Getting Started
· Real Estate in North Carolina
· Your Credit Score
· Getting Pre-Qualified
Searching for Property
· Buyer Representation
· Your Wants and Needs List
· Beginning with Neighborhoods
· How to Search
Making an Offer· Commonly Used Forms
· Writing the Offer to Purchase
· Negotiating the Contract
Getting to Closing
· The Real Loan Application
· Inspections
· Insurance
· Taxes
· Homeowner Associations
· The Closing
· The HUD Settlement Statement
· Moving Your Stuff
· Warranties
· Environmental/Land Use Concerns
GETTING STARTED
Real Estate in North Carolina
In North Carolina the agent and the firm that lists a property represent the seller. All other agents and their firms also represent the seller except when an agent signs a written agreement that commits him/her to represent a particular buyer. That agent is said to be that buyer's buyer agent.Most real estate firms in North Carolina also practice dual agency, which allows property to be listed and sold within the same firm under the supervision of one principal broker. Should dual agency occur, the agents involved are obligated to reveal any information that is material to the transaction, but will not discuss personal matters that could work to the disadvantage of either client.
Your Credit Score
Before you begin to look at property it is smart to know your credit score. Do you know your credit scores? It's no big deal if you are independently wealthy or if you never intend to borrow money again. But for those who might be purchasing a new home in the near future, here is information that could ensure you the least hassle and the best rate and terms.
When you go to a mortgage lender the person across the desk will retrieve two or three of your credit scores from a credit bureau that processes your credit history from three national credit repositories …TRW, Trans Union and Equifax. It all appears on the credit report.
Even though all three repositories use the same credit risk assessment model developed by the Fair Isaac Company, the scores will vary because the information each receives from creditors is rarely identical. Each of your scores will be somewhere between 350 and 900 points, and like the SAT, higher is better!
The score indicates the risk of your account defaulting. Scores below 600 yield approximately 8 good loans for every bad one. A score between 700 and 730 predicts 130 good loans for each bad one. Scores above 800 yield 1,292 good loans for one bad one.
Along with the numerical score, you will be given four of the most influential of the 33 variables that affected your score. These "reasons" will give you clues as to how you can improve your credit score.
As a rule, the scoring goes back at least 2-years of payment on installment and revolving accounts and even farther back for bankruptcies, collections and judgements.
If you want to raise your scores here are some things you can do:
· Pay all of your accounts on time
· Close all but two or three revolving accounts
· Close all accounts that have ever been late
· Lower credit limits to just what you need
· Pay down cards to below 50% of the high credit limit
· Pay all of your accounts within 30 days
· Resolve all disputed debts when they occur
· Write a dispute letter to all three repositories about any erroneous account
Getting Pre-Qualified
If you would like a rough idea about how much you can afford to spend for your new home go to www.Prudential.com/finances and fill in the blanks. This method utilizes your current income and other factors to give you a ballpark amount. Before you actually go to see properties with a buyer agent, you should meet with a mortgage lender to get pre-qualified. It keeps you from wasting time looking at properties that you cannot afford. It also speeds up the loan approval process once you've found the right property. Possessing a pre-qualification letter is a powerful negotiating tool to submit with your offer to purchase. Go to finances to see a list of mortgage lenders in the area. We have included links to the web-sites of mortgage lenders that have given exceptional service to our clients.
Buyer Representation
A buyer agent is obligated to represent only your interests as described in a written agreement, not the interests of the seller. If your buyer agent is a member of the Wilmington Regional Association of Realtors he/she has access to every listing in the Wilmington Multiple Listing Service. The advantages of having such representation is that one person learns your needs, helps you screen all properties, arranges all showings, helps you negotiate the offer, arranges all of your inspections and attends the closing.
Because the concept of buyer agency is relatively new in North Carolina, many buyers are unsure of how much this service might cost them. Another reservation comes from wanting to make sure an agent is competent, trustworthy and committed to your goals before you enter into an agreement.
