Ever run a marathon and think you can’t make it but suddenly the finish line comes into view? Me neither, why would I run almost 27 miles for nothing? Those folks are crazy (but deserve a ton of respect for doing it). Anyway, my one month house hunting trek is coming to a close. As I mentioned in a previous post, I came in with the second best offer to a “slightly” higher offer on a great home that’s “the nicest in the development.” (quote from a neighbor, taken with a grain of salt) I was asked if I wanted to increase my offer and declined for reasons I outlined in the previous post. It turns out that was 100% the correct decision as the highest bidder backed out, they didn’t agree with the contingencies and I’m next in line!

There are 8 contract changes and they all point towards a speedy settlement, within three weeks, which is going to be a challenge but doable. The main points of the changes are that the sale price will be $295,000 (justification to be explained later, home inspection to be completed in three days, loan approved within two weeks, a $5,000 deposit (versus the $2k I initially put down), and everything closed before Memorial Day. There are other minors points not worth mentioning.

I met my agent last night to sign the paperwork changes to the contract and leave a $3,000 check, to be held in escrow and put towards closing costs whenever everything settles. I also found out some interesting facts that made me feel like a freaking genius (if I do say so myself). The “slightly” higher off was for $296,000 by the highest bidder with a totally cash purchase. The agent obviously went back to them and said we need the rent back until July 31st, that’s our counter-offer. The highest bidder then offered $315,000! They also probably weren’t willing to do the rent back otherwise I wouldn’t have stood a chance, their offer was $20,000 higher than mine! My hope of only winning because of the rent back succeeded and my decision to not increase the offer another $5,000 or $10,000 was wise because I would’ve just thrown that money away. A higher contract offer wouldn’t have resulted in my winning the house outright and they would’ve told me my second offer is what was necessary if I really wanted to keep the house. I’m stunned we won based on that $20,000 difference, sounds like the rent back (it could’ve been anything but it’s probably the rent back) is worth a lot to the seller (it’s their market).

Any buyer’s remorse? Not yet… I’m paying $121.41 per square foot on this property, which is within the $120 to $130 guidelines someone who had spent six months looking for a home had told me their agent said. At $75,000 a bedroom, the price comes in under the $300,000 wire. Finally, it’s in a great area. The only “bad” thing is that neighboring homes sold, within the last three months, in the $250’s so I may have a low appraisal problem. Either way, someone else believed it was worth $315,000 and I got it for a $20,000 discount.

Finally, since I’ll need to rent back until potentially 8/1, I’ll be renting a basement from my friend for a month. Check it out, I think it’ll work out great in the Rent Back Shack.

My agent notified me that I put in the second highest offer (the other one was “slightly” higher) for the property I talked about in my previous post about full financial disclosures. I am still in the running though because there is a sticking point with the top offer, though the seller agent didn’t identify it to us. It was never listed that the seller wanted to rent back until the end of July and we believe that’s the sticking point. The highest offer also disclosed that they have $350,000 in the bank, so the low appraisal and the lending issues aren’t a problem for them. Did we want to offer more? No, and here’s why.

My agent and her advisor both agreed that I would be in stronger shape if I put in an offer of $305,000 compared to my initial high point of $295,000. Both my girlfriend and I agreed that we weren’t going to break the $300,000 barrier because we didn’t like it that much but we needed to be reasonable - $10,000 when you’re already at $295,000 isn’t that much money.

Assumptions:
1. The sticking point was in the rent-back. It’s very important to the sellers.
2. Slight means no more than $5,000 or so.

Reasons for Not Offering More:
The first thing I thought about was where did the $350,000 come from? If it came from a prior home sale, the other bidder may not have the convenience of waiting an additional month. They probably don’t want to stick around in a hotel for an additional month. If so, they withdraw their offer and we get the house for $295k.

Let’s say the $350,000 isn’t from the result of a home sale, they can still raise their offer above ours. We would be playing into the selling agent’s plot of getting into a bidding war we can’t possibly win. In this case, offering more wouldn’t help us.

So right now the only bargaining chip I have is the rent-back, which is something I can’t control. We’re going to stick to our guns and the $295,000 offer and we’ll let you all know what happens when 5PM rolls around.

