t change anything for the seller. So, if a buyer can get a better set of terms with a different lender, or comes into a pile of cash and would rather not finance the purchase, this paragraph gives them the right to do so.

*Ground rent is a nominal fee paid to a person or business who owns the ground the home sits on. Although no new ground rents have been issued in Maryland for some time, there are still properties in the area that have this type of ownership. To find out if your home has ground rent or if the house you're looking for has it, check out the MD State Department of Assessment and Taxation (SDAT) web site. Fee Simple means you own the house and the land it sits on, all the way to the center of the Earth.

**EMD is an amount of money, put forth in good faith by the buyers with the contract. It is held in escrow on their behalf by the buyer's broker (generally speaking with some exceptions), and disbursed against the buyer's closing costs at settlement. Should the buyers not keep with the terms of the contract, part or all of the EMD may be forfeited. 

The next few pages explain what fixtures will come with the house (major appliances, shed, swing set, etc), notices about lead paint laws, and what other addenda will be included and made part of the contract. The remainder of the contract explains the obligations and rights of both the buyer and seller, flood insurance compliance, liabilities and responsibilities of their respective agents, and what rights the parties have should there be an issue with the contract.

Throughout the contract package are places for the buyers to initial, confirming they are aware of specific terms of the contract. At the bottom of each page the buyers and sellers will also initial to show they reviewed the page.

Page 10 is the signature page. This is where Buyers and Sellers sign, and the all-important Date of Contract Acceptance goes here. That is the date by which the contract is considered "executed" or "ratified." This date is REALLY important because all of the terms of the contract start from that date and go forward.

Page 11 is the information page that outlines what agents and brokers are party to the contract, with all of their respective contact info, license numbers, and office ID's. That info is geared towards the agents.

Part 2: The Addenda

Maryland has quite a few documents that are required to go with a contract. For our purposes here, I will only go through the basics of what could be included in a basic and typical contract for a home in Ellicott City, Howard County, Maryland.

• General Information Addendum

                This is a glossary of terms that buyers and sellers should be familiar with.

• Howard County Notices and Disclosures

                HoCo has its own rules and regs for buyers and sellers. This outlines them. Each jurisdiction has its own specific addendum outlining certain rules/regs/conditions and potential rights of rescission.

• Notice to Buyer and Seller of the Maryland Residential Real Property Disclosure/Disclaimer Act

Maryland requires a seller to disclose any known information, especially defects, about their property and changes/improvements/issues or disclaim that they have no knowledge of latent defects on the disclosure/disclaimer statement. Sometimes the D/D statement isn't available before the offer is written. This notice informs the buyers that a D/D will be forthcoming and what info it will contain, and what the rights of the parties to the contract are. If the D/D isn’t available at the time the contract is written and signed, there is a right of rescission outlined within.

• Disclosure/Disclaimer Statement

This is the statement referenced above.

• Federal Lead Paint Notice (if built before 1978)

• Maryland Lead Paint Prevention Program (if built before 1978)
  (If lead paint law is applicable, there is a long document called the “Protect Your Family from Lead in the Home” required)

• First Time Maryland Home Buyer Transfer & Recordation Tax Addendum

 Maryland gives a discount on the transfer tax paid at closing to a person/persons who have never owned property in the state before.

• Property Inspections Addendum

  This covers all inspections: structural, mechanical, environmental, radon, chimney, etc., and creates a timeline in which to have them done, results and any requests for repairs to be delivered to the sellers, and responses from seller and buyer. Within this document are rights of rescission as well. More about Property Inspections in a future blog post.

• Seller Contribution Addendum

If a seller were to be asked to contribute to a buyer's closing costs, we would use this addendum to outline the amount.

• Financing Addendum

Even though Page 1 of the contract specifies the type of financing, there is an addendum required for each type (FHA, VA, Conventional, etc) and spells out specifics for each type and any specific requirements of the financing type therein.

• Agency Documents

Understanding Who Agents Represent from both sides of the transaction and Dual Agency authorizations if applicable. More about Agency in a later blog post.

There are other documents that could be a part of the package like HOA/Condo disclosures, As-Is, easement notifications, etc. Each contract will have its own specifics, and one of the biggest parts of my job is to assist you with navigating through those.

