BiggerPockets

Earnest Money Deposits and Your Plano Home Purchase

Thursday, January 19

Home Buyers always ask how much earnest money deposit they should offer.  Generally, there is no set amount. In most States, contracts must contain a consideration to be valid, but that amount can be as little as one dollar. Laws in your state may be different. Keep in mind that the amount of your earnest money deposit depends primarily on your local marketplace and customs.  <?xml:namespace prefix="o" ns="urn:schemas-microsoft-com:office:office" /><o:p></o:p>

What is an Earnest Money Deposit?<o:p></o:p>

An earnest money deposit is a good faith deposit.  When buyers execute a purchase contract the contract specifies how much money the buyer is initially putting up as earnest money to secure the contract.  It will also show how much down payment the buyers are agreeing to make.   The balance is usually financed as a mortgage. An earnest money deposit says to the seller that you are serious about buying their house.  An earnest money deposit for Plano foreclosures also shows the bank that you are a serious purchaser.<o:p></o:p>

How Much Earnest Money is Enough?<o:p></o:p>

Because there is no set amount, it varies from market to market and across the country. Where I work, selling Plano homes and DFW Homes in Texas, generally this amount is between 1% and 5% of the purchase price.  Buyers here do not often put down more than 5% since the sales contract contains a liquidated damages clause that awards that earnest money to the sellers should they default and not close on transition.  If we were in a seller's market, with many buyers fighting over limited amount of home, it makes sense for the buyer to put down a much larger earnest money deposit to entice the seller to accept their offer. In a buyer’s market, a larger earnest money deposit might entice a seller to accept a much lower purchase price.  <o:p></o:p>

Who Do You Give Your Earnest Money Deposit To?<o:p></o:p>

In every jurisdiction that I am aware of, the earnest money deposit should either go to the Title Company or legal firm handling the closing or to the listing brokers escrow account.  Review the advice below:<o:p></o:p>

·         Never give an earnest money deposit to the seller.<o:p></o:p>

·         Verify that the third party will deposit the funds into a separately maintained trust account. <o:p></o:p>

·         Obtain a receipt. <o:p></o:p>

·         It is not advisable to authorize a release of your earnest money until your transaction closes. <o:p></o:p>

Is Your Earnest Money Deposit Refundable It You Do Not Close? <o:p></o:p>

Study your sales contract and addenda to see what it says about what happens to your earnest money deposit if the transaction doesn’t close.  The answer will depend on why the transaction didn’t close.  Were you not able to get your financing approved or maybe you couldn’t get clear title to the property.  Did you or the seller simply change their mind about closing?  Upon cancellation, the sellers and buyers are asked to sign mutual release agreement. If an agreement cannot be reached, the party holding the earnest money deposit will continue to hold it until an agreement is reached. If no agreement has been reached after certain period of time, title companies will send the parties a certified letter asking for mutual instructions. The letter will state that if no one responds within a certain time period, then title agent will return the money to the buyer. If the seller contests the action then the parties will have to go to arbitration or court to get the issue resolved. <o:p></o:p>

Do You Need a Deed of Trust With your Plano Real Estate Purchase?

Thursday, January 19

The amount of paperwork a Plano real estate buyer signs at closing is overwhelming to say the very least. Almost all of these documents will be generated by the buyer's mortgage company. Without ever reading them and just signing off on them, it generally takes buyers an hour to complete them. Every blue moon, I attend a closing with buyers who actually take time to read through the closing documents.  <?xml:namespace prefix="o" ns="urn:schemas-microsoft-com:office:office" /><o:p></o:p>

<o:p> </o:p>

Unless you are paying cash or you are in a mortgage state you will be required to sign a Deed of Trust.  It doesn’t matter if you are buying a Highland Park Home or Dallas Foreclosure properties the Deed of Trust works exactly the same.  <o:p></o:p>

What is a Deed of Trust?<o:p></o:p>

A Deed of Trust is the security instrument for your loan. It is the document that is recorded in the public records and secures a lien for the lender against your property.<o:p></o:p>

A deed of trust contains three parties:<o:p></o:p>

·         Trustee, which is an entity that holds "bare or legal" title<o:p></o:p>

·         Trustor, which is you, the borrower<o:p></o:p>

·         Beneficiary, which is the lender<o:p></o:p>

The deed of trust is a security instrument that identifies the following information:<o:p></o:p>