Update: (8:42pm 5/10) I was at a work league softball game when my agent called, apparently the high bidder needed until 8pm (42 minutes ago) to talk to his wife. The fact that their married puts more credence on the “just sold a home” theory, hopefully one of them be tired and cranky by now and the thought of living in a hotel for a month with their stuff in storage is a miserable one for them. Still could go their way, who knows, but it at least makes our “strategy” appear to be the right one regardless of the outcome. It also turns out they want us to secure financing by May 24th. Yikes.

My realtor faxed in my offer Monday morning on a home that seemed like an incredibly good deal. It’s a 2,400+ sq ft. place in Columbia, MD with four reasonably sized bedrooms (not counting the basement), three and a half baths, and a great deck. The offer I made was competitive enough to warrant the seller’s agent to request what is termed “full financial disclosure,” which meant I was to detail my job, salary, assets, and liabilities in a stock form provided by Century 21. The form was a little funny considering how it asked for the information but the Century 21 logo meant I could trust this was all the information they needed. What struck me as a little strange was that I didn’t need to provide any proof of any of this, though the pre-approval letter (where I did provide proof to LendingTree) did provide secondary proof.

The funny thing about the form, other than I didn’t provide any bank statements or pay stubs, was that in the listing of asset accounts it had checking, savings, credit union, and then an other category. Under checking and savings, there was only enough room for two accounts. I think in the age of online banks like ING and Emigrant, having only two savings or checking accounts is rare. Also, I have a checking and savings account at a credit union (through work and through my father’s work, since I opened those when I was a teenager) so do I count those in credit union or the regular checking and savings. I just went with putting it all in checking and savings and a small sum in the credit union - making sure not to double count any of the accounts.

The gift letter portion of the title refers to how I’m going to get money for the downpayment from my parents, specifically my father (someone has to be writing the gift letter, so it was my father). I searched for about ten minutes on Google and couldn’t find any example gift letter template, just a list of some criteria. Essentially, the letter just needs to say who is giving who money, that it is a gift, and that there is no expectation that the money will be repaid (i.e. the gift is not a loan). The money must be used towards closing costs or the downpayment by rule, but the letter doesn’t need to say this. I’ve provided an example gift letter template that I created myself and that my agent accepted and faxed to the seller.

To Whom It May Concern,
This gift letter is to state the fact that I intend to give to my [nature of the relationship], [your name], a gift of [dollar amount] towards the purchase of a home. This is not a loan and there is no expectation that this sum will be repaid.

Sincerely,

[your benefactor's name]
[date]

I should find out this morning whether or not I’m writing a “DENIED!” or a “I’M FANTASTICALLY POOR” follow-up post.

I’m batting 0 for 2 now, the offer on a second home (this one I wanted more than the last one) wasn’t accepted. The list price of the home was $275,000 and I offered $275,000 with an escalation clause up to $290,000 including a deposit of $2,000 (up from $1,000). One thing this home did teach me was the psychology of the seller and working harder to understand their motivations. I’ll explain what I mean…

(read full article…)

If it looks like a duck, sounds like a duck, and CNNMoney quotes Warren Buffett warning of a housing bubble, there’s probably a housing bubble. Have you ever heard of the Business Week cover curse? It basically says that by the time mainstream media catches onto an idea, it’s already too late to capitalize. I take that theory one step further and apply it here. By the time mainstream media is warning you about something you don’t already know, you’re already too late to save yourself.

This doesn’t bode well for me because I’m currently looking for a house, so using my own wisdom, buying into a housing bubble would be a terrible idea right? Wrong. What would be a terrible idea is if I overpaid for a house just so I could own one and get in on the real estate craze. A house differs from a stock in that it has a value other than what the market dictates. I can’t eat a share of stock but I can live inside a house regardless of how much it is worth to someone else.

Who I am fearful for are my friends and colleages who are overpaying just so they can own something. They don’t evaluate a home solely on its merits (location, # bedrooms, square feet, age, etc.) but include their potential earnings for when they sell. It’s comparable to the tulip bulb craze, the Florida real estate bubble, the tech boom, and countless other periods of irrational exuberance. (by the way, a great book to read about stock market bubbles is Wall Street: A History by Charles Geisst)

Don’t fall in that trap. When you are looking at a home, buy it because you want to live there. Don’t buy it because you think you’ll be able to sell it for more later. It’s more than a house, it’s a home. And by the way, if the Oracle of Omaha says something - it’s usually a good idea to listen.