• Homeowner’s Association (or Condo) Notice and Transmittal of Documents

If the property is located within an HOA or is a Condo development, Maryland law requires that the seller disclose this information up front. Within this addenda, it informs a buyer that, the existence of the HOA or Condo development, and that the buyer is entitled to a document package itemizing the covenants, codes and restrictions (CC&R’s), financial statements, rules, regulations, and more. These docs have to be delivered to the buyer by the seller within a specific timeline, and also outlines a timeline for a right of rescission for the buyer if they see something they don’t like in the HOA/Condo doc package.

Although it does not go over with a contract offer, I put the transmittal document in this section. When the docs are sent to the buyer’s agent by the seller’s agent, the seller’s agent is required to include this document that summarizes some of the info within the doc package above. Since there is a right of rescission mentioned in the HOA disclosure in the original offer, the date on the transmittal document is what activates that timeline.

A note on Rights of Rescission:

Within the framework of the contract and its associated documents there are certain points where a buyer may rescind a contract. It is important to review and be aware of these points.

Part 3: The Other Stuff

So what else goes with your contract?

-Your lender's Pre-Approval letter

-A cover letter from me, summarizing the terms of the contract

-A copy of your EMD check

-Notice of Maryland’s Smoke Alarm Law (more on that later)

-Miscellaneous Contingencies (Sale/settlement of another property, easement notices/disclosures, private water and sewer agreements, sale and lease back addendum, and more)

Understanding and being able to explain all of this is a full time job on its own! As a full-time agent, I get regular training on the contract paperwork because they do change from time to time, and I have to be intimately familiar with the paperwork at all times. As they say, “the devil is in the details.”

Until next time,

Steve

Real Estate 101: The Search for Your New Home

In previous blog posts, I've laid out how to pick your agent, pick your lender, and get your Pre Approval in place.

Now, how do we find the home of your dreams?

Real Estate 101: The Search for Your Home

I firmly believe there is a home, at the right price, for every buyer. 

But how do we find it? Lots of small and large factors go into the process, so I'll explain here some of the basics.

You think you know what you want. You've spent countless hours on Pinterest. You have searched all the various websites out there (and hopefully mine!), watching homes come up for sale, saving some, liking others, and making a decision on what you think you want. But you have yet to "get your feet wet" and see them in person.

You've done your homework and gotten in touch with your lender and got pre approved for a mortgage.

So what do you do next? You call me, your real estate agent!

At any given time, there are thousands of homes on the market, so distilling them isn't the easiest thing in the world without a little guidance. I ask my buyer clients a series of questions to help YOU pick YOUR dream home- not mine.

Let's start with the basics:

• What area would you prefer to move to? Think of towns, counties, etc.

• Is there a specific neighborhood in that area you are interested in?

• Do you want an attached (rowhome, townhome, flat, condo, duplex, cluster, etc) or detached (think single family) home?

• Is there a specific style of home you like (Colonial, Cape Cod, Bungalow, Split Level, Split Foyer, Ranch, Craftsman, Victorian, etc) or dislike?

• How many bedrooms do you want, and how many do you need?

• How many baths do you want, and how many do you need?

• Do you want/need a garage or at least a driveway?

• How much of a yard are you looking for?

• Are you looking for a project over time or should this be "turn key?"

• What type of kitchen do you like?

• What kind of cooking/heating/hot water fuel do you want? (I prefer gas for all of them but it may not matter to you)

• Do you want/need a basement, and should it be finished?

•  What features must your home have?

• What features are turn-offs?

• What are the deal breakers?

• What other amenities are you looking for? Deck, Front Porch, Swimming Pool, Fenced Yard, Waterfront, Wooded lot, etc. Be specific! This is your home!

A note about school districts: As a rule, I tell my clients to go to the local Board of Education for the specific districts in an area. Districts can and will change over time. If that is a deciding factor for you, please click the following links to go to Anne Arundel County,  Baltimore County, Carroll County, or Howard County's respective Boards of Ed. 

Once we've laid these out, the next process is for me to search through our Multiple List Service (MLS) and see how many of these homes we can find that fit the bill.

Until next time,

Steve

Real Estate 101: The Pre-Approval

In a previous post, I talked about Picking Your Lender. My lender colleagues work hard for your business and more importantly, your trust. 

Real Estate 101: The Pre-Approval

Let's be clear: You technically can buy a house without a pre approval from a lender, but that doesn't happen often anymore. A seller may not accept your offer if the you don't show them that you are approved in advance.
And you can look at houses until you're blue in the face, but how do you know exactly what you can afford and what it will actually cost to purchase your home without having a Pre Approval completed?