·         Original loan amount<o:p></o:p>

·         Legal description of the property being used as security for the mortgage<o:p></o:p>

·         The parties to the transaction<o:p></o:p>

·         Inception and maturity date of the loan <o:p></o:p>

·         Provisions of the mortgage and requirements<o:p></o:p>

·         Legal procedures, including acceleration and alienation clauses<o:p></o:p>

·         Riders, such as clauses for prepayment penalties <o:p></o:p>

Who or What is a Trustee?<o:p></o:p>

Deeds of trust contain a trustee who is an independent third party that does not represent the borrower, the lender, or the owner.<o:p></o:p>

·         The trustee can be a person or an entity that holds the "Power of Sale" in the event of a loan default.<o:p></o:p>

·         The trustee also reconveys the property once the deed of trust is paid in full.<o:p></o:p>

·         In the event of a default, the trustee files a Notice of Default; however, in most instances, the trustee will substitute another trustee to handle the foreclosure process under a Substitute Trustee.<o:p></o:p>

·         After the required period of time in the public records, and the required period of time in the publication period in the newspaper, the trustee then has the power to sell the property without a court procedure or lawsuit.<o:p></o:p>

·         In many jurisdictions following recordation of the Notice of Default, the borrower can redeem the property by making up the back payments and paying the trustee's fees. <o:p></o:p>

·         Once the trustee sells the property at a Trustee's sale, it is final.<o:p></o:p>

What is a Promissory Note?<o:p></o:p>

Whereas the deed of trust is security of the loan, secured by the property, the promissory note is the evidence of the debt and the promise to pay.<o:p></o:p>

·         The promissory note is a promise to pay, signed by the borrower.<o:p></o:p>

·         It contains the terms of the loan such as the interest rate and payment terms.<o:p></o:p>

·         The promissory note is generally not recorded in the public records.<o:p></o:p>

·         When the loan is paid, the promissory note is marked "paid in full" and returned to the borrower. <o:p></o:p>

Before Signing a Promissory Note and Deed of Trust<o:p></o:p>

Read both of these documents thoroughly, including the small printed sections. You should consider asking the closer to send you a copy of the preliminary deed of trust and promissory note beforehand. Because closers are human and make mistakes, here are the important items to review:<o:p></o:p>

·         Address of property <o:p></o:p>

·         Spelling of trustors' names<o:p></o:p>

·         Principal balance of the loan<o:p></o:p>

·         Interest rate <o:p></o:p>

·         Payment amount<o:p></o:p>

·         Prepayment penalties, if applicable<o:p></o:p>

DFW Real Estate Showing Tips

Thursday, January 19

When showing your DFW home for sale, you want to do your best to engage the buyer emotionally because their decision to buy is based more on emotions, and less on logic. Give the buyer the emotions to say yes by staging and accentuating your home's positive attributes, and minimizing attention to the negative attributes.  This is paramount to selling any DFW real estate and Plano real estate successfully.  <?xml:namespace prefix="o" ns="urn:schemas-microsoft-com:office:office" /><o:p></o:p>

Gracious Welcome <o:p></o:p>

Although buyers are guests in your home, you want them to imagine themselves owning and living in the home. You don't want to make the buyer feel like an outsider. <o:p></o:p>

·         Don't pressure or hurry the buyer. Tell them to take all the time they want.<o:p></o:p>

·         Don't expect the buyers to remove their shoes, unless you are selling to a buyer for whom religious or cultural reasons dictate it.  <o:p></o:p>

·         It is best to leave the house. The buyer won't feel comfortable about talking about the house in front of you.<o:p></o:p>

·         Leave a bowl of mints or other treats near the front door with a small note thanking the buyer for coming to see your home.<o:p></o:p>

Check the Temperature <o:p></o:p>

·         Now is not the time to worry about your utility bill. If it's cold enough to wear a sweater turn on the heat.<o:p></o:p>

·         If it's hot outside, turn on the AC. It's better to heat or cool the house a degree or two warmer or colder than usual and then set the temperature at normal. This prevents the heat or A/C from coming on when the buyer is present, because some HVAC systems are loud.  <o:p></o:p>