Today, I went on my fourth house hunting trip and it went very well… it also resulted in my putting out a second offer on a home. Since it was the second offer, I thought I might outline the “timeline” of a home purchase - for folks who haven’t yet made the plunge and didn’t really know what to expect. It might be a little inaccurate since I haven’t actually gone through the process, but you actually set the timeline in your contract offer.

Anyway, on this trip, one of the homes I saw on my third trip dropped in price. It was originally listed at $269,900 and it fell to a mere $264,900! Count my lucky stars! This time I went back with my girlfriend and I didn’t think the place was all that - partly because I saw another place listed at $275,000 and it was far and away superior…

Onward to the little fees and the “timeline” I spoke about before. The first step in putting out an offering on a house is to simply write out a contract (it’s boilerplate with addendums for house specifics), put in a price and possible escalation clause, and then fax it off to the seller’s agent. Once you go through all the contingencies (essentially escape clauses that let you break the contract, i.e. failed home inspections), the timeline looks a little something like this.

Brief Timeline:
Ratification: This is the term for when the seller accepts your offer and it is “ratified.” The clock starts ticking the day this happens and the following timeline (which you write into the contract, but I chose what I think are standard time frames) kicks in:
Ratification+5 days - Apply for Home Loan: Within 5 days I have to show that I’ve applied for a home loan, sent in the financial documents that I’ve already done to Lending Tree.
Ratification+10 days - Home Inspection: Within 10 days I have to get a home inspection and report anything bad with the house. If it’s not done within 10 days, I’m screwed with respect to the home inspection. The Century 21 agent said they have home inspectors and that they can do it usually within 3-4 days.
Ratification+15 days - Home Appraisal: As part of the loan process, the bank will have the house appraised; this must be done within 15 days.
Ratification+30 days - Home Loan Approved: This just means I have to get the loan itself within 30 days, usually banks can do a loan within 15 days after application.

Fees? Well, there are a whole bunch of fees but only one specific to Century 21, the buyer’s agent. Apparently, there is a $195 administrative fee I didn’t know about before. It doesn’t bother me, $195 isn’t much with respect to the size of the purchase, but I didn’t know about it before so I obviously wasn’t happy to learn about it. I don’t know if that fee is considered part of “closing costs,” the nebulous “everything else fees” no one really knows how to quantify for me.

“Closing Costs”:
One part of closing costs that is quantifiable is a Maryland transfer tax, which is about 1.5% of the value of the home. In the contract, we stated that the buyer and seller would split the costs and I, as a first time Maryland homebuyer, would get a credit in the range of $725ish. As a first time buyer, I would be exempt from the State Transfer Tax (0.25%, or $725 on a $290k). With the home in Howard County, the Recordation Tax is calculated at 0.5%, the County Transfer tax is 0.5%, and I’d be subject to a lien certificate, which has a fee of $25-$55. So let’s ring of the cash register and we’ll come up with total Transfer and Recordation taxes of $2,955. And that’s not even all the closing costs… just the transfer and recording costs.

In doing a search online for closing costs, I found a site with Maryland specific numbers for various “other fees.” Here is a list of what I should probably expect (if I know what was good for me):

Now, I don’t know if all those will apply or even if that’s an exhaustive list, but at least now I can start research that kind of stuff. Ultimately, it’s a fee I will have to pay regardless of what I do, so I should brace myself for it.

As for the loan related fees, Lending Tree has assured me that all the fees are all spelled out and sum up to $995:

Think I missed anything big?

Anyway, as for house hunting trip 4, we saw a nice end-unit townhouse with a garage, over 2100 sq ft. of space, a nice backyard and all new applicances listed at $275,000. Offers are going to presented Monday night so I’ll find out what the verdict is probably Monday night or Tuesday morning. Wish me luck!