While any agent actively licensed in North Carolina who is a member of the Wilmington Regional Association of REALTORS can act as your buyer agent, the National Association of REALTORS has provided an easy way for buyers to recognize agents who have been specifically trained in buyer representation. If they have the ABR (Accredited Buyer Representative) designation beside their name you know they have completed a certain number of buyer agent transactions and passed the NAR exam. This is a minimum threshold.
Other factors to consider when selecting a buyer agent are: the number of years in the business (experience), the number of years lived in Wilmington (knowledge of Wilmington), the types of professional designations (degree of training), whether he/she has an e-mail address and web site (computer expertise).
Still, there has to be a sense of trust and rapport even if most of the above considerations are in place. The best buyer agents are good listeners, clear communicators, skilled negotiators, pay attention to details and help their clients stay focused on their needs.
In order to have an agent represent you as your buyer agent it is required that you enter into a written agreement called the Exclusive Buyer Agency Agreement. There are certain elements that should always be included. The duration of the agreement can be just for one showing, one day, a weekend, a month … you and the agent can make that decision. The length of the agreement is not as important as the ease with which you can end it.
I always include a clause that allows both buyer and agent to end the agreement immediately upon notification by fax, e-mail, voice message or written notice. The rational for a quick and easy cancellation is that trust and respect are what keep the agreement together. When the relationship is no longer satisfactory for either party it should be ended.
Buyer agents are independent contractors and negotiate their own fees, however, the most common method of payment in the Wilmington area is for the listing company (employed by the seller) to split the commission with the selling company and its buyer agent. Simply stated, the buyer customarily does not pay the buyer agent for this service, the listing company does.
For your information, any property in the MLS can vary in the amount of the commission fee, as well as how the fee is split between companies and under what conditions a bonus might be offered. The important thing to remember is to ask the agent to clearly explain how he/she is paid for services, and then make sure it is written into the agreement.
Your Needs & Wants List
The sooner buyers can distinguish what they must have in their next home and what they would like to have, the faster the process can move ahead. Another way to separate the needs from the wants is to ask which things, if missing, would be reasons to reject the house or neighborhood. Those things are your needs and they will be used to search out all of the properties worth considering while the wants will be used to narrow down the list to a manageable size.
A useful exercise is for each person involved in the buying process to make a list of his/her needs, wants, and dreams. Compare and combine each person's list until everyone agrees on the most important things. The agent will use this information when setting up criteria for searching the database for your property. Do not be surprised if the list changes while you are looking at different properties. Each property will reveal at least one thing that you either want or do not want in the property that you eventually purchase.
Beginning with Neighborhoods
A good way to become familiar with the area is to have your buyer agent take you on an orientation tour of neighborhoods in your price range as well as show you the important landmarks and service areas. Many people find there is no better way to discover a place than to spend time in your car with a map getting lost and finding your way again. Just keep in mind that you do not have to see the entire city to discover a great place to live.
If you can give your buyer agent the name of several neighborhoods that you find interesting, he/she can show you others that rival those settings. Another method that works is to focus on the houses that fit within your budget and evaluate the neighborhoods as you tour.
You can become cyber oriented to some of Wilmington's neighborhoods on www.neighborhoodfind.com before you ever arrive. You can also get a good sense of Wilmington's neighborhoods by visiting www.insiders.com/wilmington.
How to Search
The search for your new home should be as fun and exciting as your first scavenger hunt. You are the expert on your needs, lifestyle and tastes and your buyer agent knows the neighborhoods, service areas, housing inventory, financing resources, etc. Together you will exchange your banks of information through observations and questions so that your goal of finding the right house in the right neighborhood is ultimately accomplished.
More and more buyers are getting a head start by researching the area via the Internet (like you are doing). For traditional buyers the search begins with the initial conversation with your agent when you describe what you think you are looking for. Once your buyer agent understands your needs they become the criteria used for computer searches through all of the homes in the Multiple Listing Service. The initial search could retrieve a hundred or more properties. Your buyer agent can narrow the list by looking at each property report marking those that have some of the "wants" on your list and are in the types of neighborhoods you favor.
Now it is time for you to review the property reports and pictures indicating which properties you would like to tour and which can be eliminated. Many buyers go through the local real estate magazines and the Saturday real estate section marking properties that interest them.