I ask my buyer clients at the onset of our relationship what is the monthly payment they feel comfortable with. We live in the payment, so that answer is usually "____ dollars per month."

But how does that translate to the sale price of your new home?

Enter, your lender! Assuming you've already picked a lender, and followed the steps to gather together the important info they'll need-- what happens next?

Getting the Pre Approval

1. Authorize your lender to run your credit. Your lender will need to obtain a credit report to make sure you can afford to purchase a home. You'll need a decent credit score to buy, but my lenders will also be able to advise you how to proceed if your credit isn't quite where it needs to be right now.

2. Find out what you can afford based upon your qualifications.Your lender can tell you based upon your debt to income ratio and credit score, together with the interest rate, taxes, insurance, MI (mortgage insurance) if applicable, HOA/Condo Fees what the max you can spend per month. This does not mean you have to spend it all, because after all, you have to feel comfortable with the payment. But it will tell you exactly how you can get there. You may be surprised what the answer is!

For instance, past clients of mine had convinced themselves they were in a specific price range because of an internet mortgage calculator. They thought they could only afford a fixer upper- a home that was going to eventually need tens of thousands in upgrades and updates to make the way they wanted it. But, after speaking with their lender and him running the numbers, they realized they were able to afford so much more- for nearly the same payment as the internet calculator said!

3. Talk with your lender about what you feel comfortable spending. You are the one signing the check every month. You have to be okay with the amount of that payment per month, nobody else. Your lender will run different scenarios based upon your income and credit scores and the info you provide to them, and give you detailed estimates of what you should expect to spend. You will discuss how much cash you have saved and how much of it you want to put down on your purchase.

4. Determine the Loan Program that works best for YOU.Your lender will also tell you what mortgage program you qualify for. There are lots of different programs, but the most popular are FHA, VA, USDA, and Conventional mortgages, and each will have its own stipulations, restrictions, and specifics. Although I am amiliar with the basics of these programs, your lender is the authority on the specifics and will know what you qualify for. Different lenders also have access to different programs. Not all will do every type of loan, and some specialize in certain types like FHA or USDA or home improvement loans. My lenders have a variety of loan programs to fit the needs of any and every type of buyer.

5. Get Your Pre-Approval Letter.The Pre-App should state the type of program (FHA/VA/Conventional, etc), the purchase price, the interest rate, that your credit was verified, and any other stipulations to your mortgage approval, like the sale of your existing home. That Pre App letter will go with an offer you may write in the future. Generally speaking, these are good for about 30-60 days, but it is always best to have it updated before you and I write the offer on your dream home. Yet another reason why working with a local lender is so important!

6. Review your estimated closing costs with your Real Estate agent.Your lender will provide you with an unofficial estimate sheet that will tell you the purchase price, the loan amount, the interest rate, down payment, and estimate your closing costs. This isn't the official estimate that you receive upon application for the mortgage (That is the Good Faith Estimate, or GFE, and a different blog subject entirely), but it is a good idea of what you should expect to spend to purchase your new home. Knowing what your estimated closing costs are will help decide the terms of the offer. I will confirm these details with your lender and make sure that we are working the numbers to YOUR best advantage.

Once you have all the pieces in place, the next step is finding your home, but that is a subject for another blog...

Until next time,

Steve

Real Estate 101: Picking Your Lender

In a previous blog post, I covered how to and some of the basics of what a buyer's agent should do. In this post, I will touch on what your lender does, and give you quick a rundown of what you should do to get yourself ready to buy a house.

Real Estate 101: Picking Your Lender

I often say "there are a lot of moving parts" to a transaction. In fact, first time and veteran home buyers often tell me how surprised they are at how complicated the process can be. And usually they follow that with "but you and our lender made it all so smooth!"

Picking a lender is as easy- just call your local branch of First National Megabank and asking to speak to their mortgage department, and filling out some paperwork, right? Or going to a website, punching in some data, and letting someone in another state or worse, a computer decide if you're eligible for a mortgage. After all, a mortgage is a mortgage is a mortgage, right?

Yikes! Not in the least!

Picking your lender is just as important as picking the right real estate agent. Your lender is going to be working with you every step of the way, just like your agent. And it is just as important that your agent has a relationship with your lender. Never underestimate the importance of being able to pick the phone up and talk directly to them or stopping by their office if the need arises. Good luck getting someone on the phone from your instant mortgage approval website.

