Well this weekend I met a young couple at a home that they found on my website. It wasn’t one of my personal listings, it was listed with another company. They walked through and liked what they saw. This was a foreclosure that was listed for sale for $79,000 and it had three bedrooms and two baths on the main level. As we opened the door the first impression was pretty good. The home had a split foyer so there were steps going up and down from the front door. Up to the main living area and down to the garage level. We went up and the house looked pretty good. The carpet and paint were in pretty good shape. There were still all of the appliances in the kitchen and the home was basically clean. There were three bedrooms and two baths in decent condition. Not your typical foreclosure.

We moved on to the lower level and found a nice surprise. There was a family room and another bedroom and bath, in addition to the two car garage. They liked the whole package. Then, the big question: “How do we get started”?

Well that is a question that defines a Realtor and is not the easiest to answer. I thought it would make a good subject for a blog post. ,

So when you find the house of your dreams, how do you get started?

When I am trying to explain the process of making an offer on a house like this, here is where I like to start.

• What is our relationship?

I am a buyer’s agent in this transaction. That means that I represent you, the buyer, in this process. The seller has an agent representing his interest, and they have their sign posted in the yard. In the Atlanta area there is generally a buyer’s agent and a seller’s agent in every transaction. It is my sworn duty, as your buyer’s agent, to protect your interest in the process. In the offer process there will be a form that establishes this buyer’s agency.

• How do I get paid?

We have an agreement in the Atlanta market that any home listed in either of the two big Multiple Listing Services (the FMLS and GA MLS) has an automatic agreement in place that the listing agent will share their commission, whatever it is, with the Buyer’s agent. Generally it is a 50/50 split but whatever it is, is disclosed in the MLS and FMLS. So if the house is listing in one of the MLS’s, the Seller pays both agents, even though only the Listing agent represents his interests.

What do you need to actually make an offer?

1. The prequalification letter.

In nearly every purchase with a foreclosure seller or a regular Seller, they want to see a letter from a lender stating that they have pulled your credit report, and have interviewed you and based on normal lending guidelines, you are qualified to get a loan to purchase the property. In the interview, they find out about your job history and your current debts. They find out how much money you can put down and where it is coming from. Lenders are normally concerned about the source of your funds. They traditionally do not want you to borrow your down payment. The letter is not a guarantee, but states that you should qualify for the mortgage. Some of the foreclosure sellers insist that you get prequalified with them. (Countrywide and Wells Fargo are two that generally require this) This can be aggravating because they pull a credit report before they look at your offer. Even if there are multiple bids and you don’t end up winning the bid, they still want to check your credit. As we all know every time someone checks your credit it impacts your credit score. The only way around this is to find a different house, or have a fully approved loan subject only to appraisal. Even with that there is no guarantee that they will look at your offer.

1. The earnest money.

In order for your offer to be considered there must be earnest money. Earnest money is like a security deposit, in some ways. It is there to guarantee that you will perform as promised. There are several ways that you can get it back; if your house fails inspection or appraisal, the earnest money would normally be returned to you. If the Seller cannot deliver clear title, or if the property is substantially damaged before closing, then there are provisions in the contract to have your earnest money returned. When you go to closing the earnest money you have put down becomes a part of your down payment. Generally the minimum earnest money deposit is $1,000.00 for a foreclosure (except with a HUD foreclosure under $50,000, in that case the earnest money is $500). I have seen earnest money of $500.00 accepted in normal non foreclosure homes under $100,000, but generally only in the 100% financed transactions where the Purchaser may not have funds available. Those 100% loans are few and far between these days.
Earnest money is made out in the form of a check. Generally the Buyer’s agent’s company holds the funds in traditional sales. In foreclosures, many times the Sellers insist that the listing agent or the closing attorney hold the earnest money. They will frequently ask for it in certified funds. In foreclosures I suggest that we add a stipulation that the earnest money will be paid to the holder of the Seller’s choice within 48 hours of verbal acceptance of the offer.

• The Purchase and Sale Agreement

Most offers are made on a form that has been agreed upon by the Georgia Association of Realtors and is used by all Realtors in the state of GA. When you fill in the blanks and sign it, it is an offer. If the seller accepts it “as is” and signs it, it becomes a contract. If the Seller doesn’t accept it and chooses to counter offer, they will either fill out a counter offer form, or strike out whatever they don’t agree to and write in their counter offer. For example they would draw a line through the price offered and write in a price they would accept and “initial” the change. When dealing with normal (non foreclosure ) sellers, the forms and amendments and exhibits drafted by the Georgia Association of Realtors will be used.
Most foreclosure sellers have a set of unique addendums that basically restate everything in the contract. They attach these to the contract and send it back. It generally is a large document with 10-20 pages. It must be gone over carefully and understood. 9 times out of ten, it takes a week to 10 days to get the contract signed and returned.
The basic contract is all cash at closing, and we add exhibits if the Buyer is going to get financing. There is a provision for inspection or a choice for “as is”. There will be a time limit for getting financing, appraisal and inspections. The times can be negotiated. When we make the offer we sit down and go over the contract and make sure you understand every provision. I would allow a couple of hours for the process, especially on your first offer. There are all kinds of issues to consider.

So that is a snapshot of the beginning of the offer process. This is just the beginning, there is still the disclosure, the inspection, the appraisal, the loan, the title search, the walk-through, and finally then, the closing. I will cover the explanations of the rest of the process for other blog posts!