Buyer agents will sometimes announce what they are searching for at their weekly sales meetings or e-mail or fax their criteria to agents in other companies. Eventually, the buyers and agent realize that there are two to five properties that meet the needs and many of the wants, but just one has the emotional impact to prompt the offer. Once that decision is made, the search shifts to making an offer.
MAKING AN OFFER
Commonly Used FormsThe Buyer Agency Confirmation Form is used to let you know for whom an agent is working. When you visit a new home development the agents on-site will usually ask you to sign this form. If you call a company and an agent shows you property, that agent is required by law to ask you to sign this form. Signing the form indicates that the agent has told you whom he/she represents. It does not obligate you in any way.
The Exclusive Buyer Agency Agreement enables the agent of your choice to work solely in your behalf. You may safely assume that all other agents are obligated by law to work for the seller. This is the form you will sign only if you are comfortable working with a particular agent. You should make sure that you could easily cancel this agreement if you are not getting exceptional service.
The Dual Agency Addendum is signed at the time you sign the Exclusive Buyer Agency Agreement if you agree to allow your buyer agent to represent you during the purchase of any property listed by the agent's company.
The NC Property Disclosure Statement is one of the few forms that all sellers (even FSBOs) are supposed to complete about the material condition of their property. It does not relinquish your responsibility to heed the advise of "buyer beware". Selecting an experienced buyer agent, having a thorough home inspection, pest inspection, survey, home warranty insurance, title insurance, homeowners insurance and flood insurance are precautions buyers should use to safeguard their investment. Completed copies of this form are often available at the houses you tour. If not, you can have your buyer agent request one from the listing agent.
The Offer to Purchase and Contract has been developed and refined by the N.C. Bar Association and the N.C. Association of Realtors. It has been proven over the years to work for most situations. If you or your agent have doubts as to whether your transaction needs additional legal wording, by all means see a local real estate attorney. The Special Provisions and Conditions Addendum is a supplement to the Offer to Purchase and Contract. Included are the most common situations that a buyer might want to add to the Offer to Purchase and Contract. As a rule, if you cannot fit the additional items in paragraph 16 of the Offer to Purchase and Contract, you probably should include this addendum.
The Buyer Agent Commission Confirmation Agreement is a form that lets the seller, seller's agent, listing company, buyer agent, buyer agent's company and the buyer know how the commission for a particular property will be disbursed at closing.
Writing an Offer to Purchase
Once you have decided to make an offer on a particular property, your buyer agent will accumulate information on the property, on recent sales and on the neighborhood from the MLS, tax records and any other available sources. The process is similar to the competitive market analysis that the listing agent performed for the seller when pricing the property. Hopefully three nearby and similar properties (location, size, age, etc.) have sold within the last six months. Adjustments are made for significant differences among the properties.
An experienced agent will help you get all of this empirical information into perspective so that you can make an offer that is in your best interest without affronting the seller.
Once you've established value, the next challenge is to minimize risk. The home inspection and the wood destroying insect inspection are designed to catch structural, mechanical and operational problems. A survey should reveal right of ways, easements and encroachments on the property. Home Warranty coverage can help defray the cost of mechanical failures and title insurance can reduce the cost to correct title errors.
Still there are many more threats to your property investment that can range from obsolete wiring to friable asbestos or underground storage tanks to the presence of synthetic stucco. The more experience and training the agent has, the more likely a complication will be recognized and handled properly through the writing of the offer. Line 16 of the Offer to Purchase and Contract is one place to address special concerns and the Special Provisions and Conditions Addendum is another.
Negotiating
The Art of Negotiation A savvy seller will price his property just above market value. A common mistake is to price well above market value, then add something for a negotiating margin and before long, the seller either has no showings, no offers or a low-ball offer. Smart buyer agents will research when and how much the seller paid for his house; the "sold price" of every other property in the neighborhood over the past three years; and probably do a market analysis on the sellers home if needed.
