Ask Eli

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: Why do so many properties show up as Active on Zillow when they’re actually under contract? Is there another property search app you suggest?

I think the best app, and the app my clients have found most valuable, is Homesnap.

Real Data, Real-Time

In my opinion, the biggest advantage of Homesnap is that it has a partnership with our Multiple Listing Service (MLS), the Metropolitan Regional Information Service (MRIS), which is the system of record agents use to enter and manage properties that are coming soon, for sale, under contract, and sold. Sites like Zillow and Trulia do not benefit from this partnership. The result is that the status of every property in Homesnap is 100% accurate and that changes are made in real-time vs the delay you see on many other property search sites. This is why you often see properties listed as Active in Zillow, only to be told by your agent that they’ve been under contract for days/weeks. Everything you see in Homesnap reflects exactly what the listing agent enters into MRIS.

Agent Interface/Chat Tool

Another great tool is that you can connect directly with your Realtor through Homesnap (click the link to connect with me!) allowing you to send homes you’re interested in directly to your agent without worrying about whether or not it will go to another agent who has purchased leads in that area. The chat function allows you and your agent to communicate through the app and keeps a record of the properties you’ve shared back and forth. It’s much cleaner than copying and pasting URLs to different emails or sending addresses via text. You can also add multiple people to the chat (like a spouse).

Snap Homes

Homesnap was originally built on a slick tool that allows you to take an in-app photo of any home and it immediately pulls up property information on the house, whether or not it’s for sale. It’s a great way to gather information if you see a newly listed property while walking your dog or driving by an unlisted house that you want to know more about.

National Brand, Local Start-Up

Homesnap is also a local start-up! It was established in 2008 and is located in North Bethesda. However, you can rely on Homesnap across the country.

Have you heard of Homesnap before? What other property search tools do readers use that you’d vouch for?

Note: This post has not been sponsored or otherwise reviewed by Homesnap and is 100% the opinion of the author, Eli Tucker (and the tech-wizard President of RLAH, Justin Levitch), through personal use.

If you’d like a question answered in my weekly column, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at http://www.RealtyDCMetro.com.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: Are funding fees on VA loans eligible for seller credits?

Loans guaranteed by the Department of Veterans Affairs are known as VA Loans (Who thought VA stood for Virginia? Be honest…) and provide current and former servicemembers with an opportunity to purchase a home with as little as 0% down. In addition to the normal closing costs (title fees, transfer taxes, etc), a Funding Fee is charged at settlement, which is equal to anywhere from 1.5-3.3% of the loan amount. It’s a fee paid to the VA on every loan to offset the cost of loans that default. It’s the same concept as Mortgage Insurance, but much cheaper.

In a previous column, I explained how buyers can negotiate for seller credits to reduce or eliminate the out-of-pocket expense of closing costs at settlement. Fortunately, the Funding Fee falls into this category, along with the rest of the standard closing costs associated with a VA loan, and buyers are eligible to have all of these costs covered by the seller. In theory, if a buyer is able to negotiate 100% of closing costs paid by the seller and chooses a 0% down payment loan, a home can be purchased cash-free (until the first monthly payment).

If you’re unable to negotiate seller credits to cover the Funding Fee and are concerned about having the cash to pay for closing costs, you’re also allowed to roll the Funding Fee into your mortgage so that it becomes part of your monthly payment.

Arlington Veterans Affairs (VA) loans by the numbers:

• In 2015, 218 of 2,893 purchasers (7.5%) used a VA loan. By comparison, 2,038 used a Conventional loan (70%). I’m actually a little surprised by this; I would’ve thought a higher percentage of purchases in Arlington would use VA loans.
• The average sold price for homes purchased using VA loans was just over $581,000
• The type of housing purchased using VA loans was pretty evenly split between single family (detached), townhouse, and condo
• The maximum loan amount for Arlington (and the rest of the Northern VA counties) is $625,500, but there are ways to increase the loan amount by putting more money down.

I hope the veterans and active duty military residents of Arlington had a great Memorial Day Weekend. Thank you for your service!

If you’d like a question answered in my weekly column, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at http://www.RealtyDCMetro.com.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: Are there any differences between buying new construction from a developer vs a regular (resale) purchase from a homeowner?