·         You want the temperature inside to be comfortable and to give the buyer more of a reason to stay longer, especially on hot or cold days!<o:p></o:p>

·         This may not be possible with Dallas foreclosures because many times the utilities are not on at the property.<o:p></o:p>

Create a Mood <o:p></o:p>

·         Light a fire in the fireplace even if it is summer time. <o:p></o:p>

·         Romanticize it by placing two champagne glasses on a nearby table.<o:p></o:p>

·         Turn on soft music like jazz or classical. <o:p></o:p>

·         If you have water fountains, turn them on. <o:p></o:p>

·         Turn on all lighting and ceiling fans.<o:p></o:p>

Play Up the Visual <o:p></o:p>

·         If you have seasonal photographs showcasing flower gardens, leaves bursting in color or a snow-covered lawn twinkling from street lights, then display them. <o:p></o:p>

·         Take down all the photos of your family.  If your family members are pasted all over the walls it’s hard for them to imagine it being their own home. <o:p></o:p>

·         Open all the window coverings to let in light. <o:p></o:p>

·         Keep blinds partially closed that otherwise show undesirable outdoor scenery such as a dilapidated fence or a nearby structure that obstructs views.<o:p></o:p>

Play Down the Scent <o:p></o:p>

·         Many people are allergic to certain scents and deodorizers, so don't spray the air or plug-in air fresheners.<o:p></o:p>

·         Don't burn candles or spray perfume in the bedroom for the same reason.<o:p></o:p>

·         If you're going to bake cookies or brownies or simmer spices such as cinnamon in water on the stove, put out munchies so buyers aren't disappointed. More than one buyer has said, "Oh, shucks, I thought there were cookies here".<o:p></o:p>

Brighten up the House <o:p></o:p>

·         Turn on every light in the house, including appliance lights and closet lights. <o:p></o:p>

·         Brighten dark rooms with few windows by placing spot lights on the floor behind furniture. <o:p></o:p>

·         Turn on all ceiling fans and even the fireplace.<o:p></o:p>

Provide Thoughtful Notes <o:p></o:p>

Attach printed notes to items and in rooms that provide further information the buyer might miss or might not know. This will go a long way with the buyers.<o:p></o:p>

·         If you have an expensive chandelier in your dining room, put a card on it that discloses its age and other important details.<o:p></o:p>

·         If you have removed the washer and dryer from the laundry room, attach a card to the wall describing the room.<o:p></o:p>

·         If a room is empty place a note giving the buyers an idea what this area can be used for.<o:p></o:p>

Top It Off With Food <o:p></o:p>

The best way to entice buyers to linger in your home and notice more details about your home is to offer them food and drink. You don't need to cater a lunch, but finger sandwiches, cookies, soft drinks, water, coffee, and desserts are all a good idea.<o:p></o:p>

Encourage Buyer Feedback <o:p></o:p>

·         Near the food and drinks, leave pens and a stack of questionnaire cards for the buyers.<o:p></o:p>

·         Buyers will feel obligated to respond to your request after being given food and drink.<o:p></o:p>

·         The showing feedback you receive will be invaluable to your selling goals.<o:p></o:p>

·         Allow buyer anonymity by not requesting their name or contact information.<o:p></o:p>

Looking Twice at Overpriced Plano Real Estate

Thursday, January 19

Common logic dictates that if a home doesn’t sell there must be something wrong with it. This is a very true statement. In a normal market there is something wrong with Plano real estate that doesn't sell. But contrary to what most people believe, it's not always the condition or location of the house.  The number one reason why an otherwise home in good condition in a good location does not sell is the listing price. Homes that are overpriced often never sell at all. Why is this the case? Because home buyers will rarely look at overpriced houses let alone make offers on them. <?xml:namespace prefix="o" ns="urn:schemas-microsoft-com:office:office" /><o:p></o:p>

Home Buyers Don’t Make Offers on Overpriced Listings<o:p></o:p>

·         Sometimes they believe that if the buyer is not reasonable about pricing the house correctly in the first place that they will be difficult to deal with. <o:p></o:p>

·         They don't want to offend the seller. It goes against human nature to offer substantially less than asking price to a seller. It's can be insulting to the seller and embarrassing for the buyer. <o:p></o:p>

·         Buyers many times believe that the seller knows the home is overpriced. They believe that if a seller would be willing to sell for less, the seller would simply lower their list price. <o:p></o:p>

How Do You Find an Overpriced Listing?