I advise sellers and buyers to negotiate as if you were playing bridge. If the buyer opens with a low bid, rather than feeling offended and making no response, the seller should come back with a small counter that sends the message that the offer was simply too low. On the other hand, if the buyer makes an initial offer very close to what the seller had hoped for, the seller should think twice before rejecting it with a counter. Some of the best offers are the first early offers.
Always find out what is the primary objective of the buyer and seller. Is it price, timing, terms, etc.? If each party's primary objective is different, a win-win agreement is very possible. In a buyer's market, the buyer has the advantage of being able to walk away from a seller's property and buy one of many others for sale. My advice to both buyers and sellers is to stay calm, rational and flexible. Keep focused upon where you want to end up and realize that there are many ways to get there. The best deals are those where both parties walk away winners, not walk away over a $1,000 difference!
GETTING TO CLOSING
The Real Loan ApplicationThe Offer to Purchase and Contract will require you to begin the loan application within a certain number of days of reaching contract. Your mortgage lender and the closing attorney will both need a copy of the contract to do their work. Your mortgage lender will usually give you a checklist of information that you will need to take by the office. Here is a list of the most commonly required information for a loan application:
· Each buyer's social security number
· Signed contract (preferably an original)
· Last 3 months bank statements
· Most recent pay stub
· Name, address and phone # of employer for last 2 years
· W-2 statements for past 2 years
· Tax-returns for last 2 years if self-employed
· Residential address for past 2 years
· Bank name, account name & # of checking, savings, stock, 401ks
· Name, address, account name & amount of open loans
· Information on other real estate loans and leases
· Credit Report and personal check (Lender will order it for you)
· Certificate of Eligibility or DD-214 (VA loans only)Most lenders expect you to initially pay for a credit report ($30-50) and the loan application fee if there is one ($250-350). These costs will show up on the HUD Settlement Statement at the closing with (POC) beside them, which means, "paid outside of closing". Every buyer wants to know how much the monthly payment will be and about how much the closing costs will be. Your mortgage lender will be able to provide you with that information.
Your lender will give you the option of "locking into" the current rate or "floating" in case rates drop. Some programs allow you to "lock-in" to the current rate but drop down if the rates go down. An experienced lender will be able to advise you on which of their programs will best work in your situation. They will also have the experience to work through problems that could possibly delay closing.
The Inspections
In North Carolina the inspections are customarily done on or before a certain date as specified in the Offer to Purchase and Contract. Your buyer agent can recommend the names of several companies to perform the pest inspection and the home inspection and arrange for an inspection time with the sellers' agent. It is in the buyer's interest to attend the inspection to see the condition of the structure first hand and to ask questions about any serious problems right there on the spot.
If it is impossible for the buyers to accompany the inspectors, you may want to speak to them by phone after reading the report. Your buyer agent will help you write a letter to the sellers' agent requesting which items you would like to have addressed and which ones you might eventually handle. A good common sense guide is to address those problems that affect structure (especially water damage), health, safety and the operation of systems.
Also in the Contract the sellers are given a certain number of days to respond back to the buyers as to which items they are willing to address and which ones they choose not to do. The sellers may respond by either repairing the item prior to closing, offering money toward repairing the item, or refusing to fix the item period. Resolving the repair list is a second round of negotiation. Skilled buyer agents will invariably help their clients find a fair resolution to the inspection reports.
Closely associated with Home Inspections are various environmental and land use concerns that your buyer agent should help you to address if they occur. The more common concerns appear at the end of this guide.
Homeowners Insurance
Fewer than 10 insurance companies are writing homeowners' insurance policies in coastal North Carolina at this time. This is due to the higher risk of property loses associated with hurricanes. For this reason it is important that you contact your insurance agent immediately after you apply for your loan. The companies that are still writing homeowners' policies in Wilmington are:
Flood Insurance
If the property you intend to purchase is in a special hazard zone classified as an "A" or "V" zone, your lender will likely require that you purchase flood insurance. If your property is outside the special hazard zone and you suspect that your home might be remotely susceptible to flooding from surface water originating off-site from your property, you should still consider flood insurance. Always ask neighbors if their neighborhood has ever flooded.
