House purchase question: about to make an offer, and nervous

[ivinsfan]

Interesting that folks think the appraiser's role is significant. The only time that's come into play in my transactions has been related to mortgage - its the bank's appraiser that counts the most. If a buyer asked me to lower the negotiated price due to a low appraisal, I'd tell them to go take a hike, but maybe I've just been fortunate to have sold into seller's markets.

Well, the bank only lends so much money usually tied to an appraisal number..

 

[LateToFIRE]

Well, the bank only lends so much money usually tied to an appraisal number..

Yes, I'm well aware of that. Kinda view it as not my problem if I'm the seller. But, like I said, maybe I've been spoiled by only having sold into sellers markets. Also, in the city where most of my experience lies, all-cash, no mortgage contingency, multiple bids not uncommon, so again, I'm kinda spoiled. One buyer gives me a hassle, I just move on to the next name on the list.

P.S. Would add that in all cases as a seller, before entering a binding contract, I've required the potential buyer to show me financials indicating they have significant funds to close such that a weak appraisal would not become an issue. And I've also had to do same as a buyer. Maybe that's a luxury unique to the markets I've operated in.

 

[OldShooter]

Given the OP's questions, I agree completely that they should hire an attorney as IIRC we did when we bought our first house.

The appraisal question is interesting. A buyer who has been in this market, watching it boil and bubble, should have a good sense of what the property is worth. Assuming a mortgage, in our market the mortgage company orders the appraisal even though the buyer pays. Low appraisal discrepancies may get worked out by renegotiating the price with the seller or increasing the down payment. For our second house the appraisal came in about 5% below our offer and we were able to get the seller to accept the lower price. The OP's attorney ought to be able to help work out appraisal issues.

 

[folivier]

In Louisiana, and maybe other states, an appraisal is only required by the mortgage company. When buying our condo we did not have an appraisal done since we paid cash.

 

[MC Rider]

An appraisal can be useful to a buyer if they are worried about the property value, and it is not a cookie cutter property with model match comps. If you have good comps like that there should be a small price range and the appraisal might not be as useful.

If you get a mortgage the lender may want an appraisal, which could be of interest to the buyer too.

We bought our non cookie cutter house for cash no appraisal. But I was an appraiser for 30 years. YMMV.

 

[Buckeye]

For home inspections. Be there and follow the inspector. It makes sure they do the job and they can verbally say more than will be on the report, and it's educational.

+1 Yes, I have done this many times. Always educational. Although, I admit I didn't follow him into the attic.

 

[Buckeye]

An appraisal can be useful to a buyer if they are worried about the property value, and it is not a cookie cutter property with model match comps. If you have good comps like that there should be a small price range and the appraisal might not be as useful.

If you get a mortgage the lender may want an appraisal, which could be of interest to the buyer too.

We bought our non cookie cutter house for cash no appraisal. But I was an appraiser for 30 years. YMMV.

When we sold a home in an area with few comps, we had a professional appraisal done before we listed the property. It wasn't good news but it helped us price the house properly. The local realtors were meh and we didn't have time to waste so we paid the $400 for a professional appraisal.

 

[retire48in2018]

Appraisals ordered by mortgage company are for protection of mortgage company - and their interests. In that you both are interested in value, some of your interests are aligned. Usually, appraisals attempt to justify the purchase price for the mortgage. Most of time they just match the purchase price

 

[pjigar]

You didn't ask but I will tell you about the "option period". It is customary in our area to have 7-10 day "option period" for a nominal option fee ($100-$200). This allows buyer to walk out of the contract without loosing earnest money. Buyers can use this period to finish due diligence, inspection, etc. Buyer loose option fee if he/she cancels the contract. If purchase goes through then buyer gets credit for option fee during closing.

FWIW I have been on the both ends (buyer and seller) of option period walk out.

 

[rk911]

...

5. We asked the mortgage loan officer for recommendations on a title and escrow company and she responded that she's "worked with many of them and not had a problem" but wouldn't specify any particular company. Is there a reason why she wouldn't?

Likely not to show favoritism. When I was managing the 9-1-1 call center I frequently was asked..."Which tow company" or "Which Board-Up company" would I recommend. My answer was similar to the one the OP received. We had rotation lists of vetted tow and board-up companies. When on-scene police or fire requested one or the other we would call the next company on the list. The OP can request a list of T&E companies available to use and request company X or leave the selection to the loan company.

 

[Walt34]

The second type of escrow is associated with and may be the mortgage company that you use (if any). When you make your mortgage payment, you typically pay extra which this escrow will hold and eventually use to pay your property taxes each year as well as your home insurance. Some lenders will waive this type of escrow and you just pay those yourself much like if you had no mortgage.

A bit more to consider on this type of escrow. Normally, if the mortgage company does their job properly there is no problem with them holding the escrow and paying the house insurance and property taxes when due. However.... I ran into the issue when they didn't. When I bought my house after my divorce, every year I'd get nastygrams from the County and the insurance company that the taxes/insurance premium hadn't been paid on time. So every year I'd have to go through the hassle of getting the deadbeats to pay up instead of eking out every penny of interest they could from MY MONEY.

When I refinanced to get a lower interest rate (at a different bank for sure!) I asked if I had to pay into an escrow account for those two items and the answer was no. So I did not pay any escrow and simply paid the insurance and taxes when the bills came. I knew when they'd arrive and about how much it would be so that was no issue. Periodically the bank would ask for a certificate of insurance to make sure I was paying the bill, but by the time the lot was worth more than the outstanding loan balance they stopped asking.