There’s an unspoken rule in homebuying that you should look at six homes, minimum, before ever thinking about submitting an offer. When I submitted my offer, it was probably the sixth home… possibly the fifth or earlier, I can’t remember. They say that you can’t really know what you want until after the sixth home and you won’t get a feel for the market until that point. I wholeheartedly agree. If you buy before six (I think the rule should be extended to least ten homes), you will probably overpay for a home or possibly buy a home that you really only find mediocre. To avoid this, don’t put in an offer even if it looks like your dream home because it might not be.

Check out what I sent my real estate agent about the important aspects of a house the first time she asked:

…
I’m interested in a townhome in the 230-310k range with ideally 3br, 2+ baths and built after 1985ish in Howard County, though not limited to that county. I was thinking of like Columbia, Elkridge, Laurel in Howard County…
Parking - Garage is not important, though it’d be nice. Two spaces is all we’ll need.
Basement - No preference on finish/unfinished; walk-in living room, etc; are no preferences for me.
I prefer brick over siding; end unit over middle, cathedral over attic.

That was before looking at a single house. It does look quite informative and many of the things did carry over, but look at what I recently sent her in an email:

I want a master bedroom greater than 130 sq ft. 10×10 sucks.
A basement is nice, finished.
3bedroom, 2bath minimum

if the house is greater than 280k, one of the bedrooms has to be at least 10×10
0.04 acres minimum, greater than 1600 sq. ft
1980 or newer home
A decent backyard and deck.
Basement doesn’t need to be walkout - though it’s a plus

Which do you think is more informative for her and a huge timesaver for the both of us? That’s right…

Also, when looking at homes, look at those that are under your price window and over your price window. That way you know what you can get with that amount of money and adjust your strategy accordingly. I saw a lot of homes I’d love to live in outside my price range. Conversely, I saw a $245k built in 1969 that hadn’t been updated and looked ahead of its time (the walls had technicolor wallpaper).

Visiting lots of places also gives you a sense of the market. I know that in Columbia, under $300k means I’ll have to go to the older area west of the mall for a good deal. It’s this constant learning that helps you make an informed decision you simply cannot make before visiting six homes. If nothing else, you can get ideas for renovations (I saw this sick deck setup) when you do get a home.

Yep. First contract offering was a bust. The original offering of $290k with an escalation up to $300k was rejected but the details of the winner won’t be available until things are settled and posted to MRIS. The total contract value had to have been over $300k, which I anticipated considering there were three other offers all of which knew there were three other offers. At over $300k, my psychological barrier, it would’ve been too much. $299,999.99 would’ve been juuuust fine though. Go figure. But here are the gory details of the property…

This was the house I put a bid on:
List Price $290,000 - 8566 BLACK STAR CIR, COLUMBIA MD 21045
Nice little three bedroom, two full and a half bath joint with a nice basement. In looking back at it, and this may just be sour grapes, I’m kind of glad I didn’t win it… one problem I had was that it sat very close to Snowden River Parkway (map), which is a relatively busy two/three lane road. The noise was still audible from the master bedroom, a downer when you are trying to sleep, so like I said, losing it wasn’t a big deal.

I also wasn’t too keen on paying the Columbia Parks and Recreation Assessment “tax” (CPRA) of around $500 a year (plus the $30/month Home Owner’s Association), a fee that’s tied to the value of the house. Though, what the CPRA pays for is great — parks, pools, and nice libraries.

Here’s a cute Cathy comic strip:

So, the search continues…

Update: According to public record, the house was purchased for $312,000, or 7.6% over the listing price.

I mentioned yesterday I put in an offer and then upped the escalation clause after learning of three other offers. Well, the hammer will come tonight when the seller’s agent and the seller get together and ratify one of the contracts. My agent’s excited because it’s my friend and I’ll be her first sale. One of my other friends said I should be owed a couple steak dinners or a phatty house-warming gift, so I’ll be looking in the mail for some soggy envelopes filled with steaks.

Anyway, in the waiting, I’ve come to discover the various free services showing home listings just aren’t real-time enough for me (or anyone really). My girlfriend looked up some homes via Washingtonpost.com and by the time I emailed my agent-friend, all but one (of perhaps 8 or 9) were already sold. That means I was looking at stale data. Does that mean the real estate market is sizzling hot here or are all of these Realtor sites or Homesdatabase.com sites just slow?