Taxes
LOCAL GOVERNMENTS YEARS 2001/2002 New Hanover County .6900 Unincorporated Fire District .0500 City of Wilmington .4700 Town of Wrightsville Beach .1430 Town of Carolina Beach .3950 Town of Kure Beach .2950 Brunswick County .5925 Pender County .6680 Village of Bald Head Island .6350 Local governments set their tax rates as part of their budgetary process prior to 1 July each year. The tax year goes from 1 July through 30 June. Your actual property tax is determined by multiplying the tax rate(s) that apply to your property times the tax valuation divided by $100.
Your tax valuation is determined by a tax appraisal that is different from a market appraisal used for loan purposes. In both Brunswick and New Hanover counties, 100% of the tax valuation is used when figuring your property taxes. New Hanover County's last tax valuation was for fiscal year 1999. It is North Carolina law that local governments revalue property at least every 8 years.
Example:
If you live in the City of Wilmington and the tax value of your property is $150,000, your property tax would be:
JURISDICTION TAX RATE TAX VALUE/$100 New Hanover .565 $150,000/$100 Wilmington .470 $150,000/$100
Homeowners' Association Dues and By-laws
The amount of the Homeowner Association dues can be found on the MLS property report. If you are concerned about the financial condition of the Association ask your agent to find out the name and phone number of the Association treasurer. Your buyer agent should be able to get a copy of the Neighborhood Association By-laws from the seller's agent or from the Association's officers or management company. The By-laws will explain how the Association is supposed to be operated.
Neighborhood Covenants and Restrictions should also be read before you make an offer, especially if you are concerned about such things as pets, out buildings, fences, outside boat storage, conducting a business from your home, etc. Not all properties are located in a neighborhood governed by an association. Such properties tend to be located in the older parts of the city or towns or in the rural parts of the counties.
Utilities and Other Services
After all of the contingencies are lifted and the closing seems imminent, it is time to arrange for your utilities and services. You can actually save money by coordinating the switchover of water/sewer and electrical services with the seller so that the Service Company only has to make one reading during one trip.
Power Water Sewer Gas Trash Pick-up Telephone Postal Service Cable Service Newspapers/Magazines
The Closing
The buyers, buyer agent and closing attorney attend the closing at the closing attorney's office. Sellers seldom attend as long as they have signed over the new deed to the buyers. Sometimes the sellers' agent attends the first part of the closing to make sure the HUD Settlement Statement is correct, all papers are signed on behalf of the seller and that all concerns of the buyers have been satisfactorily addressed. Once the closing attorney begins to lead the buyers through the paperwork of the loan, the seller agent's work is complete.
The meeting usually begins with the explanation of the buyers' portion of the HUD Settlement Statement. Each line item will be clearly explained and the buyers will be able to ask questions about how taxes and homeowners' dues are pro-rated, why taxes and insurance are placed in escrow, the purpose of title insurance, etc. The property does not actually change hands until after the closing when the closing attorney actually goes to the registrar of deeds and records your deed. Most routine closings are completed in a half-hour.
The HUD Settlement Statement
The HUD Settlement Statement is a form used by the closing attorney to account for how all monies are dispersed at the closing. It is a form that you should keep with your tax information long after the sale. As a matter of fact, your accountant will probably ask you to supply it with this year's tax information so he can complete your return.
Sellers can expect to pay the sales commission, the cost of preparing the deed, the revenue stamps to pay for recording the deed, pro-rated taxes and homeowner dues for the year of the sale, and the cost to express mail the paperwork to the sellers' mortgage company. If the seller offered home warranty coverage that cost could be reduced from the proceeds of the sale at closing.
The Buyer can expect to pay for all costs associated with the loan from the origination fee, credit report (POC), loan application fee (POC), appraisal, floodplain certification fee, and any other "loan" fees. The buyer will also pay for the home inspection, the pest control inspection, and a survey if ordered. Since the buyer selects the closing attorney, the attorney's fee is charged to the buyer. It covers the administrative tasks associated with collecting and dispersing the monies, guiding the buyer through the loan package, researching the title and ordering the title insurance, and recording the deed. The cost of the title insurance policy is in addition.