The easiest way to find overpriced listings is to ask your real estate agent.  He or She can search the multiple listing system for Collin County Homes or Highland Park real estate for example of homes that have been available for higher than normal days on market (DOM).  Then ask your agent to study the listings and give you a print out of every home that has been on the market longer than the average DOM.<o:p></o:p>

If your agent is a specialist in the neighborhood you are searching in, it is likely he has viewed many of these homes and has hands on knowledge of the condition and layout of these homes. Ask him to share this information with you.  Also ask your agent which of the homes he thinks are overpriced. You will learn that often buyers agents don't tell listing agents that their listings are overpriced because agents don't want to offend anyone either.  But listing agents sometimes make mistakes when estimating the market value for a seller.  Ultimately, it is the seller who set the listing price. 

Why Would a Seller Lower the Price?

A couple who bought a beautiful house at first wondered the same thing. The home sat on the market for more than three months at an asking price of almost $840,000. In a market seller’s market, it probably could have sold for about $820,000, but the market was soft and demand was weak and the sellers had moved out of the area, leaving the home vacant. The listing agent was not aware that the home was overpriced. The sellers were certainly motivated. Pointing out this information to the sellers, this couple was able to negotiate a deal to buy the home for about $160,000 less than the list price.  To make their offer more attractive to the sellers, the buyers did not include the sale of their existing home as a contingency. They also offered the seller a large earnest money deposit to show that they were a serious buyer. And they also showed the seller a list of homes that sold in the neighborhood at prices closer to their offer.

Not every home that is overpriced will end up selling for less than its market value. But many homes that are listed at unrealistically high prices are sometimes owned by sellers who are motivated and who are willing to listen to reasons why they should sell at a lower price to you. If you find out that a seller has turned down other offers for less money, it might mean that it's just a matter of timing. At some point the seller will come to his senses and say yes. There are overpriced gems hiding among the inventory of homes for sale every day. Don't just pass them by. You could be passing up an opportunity to buy your dream home at a dream value.<o:p></o:p>

Do First-Time DFW Home Buyers Need an Agent?

Thursday, December 08

 

The National Association of Realtors® (NAR) would like to tell you that all agents are honest, ethical, experienced and care deeply about their clients, but is this necessarily true? In my experience it is true about most of the Realtors in the DFW Homes business, but unfortunately, it's not true about all of them. There are some real estate agents out there whose sole purpose is to make as much commission as they possibly can, as quickly as possible, with little regard for the clients best interest. The challenge is that some of these agents look and act just like professional, ethical agents, so it's hard to tell them apart. This confusion can also make some first-time home buyers overly suspicious of the very Realtors that are supposed to put their client’s interest before their own. These first time buyers may wonder if they would be better off without an agent. Some of them may think they can buy their first DFW home by themselves and fare better.

 

 

This is unlikely. Most first time home buyers generally have a job or a business that has nothing to do with real estate, so they tend to know very little about it. Most professional Dallas Realtors are in the business full time, so they acquire more and more knowledge every day. The business of real estate is complicated, filled with legal paperwork; it requires expert negotiations and there are often problems which, if left undetected, can blow up into huge proportions that jeopardize your entire transaction. This also holds true for first time home buyers buying Dallas foreclosures. My advice for first-time home buyers is to retain a buyer’s agent to work for you and represent your interest 100%. In almost every case, the seller pays the fees for your buyer's agent, so it costs you nothing at all.

 

Hiring the Seller's Agent to Buy a Home

 

It is little known by most buyers but there is something called a variable commission, which makes some buyers think they will get a better deal by dealing directly with the listing agent. This variable commission only benefits the seller by saving them commission money. It would be naïve to assume that the seller will pass this savings along to the buyer. More importantly, the listing agent represents the Seller, not you, the buyer. The chances of you coming out ahead by dealing directly with the listing agent are slim to none. Hire a buyer’s agent to represent your interest and protect you, this is really the best deal.