It then occurred to me… if these sites were super-real-time, what advantages would there be for a realtor? They still need to keep a chip in their back pocket in terms of information otherwise I could just go the route of “For Sale By Owners” once I knew the pitfalls to look for (i.e. how to structure the contract, how now to get hosed in terms of inspections, etc).

Also, I suppose a realtor would be necessary to actually look at the home if the owners weren’t there. They have this neat little add-on to a PDA (mine had a ancient looking Zire) that transferred a code to the key-box. After a few seconds, some technology mumbo-jumbo, there’d be a click and a key case would drop out. Whoever came up with that system is probably ridiculously filthy rich.

Finally, one thing I think my agent didn’t really do totally correct so far was point out bad things in a house. My other friend who just bought one mentioned something about how homes in the early nineties used a certain type of piping (not PVC, something burethane [sp?]) that would need to be replaced after ten years because of leakage. A home inspection would find that out but by then you’ve made an offer and now you’re just backing out of it, so you’re in pretty deep at that point. The replacement cost is $5,000 - $10,000. (holy crap!) Pointing out what’s bad about a house is something I need to know because I’m pretty functional - four walls, a roof, and I’m happy. That place to the left looks pretty sweet to me.

On Sunday, after coming back from my school’s Spring Carnival (which was a weekend of drinking, revelry, and catching up with old friends) four hours away, I went on my second house-hunting trip. This time though, we saw two (three, but one of them was identical to the other one) places that we liked out of five total. One (and it’s twin) was $312k ($315k) and one was $290k. The $290 was in Columbia near a Safeway, nice area, very convenient access to major roads and the home’s layout was great. It had three bedrooms, two full and two half baths, a partially finished basement (finished except for the storage room where the boiler was), and a nice deck and lawn outside.

In writing out the contract, I began to get a little taste of the “other” fees I could expect if these things go through. There are a whole bunch of fees but only one specific to Century 21, who my agent works for, so far. A $195 administrative fee surprised me but with respect to the overall price of the house, it’s just a minor footnote. But still… unexpected is still unexpected. I don’t know if that fee is considered part of “closing costs,” the nebulous “everything else fees” no one really knows how to quantify for me, but I suppose we’ll soon find out.

“Closing Costs”:
One part of closing costs that is quantifiable is a Maryland transfer tax, which is about 1.5% of the value of the home. In the contract, we stated that the buyer and seller would split the costs and I, as a first time Maryland home buyer, would get a credit in the range of $725ish. As a first time buyer, I would be exempt from half of the State Transfer Tax (0.25%, or $725 on a $290k). With the home in Howard County, the Recordation Tax is calculated at 0.5%, the County Transfer tax is 0.5%, and I’d be subject to a lien certificate, which has a fee of $25-$55. So let’s ring of the cash register and we’ll come up with total Transfer and Recordation taxes of $2,955. And that’s not even all the closing costs… just the transfer and recording costs. Nothing dealing with the loan and its fees has been considered yet.

It doesn’t appear that any of those fees are related to the mortgage itself. All the mortgage products LendingTree have listed the following fees:

In talking with Diane, my “Home Buying Specialist,” those charges are all the ones the lender will charge me. Everything else is out of their hands and some of the fees they do list (so you know about them) are title insurance and recording fees (detailed above).

I gave Diane a call to ask her about setting up an 80/10/10. That would be 80% first mortgage, 10% second mortgage, and 10% down. The reason for this would be for me to avoid paying private mortgage insurance (PMI) which would cost $67/month ($804 yearly) and because originally I hadn’t considered closing costs when asking for the loan.

Going on Friday’s rate (4/15) and with a lock-in of under 30 days, we’re talking rates of 5.875% on the 1st mortgage and 7.25% on the 2nd mortgage. A 5/1 ARM rates would be around 5.25% on the 1st, so we’re talking 0.6% difference to take the risk of living there only 5 years (or bracing for judgment day). Bankrate’s homepage rate was listed at 5.56%, a couple ticks lower than LendingTree’s rates, which means a visit to my credit union today around lunch is probably in order.