In additional to all of the developers knocking down old homes to build large new single family homes, there are some great condo and townhouse projects on the market like Rosslyn Key in Rosslyn, Columbia Place and Carver Place off of Columbia Pike, and Potomac Yard in Alexandria. There are a number of key differences you should be aware of when buying new construction:

Builder Contracts: Most builders use their own contracts, not the normal Northern VA Association of Realtors (NVAR) contracts. As such, the language tends to favor the developer and it’s very important to read their contract a few times, understand what you’re agreeing to, and don’t be afraid to ask questions or contest specific language you’re not comfortable with.

Higher Earnest Money Deposit (EMD): A month ago, I wrote that 2-3% EMD is appropriate, but most developers usually require additional security of 5-10% EMD which makes sense when they’re doing a custom build because they want you to be more invested in the finishes you’re choosing.

Negotiations: In a normal re-sale negotiation, each counter is delivered in writing with the signature(s) of the seller. Most developers will only make verbal/email counters, but the buyer is expected to put their (counter) offers in writing with signature(s). Once all terms are agreed to, the developer will finally sign.

Custom Design: Being able to select your own finishes and design a custom home is one of the most appealing reasons to buy new construction (note: not all projects allow for customization), but it’s a blessing and curse. For some, going to a showroom to select appliances, flooring, cabinets, and countertops is thrilling. However, builders are on a tight schedule and require selections to be made on time, so indecisive buyers can get overwhelmed by these choices and end up disliking the process. This is particularly true if there isn’t a model unit or its not modeled after your tastes.

Determining Value: In many cases, developers deliver a community that’s the first of its kind in the neighborhood. Columbia Place is a perfect example, being the first high-end condo development along Columbia Pike. Without true comps, it’s much more difficult to gauge value and the chances of the developer significantly over or under pricing a project increases. Given that uncertainty, some of the best deals can be had in new construction, especially at the beginning of the sales period. When there are fewer comps, you should negotiate more aggressively.

Brand New: Of course, buying new construction means you’re buying brand-new everything, with fully intact warranties. In addition to the manufacturer warranties on the systems (water heater, stove, etc), most developers also guarantee their work for years to come. You also have the benefit of the latest codes to maximize your home’s energy efficiency.

If you want to see some impressive new construction in Arlington, stop by Rosslyn Key’s luxury townhomes (some with elevators). They’re getting close to wrapping up their sales, but should be around for another month or so and worth a look!

If you’d like a question answered in my weekly column, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at http://www.RealtyDCMetro.com.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: I’m hoping to buy my first home soon and saving enough cash is the biggest hurdle. Are there any strategies to limit the amount of money I need to save?

Required Cash to Buy

In order to purchase a home, you’ll need to have cash funds available for your down payment and closing costs. The down payment is based on the type of loan you choose, with the most common down payment amounts being 0% (Veteran Affairs loan), 3% (FHA), 5%, 10%, 20%, or 25% of sales price. Closing costs commonly reach 2-3% of the sales price and include things like taxes, title insurance, and lender fees.

Reducing Closing Costs

If you believe there’s room to negotiate on the home you’re making an offer on, you can negotiate that discount in the form of a seller subsidy (aka seller credit) instead of on the sale price. The subsidy will be credited directly against your closing costs, but any amount over your closing costs will go unused (cannot be credited against the down payment).

For example, if the home is listed for $500,000 and you believe you can negotiate a 2% discount (average discount from list price in Arlington over the last 12 months), you can target a $500,000 sale price with a $10,000 seller subsidy instead of a $490,000 sale prices and no subsidy. The seller receives $490,0000 from the sale either way. You reduce the amount of cash funds required to purchase by $10,000 (projected closing costs of $10,000-$15,000), but increase your total loan amount by $10,000. For many cash-strapped buyers, the benefit of reducing the immediate cash requirement outweighs the long-term cost of increasing the loan amount.

Let’s say it’s the first week a home is on the market and the seller refuses to negotiate on the price…there’s still an option. Using the example above of a $500,000 home, you can increase the sale price offer to $510,000, but include a seller subsidy of $10,000 so that the seller still nets the full asking price. Use this strategy with caution. Sellers may be hesitant to agree to the increase in sale price if there’s a concern that it won’t appraise for that amount. The implications of an appraisal being less than the contracted sale price put the seller at risk, but I’ll need another column to fully address that topic.