The buyer will be credited the sellers' share of the property taxes for the year, but will be expected to pay the entire year's property tax bill that he/she will receive in September and due in early January. Your mortgage lender will more than likely pay that tax bill when due with money that will come from the buyer's escrow account. A portion of each monthly mortgage payment will go into your escrow account so that enough money will be available to pay both your property taxes and annual insurance premium when they are due.
Buyers should expect their first year's insurance premium to be charged at closing, plus several additional months to bankroll the escrow account. If flood insurance is required, it will be handled in the same manner.
The above costs are typical for a buyer who must borrow to purchase property. Obviously there are other possible costs that if charged will appear on the HUD Settlement Statement.
A day or two before the closing, the attorney's office will send a draft of the HUD Settlement Statement to both agents to review with their clients. An easy way to make sense of this Statement is to turn to the back page and if you are the buyer, look for the section that pertains just to buyers. Each cost will be described and summed up at the bottom. That figure is brought forward to the front page under the buyers' section. If something is unclear or if you find a mistake, call your agent or the closing attorney's office for an explanation.
The Move
Most moving companies prefer at least 10 days notice for scheduling your move. A representative will stop by well ahead of time to estimate the size of your move and to let you know what to expect from the movers. If you decide to have your movers perform a full service move, you will still be expected to make decisions about art pieces, fine jewelry, liquids and gases, fire arms, prescription drugs and computers. If there is a chance that your things will go into storage make sure your important papers/disks are accessible. Also perform an inventory with video tape or digital camera in case of loss or damage.
Warranties
Most new appliances carry manufacturer specific warranties. Builders of new homes and owners of existing homes should collect and give documentation of coverage to the buyers.
Home warranty protection can be purchased by the seller to cover existing appliances while the home is being sold and continues to offer protection for the buyer one year after the closing. Even if the seller does not offer such coverage, the buyer can purchase coverage at or after closing. While it does not make sense for a new home with manufacturer warranties in place, it is certainly worth considering for homes with older appliances and mechanical systems.
A builder's warranty on a new home is only as good as the builder's character and the solvency of his/her business. It is in the best interest of owners of new homes to get as many repairs completed prior to closing as possible and to follow-up on any other repairs as soon after closing as possible.
Land Use and Environmental Issues
ASBESTOS
Asbestos is a naturally occurring mineral made of tiny easy to inhale fibers that can increase the risk of certain cancers when disturbed into the air and inhaled. It was used in a number of home construction products prior to 1980. Places where you may find asbestos products include insulation of old steam pipes and furnaces, old vinyl asbestos floor tile, and asbestos cement roof, shingles and siding. A general rule is to have asbestos removed by professionals if it is likely to become airborne. Asbestos products such as vinyl asbestos floor tile that can be covered without disturbing it is another option. As long as asbestos cement siding is not broken and is painted, it can be left in place. For more information on this material go to http://www.schs.state.nc.us/epi/asbestos.html.FLOODING
Every property located within the 100-Year Flood Plain is supposed to be identified on the property report form in the MLS. Buyers should also have a survey performed on which the 100-Year Flood Plain boundary is drawn on the plat or else it is stated that the property is not within the 100 year flood plain. There is some peace of mind in knowing the first floor elevation of an existing house. If you want this information, ask your surveyor to provide you with a Certificate of Elevation for the first floor living area. It will be written on the survey plat.RADON
If you are moving from a part of the country where radon gas is sometimes detected in basements you can relax. Not only do we have few basements, we do not have the geological formations that contain radon gas. You do not need to test for radon gas if you live in coastal North Carolina.
If you have any further questions at all, feel free to contact me.
Bob Jamieson, Broker
CRS, ABR, GRI
Intracoastal Realty Corporation
1900 Eastwood Road at Lumina Station
Wilmington, North Carolina 28403
Toll Free 877.505.5272
Business 910.232.1893
Fax 910.397.2825email bob@bobjamieson.com
web www.bobjamieson.com