This is why I recommend certain lenders to my clients. I can trust their judgement, know that they are the experts in their field, and will provide to my clients the same level of service and integrity as I will. And they will fight hard for you as their client and make sure you are happy. And more importantly, they are local to this area. They work in the same time zone as we do. (Believe me, this is way more important than you can imagine.) They know this market and what works here.But what should you do before you make that contact?

GATHER TOGETHER YOUR DOCUMENTS!

You'll need to provide all sorts of paperwork to the lender for your mortgage once you have a home under contract, but it is always a good idea to have the following on hand before you start to make things run smoothly:

• Tax paperwork (W-2's if you work for someone else, 1099's and P&L statements if you own your business)
• At least two of your most recent Federal tax returns
• Recent Paycheck stubs
• List of your assets, including but not limited to bank statements, investment accounts, retirement funds, brokerage statements, real estate you own already
• List of your debts, including credit cards, student loans, other mortgages, child support, car loans, with minimum monthly payments and balances
• Cancelled checks for your current rent or mortgage

Gather all this together and put it in a safe place, because your lender will need them!

In my next post, I'll talk about the next few steps of the process.

Until next time,

Steve

Real Estate 101: Picking Your Agent

In this series, I will explain some of the ins and outs of the home sale process. Whether you are a first-timer or on your fifth, this blog is for you!

 Picking Your Agent

There are over 40,000 licensed Real Estate agents in the state of Maryland. Not all of them are active, and not all of them are full time, either. But I guarantee if you talk about buying or selling a house in public, you are likely to pique the interest of every real estate agent within earshot!

But how do you pick the right one? And what exactly does a real estate agent do? Let's look at the buying side first.

Your agent is your guide through the process of purchasing your dream home. Real Estate agents are a fiduciary, meaning they represent your interests above all others at all times. Your agent helps you find property that meets your criteria. They assemble a contract to purchase your new home and negotiate the terms on your behalf with the seller's agent. Once under contract, your agent monitors the entire process, and coordinates the transaction among all participants in the transaction- your lender, the seller's agent, your home inspector, title company, appraiser, and anyone else connected to the sale. I often say there are a lot of moving parts, and knowing how to manage those parts is the most important part of the job.

Sounds like a lot, right? It is! That is why it is so important you pick the right agent. You and your agent have to mesh with each other. This doesn't mean you always have to agree, but it is important that your personalities line up fairly well.

Do you have things in common like hobbies, pets, favorite sports? (GO O's!!)

Ask what they like to do outside of work. 

Yes, we work weekends and evenings when you may be relaxing, but we know how to have fun, too. For instance, I like to travel to National Parks and I collect a patch from every one I've visited. I have dozens of park patches framed in my home office. I also enjoy kayaking and spend as much time as I can when the weather is nice paddling all over Maryland.  I love going to concerts. I'm a big fan of food, in a previous life I was a chef. I'm also into craft beer, and am proud to say I've made the Maryland-Vermont road trip to get some of the best beers in the world!

There has to be a high level of trust.

The purchase of your home is the most expensive transaction of your life. If you can't trust your agent, you don't have the right one. Your agent should be the authority on the market. But more importantly- if they don't know the answer to your question, they must be honest and forthright that they don't, and do their best to find out for you. Your agent must keep you informed at all times, and seek the answers when they don't know them. 

Your agent also has to stay up to date on the latest changes to the industry.

Rules and regulations do change and can have an impact on your transaction. The average purchase contract in Maryland is around 46 pages long. Knowing how to decipher these contracts and what the rule changes are and how they apply is vitally important. We are required to take continuing education classes to renew our licenses. But we also have the opportunity to take various professional development courses, some with certifications, to make sure we maintaining our edge. Your agent should constantly be engaged in their own professional education.

Your agent must keep your confidence.

The details of your transaction are confidential. I don't discuss them with anyone that isn't a party to the transaction and never without your expressed permission. There is no water cooler talk.

Your agent should have a good network of colleagues to refer to you to facilitate the various parts of the transaction.

Title, Lenders, Home Inspectors, Insurance Agents, Contractors- a good agent has a list of vendors they work with that share similar values. My vendors know what I expect from them, which is nothing less than what I expect from myself- excellence and integrity.

As a full time Realtor, this is not my evening/weekend job. At all times, morning to night, I am on duty and ready to assist and answer your questions and alleviate your concerns. This isn't something to be taken lightly- buying a house is a big deal! And I take your business and more importantly, your trust seriously.

Until next time,

Steve