By including a seller subsidy, the sale price remains higher than it likely would be without it and there are some minor changes to overall costs based on items calculated as a percentage of sale price including recording fees, capital gains, and commission. The net effect on these is small relative to the transaction, but worth noting for both buyer and seller.

Before deciding how much of a seller subsidy you’ll ask for, be sure to get an estimate sheet from your lender, which will include estimated closing costs. Make to tell them what you’re using it for and confirm they haven’t left any closing costs or pre-paid items off. Remember, if the amount you get from the seller exceeds your closing costs, in most cases, it’ll go unused so I always recommend that my clients target a subsidy equal to just 90-95% of the estimated closing costs from the lender because the numbers can fluctuate in either direction.

As a buyer, would you prefer to reduce the amount of cash you need or keep your loan amount as low as possible?

If you’d like a question answered in my weekly column, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at http://www.RealtyDCMetro.com.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.

 

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: Can you explain the difference between settlement and ratification?

Is there another metro area with more “industry languages” than D.C.? Between consultants, lawyers, and politicians, you can sit next to somebody at a quiet bar, who’s speaking perfectly clear English, and not understand a word. Realtors are just as guilty of rattling off terms and acronyms in the course of conversation, so here’s a quick glossary of common terms that I’m frequently asked to define.

1. Ratification: Occurs when both parties (buyer and seller) have agreed to the deal and the contract has been signed/initialed by both parties without any additional changes.
2. Settlement: This is the date that the home is actually purchased by the buyer. Also known as “closing.”
3. Underwriting: The final approval process for a loan. The underwriter reviews the entire loan application package and issues an approval or notifies the buyer of any conditions that must be met in order to secure a loan.
4. EMD: Earnest Money Deposit. A negotiable sum of money deposited by the buyer into an escrow account after the contract is finalized, usually within 3-5 days and 2-3% of the sales price. If the buyer walks away from the deal outside of legal means/contingencies, the seller can keep the entire sum of money as damages.
5. Contingency: A term within a sales contract that gives the buyer or seller the right to void a contract, without penalty, if certain criteria are/are not met. A common contingency is a Home Inspection. The buyer is given the right to an inspection and if the buyer and seller cannot agree on corrective action requested by the buyer, the buyer has the right to void the contract, within a pre-determined period of time (usually 5-10 days after ratification).
6. FSBO: For Sale By Owner. When a homeowner decides to do something crazy and sell his/her home without an agent J
7. ARM: Adjustable Rate Mortgage. A loan with a fixed interest rate for a specific period of time (usually 5, 7, or 10 years) that can adjust to a different rate, based on market rates when the fixed period ends. It’s well established that these loans led to the housing crash 10 years ago, which led to the Great Recession, and ARMs got a very bad name in the process. However, they can be a great product for many buyers because they offer lower rates than a 30-year fixed (most common loan product) and most homeowners will sell their home before the time the rate can adjust.
8. PITI: Principal, Interest, Taxes, and Insurance. The total monthly fixed payments for a homeowner. PITI is commonly used to determine the daily rent-back rate for a Post-Settlement Occupancy Agreement (seller remains in the home for a specified period of time after settlement).
9. 1031: A 1031 Exchange allows a homeowner to defer capital gains tax charges from a home sale by using the proceeds of the sale towards the purchase of another home. You must meet certain requirements like identifying the home to purchase within 45 days and settling within 180 days, from the date of the previous home sale. As with all tax-related transactions, it’s advisable to consultant an accountant beforehand.

Let me know if there are any other terms you’ve heard thrown around by agents that you aren’t clear on. I’m happy to write a second column with more terms.

If you’d like a question answered in my weekly column, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at http://www.RealtyDCMetro.com.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: What reason would a seller have to release an Earnest Money Deposit to a buyer who defaults on the purchase contract?

This question came in via the comments section of last week’s article on Earnest Money Deposits (EMD) and leads to a topic I feel strongly about.

In summary, the EMD is money set aside by a buyer that can be kept by a seller if the buyer chooses to break the purchase contract outside of the legal means/contingencies established within the contract (e.g. home inspection contingency). The amount is often equal to 2-3% of the sales price. In my article, I noted that, in practice, when a buyer walks away from a deal, sellers often release the EMD back to the buyer even though it’s within their rights to keep it.