Well I hear that question a lot! In fact that is probably the single most important question in a Realtor’s day! And I am here to tell you that there is no easy answer. There are some easy questions, that may help you figure it out, but no easy answers. Everyone’s brother tells them not to pay more than 50 cents on the dollar, and to try to get it for 30 cents. But there is something important to understand about rock bottom bargain deals!

Bargains smell like cat.

One of the unfortunate truisms is that there is no free lunch. Yes there are occasionally some killer deals that are in great shape, but the best bargains smell like cat. Well not all of them, some smell like mildew, or need every surface cleaned and painted, foundation work, roof work, mold remediation, and asbestos removal. Some have problems that are tougher to fix; like they back up to the all night bowling alley, or the train, or the power lines, or the expressway. The best deals have rotted gutters and roaches, no insulation and building materials that have been targeted by class action lawsuits. The very best killer deals have the floors caving in. I know you think I’m kidding but I am not. Truthfully there are some pearls that need no repair in this low tide of polluted mollusks, but be forewarned that there are hoards of folks just like you out there looking for them as well. The average low priced foreclosure is pretty beaten up. So it begs the question, can you take a sow’s ear and make it into a silk purse? Are you willing to invest either the sweat equity, or the time it takes to manage others to take care of the issues? So that takes us to the First easy question: Do you like fixin’ stuff up?

Timing is Everything

Is this a stepping stone to bigger and better things, or is this where you plan to live for a long time? It is important to establish this, but not just according to your wishes, but your realities as well. Is your job likely to change? If the company you work for went out of business, could you find another job locally? If an incredible opportunity in a different city opened up could you resist? Are you sure that you may be here for the next ten years or so? Are you single or married? If you are single would you change cities for the ideal mate? If your married, do you get the sense that it is going to last for the duration? Why is this important? Because if you know that there is a chance that you may have to move in the next couple of years it will really affect what you should pay for a house. We are not in an appreciating market, yet there are costs that will be incurred each time you sell, so if you buy now and you may need to move soon you’d better be sure you get a slam dunk killer deal. That takes us to the Second Easy Question: How long will you live there?

Are you an Ant or a Grasshopper?

Understanding you motivation for the Purchase is an important bit of knowledge that will help you make the right offer. If you are an Ant and your house is a home, a castle, a refuge from the wild world, a place for family dreams to flourish and for community ties to develop, you may have different needs in determining how much to pay than the Grasshopper. The grasshopper doesn’t get emotionally involved with their house, for them it is simply a place to crash, sleep, eat, and launch back into the world. Gardening and decorating don’t matter, only the investment vehicle and a tax deduction. The grasshopper looks at the price first and foremost. Mr Grasshopper won’t buy the house that reminds him of his favorite childhood home if the price isn’t a killer deal. If your real goal is to relax and live in the house for a number of years, and which house it is, is very important, then don’t make it all about money. Here comes the Third Easy Question: Why do you want to buy a house?

Who do you like better Nancy Grace or Walter Cronkite?

So it’s very difficult for the average Buyer to know what to do! If you believe the bobble headed news anchors, the sky is falling, the sky is falling, and at eleven they have a report on really breaking news, which is that the sky is falling. Real Estate is local, not national. Some parts of the country are doing great and some are sliding into the volcano. National news needs to step away from the hype. In a smaller level local market, like… say Atlanta GA, some areas are doing great and some are really suffering. So the decision of how much to offer for a house, has a lot to do with the subtle neighborhood factors like the quality of the schools, the crime rate, and whether the area has charming historic architecture. If the neighborhood offers galleries, restaurants and coffee shops, within a short walk, and is it an area where people really want to live, it may be worth considerably more. Some people will pay considerably more for these things. Public transportation, traffic, taxes, access to public parks and recreational areas, all make some areas much more valuable than others. How do you figure out how much to offer? Well everyone has a friend who will tell them not to offer more than 50% of the list price of any home that they want. They forget that most Sellers pull their prices from… uh, the air. We hear about the crap market in every news media out there. So it would make sense to lowball everyone right? Well maybe it is not, if you are an ant who has no plans to move, who doesn’t want to fix anything up, and who doesn’t think Nancy Grace always knows what the hell she is talking about. There is no concession or agreement by any of the talking heads, economists, politicians, financial consultants, presidents or special task groups of when the market will recover. But they all seem to agree on one thing that eventually it will recover. So at that point when inflation has us paying $10 a gallon for gas and $7.99 for a loaf of bread, I think the well maintained updated charming home in a great neighborhood that is a local favorite will probably recover nicely. Probably better than a dumpy home in a more marginal area that was bought for 50 cents on the dollar. And finally Fourth Easy Question: When will the market recover?

Oh!…Were you expecting an answer

to that question? Well here it is:

“It Depends!”

EMAIL ALERTS! Now you can be notified when the type of property you want comes on the market in the Atlanta Georgia metro area. The system will notify you daily when a Property is listed or modified in the FMLS or the GA MLS with your particular requirements. Get an email when a new fixer-upper listing comes on the market in Decatur under $100,000….or when a New Home comes on the market in Candler Park,…or when the price drops on a home in a certain area! You can arrange to be notified when homes come on the market both in a certain school district and in a certain price range…. the possibilities are endless!