 

Hiring a Buyer's Agent to Buy a Home

 

As I mentioned before, a buyer's agent represents you and the seller pays for this representation. It’s a no brainer for any buyer. A buyer's agent fiduciary responsibility is to look out for your interests first. A buyer's agent's duties are to:

 

• Tell you the truth

 

• Negotiate on your behalf in your best interest

 

• Fight for the best sales price, terms and conditions that match your criteria

 

• Anticipate challenges and head them off at the pass

 

• Disclose defects the agent can see

 

• Provide you with the seller’s disclosure and all documentation to which you are legally entitled

 

After you've bought a few homes and are used to the process, you might not need to hire your own agent to buy another home. But for your first home? Absolutely, hire a buyer's agent. Besides, you'll find that agents who specialize in working with first-time home buyers tend to derive a great deal of personal satisfaction in providing superior customer service and making their buyers' dreams come true. Those are good qualities in a buyer's agent.

 

Investing in Plano Real Estate

Thursday, December 08

 

You have seen all of the articles that say this is this best time, probably in our lifetime, to buy a home. If it is the best time to buy a home for yourself then is it a good time to invest in Plano Real estate? If you're financially able to spend time doing research, and you have cash to burn, then investing in real estate is likely to be a good financial decision for you. There are a number of excellent reasons for a part-time real estate investing business.

 

 

Can you can do real estate investing part-time: Yes. Before the Internet, this wasn't as easy thing to do. Now you can do your own due diligence which used to be the biggest time consumers in real estate investing. The Internet has opened the door to anyone with limited time to spend on the process. What used to take a full day of tramping through courthouse offices in any DFW real estate city and looking through several dozen records can now usually be accomplished in an hour or so on the Internet at any time of day or night.

 

Costs have nothing to do with income: Doing everything right in the real estate investment process and getting tenants into the property will not guarantee success. An unexpected vacancy or two for longer than anticipated has ruined many new real estate investors. The mortgage, property taxes, utilities and upkeep costs continue, even when the rental income stops. At those times of stress, regular income from the property is nonexistent and you will be paying these costs out of your own pocket. Even when buying Dallas foreclosures where many times your initial investment is less you can still find yourself in a negative cash flow situation.

 

Don’t make investment decisions under stress: Getting into a negative cash flow situation creates much stress. Too many real estate investors have lost money selling properties at the wrong time for the wrong reasons. Keep your whits anytime you have to make a decision about your real estate investment.

 

Is Starting Part-time easier? Taking on your real estate investments slowly and carefully at first may save you financially when you find it's not as you expected. Real estate investing part-time is definitely the way to go for most investors. Keep that steady income for stress reduction and backup funding. As you learn the business and grow your rental property portfolio you may find yourself someday where you can simply walk away from that job that you detest.

 

Below is some great information about rental properties:

 

• Property improvement for increased equity - Many investors purchase properties at a discount because they could use some improvements in condition or amenities. They have calculated that the value of the improvements will exceed the cost, resulting in an immediate increase in equity.

 

• Rental yield - This is the percentage yield from direct rental income, and can be calculated as either gross or net. To calculate the Net Rental Yield, take the expenses, taxes and other costs into account, and divide by the property cost/value. It could turn out to be a negative cash flow, as it doesn't take mortgage payments into account. Many investors prefer to look at the cash-on-cash yields. Though the investor can purchase and manage for a yield on this single component that exceeds average stock or bond dividend yields, it is only one of the ways in which real estate returns on your investment.

 

• Appreciation - Properties normally appreciate in value as inflation increases. Increased value can mean sale and reinvestment in higher valued properties. This is the second, and a historically proven value component of real estate investment return.

 

• Inflation – Rent Friendly - Rents generally increase with inflation, while mortgage payments on the property remain stable. This increases cash flow, with more rent income without increased expense for holding the property. When inflation is up, it can also mean more renters, as the affordability of homes can be negatively impacted by inflation. More renters increases demand, so rents will generally increase.

 

• Leverage - Using leverage provides much greater returns. Using $200,000 to purchase three properties with down payments, instead of one for $200,000 cash, can greatly increase your returns. Keep in mind that all leverage involves risk, so the successful investor must understand how this leverage will impact their real estate investments.

 

• Paying down the mortgage - Amortization, or paying down the mortgage, frees up more investment resources to increase leverage. Some investors use increased equity in one property to free up funds to invest in others. One of the best things about owning rental property is that your tenants are the ones paying down your mortgage.