Thus, the very good question… WHY?

Who Loves Million Dollar Listing?

Despite what you’ve seen on Million Dollar Listing, it doesn’t take screaming insults to buy or sell a home. That behavior works for television, but will destroy deals and leave both sides unhappy if handled that way in real life.

The reason that sellers often release the EMD back to a buyer who wants to void a contract is because the agents have maintained a positive, good faith relationship between both sides, which allows the seller to understand that there’s a real person/family on the other side of the deal.

Win/Win, Not Win/Lose

If you’ve read The Power of Nice by Ron Shapiro, Cal Ripken’s agent, you’ll know that every deal is an opportunity for both sides to walk away happy (Win/Win), not for one side to win and the other to lose (Win/Lose). Operating with this mindset allows buyers and sellers to deal with unexpected problems without crashing the deal or causing unnecessary hardship.

I’ll offer another example of why relationships can be just as important to a seller. After 25 years, you’ve decided to sell the home you raised your children in and a few days before settlement, with the house halfway packed, there’s a family emergency and you have to drop everything. What sort of relationship would you want to have between your agent and the buyer’s agent at that moment? One where insults were exchanged and lies told to add an extra $2,000 to the sales price and eliminate a few items that were requested in the home inspection (Win/Lose)? No, you’d want your agent to be able to pick up the phone, explain the situation to the buyers, and quickly reach a compassionate solution that allows you to take care of your family, not deal with a crazed buyer eager to get you back.

Have you been party to a real estate transaction where positive relationships saved the day or had unhealthy relationships ruin a sale or cause unnecessary pain for one or both sides?

If you’d like a question answered in my weekly column, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at http://www.RealtyDCMetro.com.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: What is the point of an Earnest Money Deposit (EMD)? How much should it be?

EMD is Insurance For Seller, Strength For Buyer

An Earnest Money Deposit (EMD) represents strength of officer for the buyer and insurance for a seller that the buyer will not walk away from a deal, outside of any legal means of voiding a contract (contingencies such as the Home Inspection and Condo/HOA document review). It’s a negotiable sum of money deposited by the buyer into an escrow account after the contract is finalized, usually within 3-5 days. If the buyer walks away from the deal outside of legal means/contingencies, the seller can keep the entire sum of money as damages.

The administrator of the escrow account is also a negotiable term of the sales contract, but in most cases, it’s the same company that’s handling the title check and settlement duties, but it’s also common to see the money held by the Buyer Agent’s broker. There are very strict rules governing the administration of EMD money to prevent co-mingling of funds or conflicts of interest.

A sufficient EMD shows that the buyer is serious by giving the seller security that you’re not going to walk away from the deal and because you’re financially capable of transferring that money shortly after the contract is ratified. In most cases I recommend that buyers make, and sellers expect, an EMD equal to 2-3% of the sales price. Anything under 1% is cause for concern. The exception to this is with builders (new construction), who generally expect 5-10% EMD.

At settlement (the day you purchase the home), the EMD is credited against your closing costs and down payment. If the EMD exceeds the sum of these amounts, you’ll get the rest back.

Picture This

To help explain the value of a strong EMD deposit, imagine a scenario of a buyer purchasing a $500,000 home with a $1,000 EMD. The home inspection has concluded, appraisal sufficient, and loan approved so everything is ready for settlement. Five days before settlement, the buyer sees the perfect home go on sale for a great price and decides he’d rather buy that one. With no contingencies left to legally exit the deal, he decides that losing $1,000 is worth voiding the current deal and pursuing the new home. Had the EMD been a more appropriate 2-3%/$10-$15,000, the buyer is likely to stick with his current contract and even if he doesn’t, at least the seller receives a payout likely to offset the pain of losing the contract.

Note: This is EMD in theory. In practice, everything is circumstantial. Sellers often agree to release the full or partial EMD to a buyer who walks, but can also sue for damages in addition to the EMD in certain cases where they’re unable to contract for the same sales price or better.

Your questions have been great, but I need more! Ask away!

If you’d like a question answered in my weekly column, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at http://www.RealtyDCMetro.com.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.