Tuesday, January 20, 2009

Say Vern…How much Earnest Money Do You Need to Buy a House?

I don’t know if Ernest ever went buy a house in the series of comedies Jim Varney made in the 1980’s but it could have made a good story line. However when buying a home, understanding real estate terms is no laughing matter In fact, it is serious business as a misunderstanding can make or break an offer and but a buyer’s money at risk.

When buying a home, the words thrown around can often be as confusing for a home buyer as Ernest often seemed to be. Home buyers want to be focused on the esthetics and mechanics of the property (the color of the paint and nuts & bolts of the structure) while the structure of the offer is often left to their REALTOR®. So I am never surprised by the silence when I pose the question, "How much are you prepared to write the earnest money check for?”

Earnest money is different than a down payment. These are funds submitted with the offer to the sellers’ real estate broker while a down payment is paid at the time of closing to the bank or mortgage company. The amount of the earnest money is something that the buyer determines based on the property. The amount will vary with each purchase agreement. A buyer must first understand the purpose of the earnest money to determine the right amount to include with the offer.

Earnest money is a term used for the funds that a buyer puts down to demonstrate to the seller their seriousness about buying a home. It should be an amount sufficient enough to indicate to the seller that the buyer will not walk away from the deal without good reason. In Minnesota, 1% of the purchase price is customary. But a buyer can offer more and a seller can ask for a higher amount as well. A lower amount may be acceptable in some circumstances; however it is important to be realistic.

Only a couple of years ago, a potential buyer wanted to write up an offer on at an open house of a home I had on the market in Forest Lake. The acreage home was set up with stables and a newer home. It was priced in the $300,000 range. This wheeling and dealing buyer wanted to impress the sellers with a whopping $100 earnest money check. The seller was significantly less than impressed. They knew the deal would be on shaky ground as with this unreasonable amount, the buyer could easily walk away from the deal.

Generally the earnest money funds are in the form of a check. If the offer is accepted, the money will be deposited into the listing broker’s trust or escrow account. In Minnesota, the funds must be deposited within three days of an offer having been accepted in writing. Yes, there needs to be money in the bank because that the check WILL be cashed after the offer has been accepted in writing.

If the offer is accepted, the earnest money will be applied to the down payment and/or the closing fees when the closing takes place. If your offer is not accepted the check is not cashed and your original check will be returned to you.

However, if the offer is accepted and the check cashed and then for some reason all contingencies are not met or other situation arises where the sale does not proceed, the buyer does not automatically receive a refund of the earnest money. Nor, does the seller automatically keep the down payment. The funds are disbursed as outlined in the purchase agreement or in some cases; the Buyer and seller must reach an agreement for the cancellation of the agreement before the funds can be disbursed.

Copyright 2009 Teri Eckholm

Saturday, January 10, 2009

Home Buyers Can Make a Great DEAL in this Changed Real Estate Market!

Howie Mandle isn't the only one giving people the opportunity of a lifetime....You CAN Make a GREAT Deal if you buy a home now. For the past couple of years now, the term "Buyer's Market" has been synonymous with the real estate market. Obviously this is the opposite of the "Seller's Market" term that had been used for the prior decade. I also made a practice of tossing around these descriptions. Awhile back, I decided when I use these terms, I negatively affect half of my clients.
A buyer's market, defined as a market with many sellers and few buyers, gives the impression that all buyers are winners making the sellers the losers. Likewise, in a seller's market, with fewer sellers than buyers, there was an implication of the sellers getting the upper hand in every deal.
But here's the rub: In this market, not ALL sellers lose and not ALL buyers win.
A seller that purchased a home in the early 1990's, maintained it properly, diligently made payments and didn't refinance out all of their equity can sell a home today at a handsome profit. This seller is in no way a loser.
A buyer who purchases a foreclosed home from a bank without a disclosure for a price well below the value of neighboring properties then discovers toxic black mold in the walls costing, a failed septic system or cement in the plumbing with unexpected repairs in the tens of thousands is not a winner.
These situations are part of today's CHANGED real estate market. Yes, that is how I describe the market now. I avoid the phrases, "buyer's market" and "seller's market" and used "changed market" instead. Face it, the market has changed. But there can be winners on both sides of the transaction.
Here's a case in point: A savvy young couple, who wanted to take advantage of the glut of new construction models on the market last year in the Forest Lake area and sell the Anoka County starter home they had outgrown, were winners! They negotiated with a major builder on a perfect model and saved over $30,000 on the price. Then after making all necessary repairs, they listed their home at a rock bottom price equal to what they had paid for it four years earlier, and sold it in less than 60 days.
Did they lose money on the sale of their previous home? Some might think so, but this educated couple realized they were not losers. Their gain from the builder far outweighed the money they supposed “lost” on their sale. Had it been a hot "Seller's Market" they might have sold their starter home for a few thousand more but the builder would never have negotiated the drastic price reduction. All parties in this transaction were winners all the way around...The buyer of the starter home got a great deal. The move up couple sold quickly and got and awesome deal. The builder reduced their home inventory. Win. Win. Win.
This is just one example of the success stories I have witnessed this past year in this CHANGED real estate market. I know of dozens of examples of other individuals and families, both buyers and sellers, who are winners in this market.Is it your turn to be a winning home buyer? If you are thinking that now is the time to make a move but the constant gloom and doom of the media has you sitting on the fence about buying, contact a REALTOR® to help you assess your situation. Getting professional real estate assistance from the get-go is the best way to "MAKE A GREAT DEAL" in this changed market.
The young move-up couple in the previous story had contacted me months prior to finding their dream home to figure out a plan of action. I give sellers throughout the north and east Twin Cities metro area realistic facts about how to get their homes ready and where they need to be priced. They were prepared and ready to negotiate realistically with buyers when an offer came in on their property.
When I meet first time buyers, I give them a packet of information on how to buy a home so they are prepared for what to expect in the process. Before we start deciding whether to look at homes in Forest Lake, Ham Lake, Blaine or Hugo, I make certain my buyers are pre-approved for a loan with a reliable mortgage broker who will get the job done. Clients understand exactly what they can afford and what their payment will be. Then I discuss with my buyers the opportunities and pitfalls when looking at foreclosed homes, short sales, new construction and owner occupied homes. Prepared clients are then ready to jump on the perfect house and when the situation arises. With my expert assistance, buyers understand how to finesse a low offer as a starting point to negotiations so they can get their dream home at a price acceptable to both parties.
Are you ready to make a move? Team up with a great REALTOR® and get educated!
When buying a home in today's market, you can make a GREAT deal. Win-win sales are not only possible, they are my goal in every transaction!

Copyright 2009 Teri Eckholm