On hiring a RE attorney given that this is your first home buying experience I would advise to do that. The cost, compared to the cost of things that can go wrong, is minimal, and you really should have someone at the table who has your best interests in mind. He or she will be the ONLY one who does. You can sign a contract without the attorney seeing it first, but put a line in there "pending review by my attorney within five days" or whatever is a reasonable time in that area. Just like the home inspection, if your attorney doesn't like something in there, you can either get it rectified or walk away. Better yet, simply refuse to sign anything without your attorney's approval first, which is the safest way anyhow. This avoids all sorts of arguments.

 

[rk911]

On our first home in 1975 we HAD to pay into escrow until a certain % of the mortgage had been paid. After about 5-yrs we were able to close escrow and pay our own taxes and insurance. We just continued to save ~1/12th of the total in a savings account...like a sinking fund. When we moved to our current home in '88 we had a chiice and opted to not have an escrow account.

 

[Teacher Terry]

In todays market does it pay to get your own appraisal? I'm not sure how much they cost. I know since the brokers and appraisers work very closely together and sometimes their objectivity can come into question. I have a ex in-law who is an independent appraiser and she has some stories.

I never thought it was worth the money. I just relied on comparable houses or condos that had sold. In the old days you had to rely on the realtor but now can see what they sold for yourself. My last condo I didn’t bother with getting a appraisal as the buyer because the seller stated that they were asking more than it would appraise for and they weren’t lowering the price so if you didn’t have the money to make up the difference don’t make a offer.

I ended up in a bidding war and paid 12k over asking. Their original price was 10k over recent comps. However, my house sold for top dollar. It only took a year for my condo to be worth more than I paid. Because I was putting down 70% the mortgage company didn’t require an appraisal.

 

[OldShooter]

Another factor to consider is how good the comps might be. A condo ought to elicit some pretty good comps as there a lots of condos, maybe even in the same building, turning all the time. Country or lake homes with outbuildings and various amounts of land and/or lakefront are another matter. When we sold our lake home a year ago, the appraiser had to reach many miles away to come up with comps and they weren't great. A knowledgeable buyer like @Teacher Terry, armed with a sheaf of good recent comps, may be self-confident enough to proceed without an appraisal. An insecure and inexperienced buyer like (apparently) the OP is in a different situation

A complicating factor is the lead time on appraisals. In a hot market lead times may preclude having appraisals during the negotiations.

 

[Teacher Terry]

Oldshooter, you are right that a unique home is very difficult to find comps for. A friend of mine bought and eventually sold a dome home and found that out on both ends of the transaction.

 

[engineernerd]

1. In a real estate transaction, who picks the title and escrow companies? If it depends on the area, how do we find out who "traditionally" picks the title and escrow companies? Can title company and escrow company be the same company?

[FONT=&quot]Normally you find out what is customary in your area from a real estate agent. In some states using a real estate agent also means you can use standard contract documents that were developed by that state’s Realtors Association. I was impressed with the ones they have in Washington State. Anyway, yes, the title company and escrow company can be the same. Some time ago the big title companies saw how much easy money was going to lawyers for doing the escrowing, and decided they wanted a piece of that action. Now they dominate the escrow function in many states. It's a separate part of the company from the insurance side.[/FONT]

2. If seller picked, will title and escrow companies truly be neutral and unbiased, especially escrow company if - for whatever reason - the purchase does not go through and return our earnest money?

Yes, in my experience the escrow side of the title companies is very professional (and neutral). The title insurance guy was a little sloppy for my most recent purchase, so it’s good to read everything you get and make sure it’s what you asked for. Do you know the difference between owner’s title insurance and lender’s title insurance? Beware if it’s called a “Standard” policy, maybe it has changed but that used to mean it was just a lender’s policy.

3. What % of the purchase price is a "normal" / reasonable earnest money deposit?

[FONT=&quot]I don’t know/remember.[/FONT]

4. What are the things that can go wrong in this transaction and what should we look out for?

[FONT=&quot]I have heard horror stories about lenders taking too long to approve a mortgage, causing the sale to fall through in rising markets where the seller isn’t willing to sign any time extensions. I am also seeing articles now about home insurers refusing to insure properties due to various risks like wildfire. Mortgage lenders require you to carry home insurance, so if you can’t get a policy your transaction will fall through. Home inspectors don’t always catch everything (and usually make you sign away any right to sue them for the things they miss). Regarding home inspectors, I would recommend choosing your own, not whoever the real estate agent recommends. Real estate agents really want to close sales, after all, so a truly conscientious home inspector won't tend to be their favorite. Maybe try a retired homebuilder or remodeling contractor turned inspector.[/FONT]

5. We asked the mortgage loan officer for recommendations on a title and escrow company and she responded that she's "worked with many of them and not had a problem" but wouldn't specify any particular company. Is there a reason why she wouldn't?

[FONT=&quot]It’s not usual for loan officers to get involved in choosing title and escrow companies. And my info might be out of date, but I believe the title insurance biz is dominated by a small handful of big companies that aren’t terribly different from one another.[/FONT]

 

[Sunset]

I avoid escrow for taxes and whatever else, as I always considered it a weak link where they could screw up the payments.
When interest rates are high, having escrow means not earning approx $200+ each year.

I recall once I had 20% of the house value (ex down payment) , I could just refuse escrow and nobody argued.

 

[engineernerd]

I avoid escrow for taxes and whatever else

This is not the escrow the OP was asking about, but I agree wholeheartedly that paying one's own property taxes and homeowner's insurance, rather than letting the lender get in the middle of that, is the safest way to go.

If you are financing 80% or less of your purchase price and your lender insists on escrowing your taxes and insurance, look for another lender! There have been too many news stories about lenders treating this as a profit center, to the borrowers' detriment.

If you do get out of the escrow requirement, pay attention to what your mortgage documents say about keeping your lender informed about your tax and insurance status. "Force-placed" insurance has been another mortgage-industry scandal in the fairly recent past.