Sellers Pick Up Tab In Buyers Market

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The New Closing Cost Etiquette In buyer’s market, more sellers are picking up the tab BY CHARLES SCUTT CTW Features

Are You Allowed Time to Remove Property After Closing, Or Must it All Be Done Before? Q: I have closing this week. Is it true that the buyer takes possession of all contents at the time of closing, or are you allowed a number of hours to get the rest of your personal property out?

A: Sale agreements typically require that a home must be broom clean by closing and that all seller possessions and debris must be removed.The logic is that the buyer literally takes possession at settlement and should be able to immediately move in, paint or fix-up the property. Q: In making a offer to buy a home, it appears risky to enter into a contract that has a clause requiring the seller to find a replacement home before the sale can close. Am I understanding this correctly? A: All real estate offers have an element of risk. Contingencies set up barriers to the completion of a home sale, but consumers benefit from these barriers. For instance, if buyers do not insist that a purchase requires financing with a limited interest and points they may be stuck with huge and bankrupting monthly mortgage payments. The alternative to a contingent sale is a situation where there are no contingencies.Such transactions typically occur in strong buyer or seller markets,but they too are risky. There are three important points here: First,contingent agreements are normal and reasonable.Second, there is risk in every agreement no matter whether or not it has contingencies.Third, the risk of contingencies can be limited by well-written agreements. Example: Seller Smith makes a sale contingent on finding a replacement home. Buyer Brown agrees,but under the condition that at any time he can require Smith to remove the replacement home contingency with 72 hours notice. If Smith does not remove the contingency when asked, the sale is off and Brown’s deposit is returned. Q: For about a year we have been considering going into the business of flipping houses. Mostly all the information that we have found talks about pros and cons. What we want is See ASK OUR BROKER, Page 2

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n real estate, they say, anything is negotiable – provided,of course, both parties are willing to negotiate. So in a climate that currently screams “buyer’s market,” it’s no surprise to see more sellers picking up the tab for both parties’ closing costs. “The issue of who pays the closing costs depends on market condition and price,” said TyraMarie Wittig, associate broker and realtor of Team Wittig with RE/MAX by the Bay in Portland, Maine.“In a down market, it is common for buyers to ask sellers to pay, especially when interest rates increase.” For example, in Wittig’s region, sellers with homes listed under $250,000 typically can expect to be asked to pay for the buyer’s closing costs. “It’s not fair or unfair, and it’s not personal,” she says.“It’s just business, and the seller should look at their bottom line.Which would you prefer – to pay closing costs and sell the home, or refuse the closing costs and have the buyer move on to another home?” Every seller should be prepared for buyer concessions, whether it is closing costs, repairs or extended closing dates, says Wittig. “It’s always reasonable for a buyer to ask for what they need to make a transaction make sense,” she says.“If a buyer feels that the leaking roof needs to be fixed before they feel comfortable buying the house, they can and should ask for it to be repaired. If a buyer needs closing

costs paid to qualify for the loan or have enough funds to close, they should ask.” The best way to go about it is to be honest and straightforward with a seller, says Wittig.After

consulting carefully with your real estate professional,“write a letter explaining your loan program or reason you need closing costs paid. Something like,‘Mr. and Mrs. Seller, I’m recently

divorced and a single parent. I would like to buy your house, but I have only enough funds to put down five percent, so I need you

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Homeowners Warming to Concept of Construction Manager BY BARBARA BALLINGER CTW Features

CONSTRUCTION MANAGERs are an important part of a team in the commercial real estate industry. But now CMs are starting to work on residential projects, even when a competent general contractor is on board. Why would homeowners want to add another layer of management and pay more when the cost of home projects

already is soaring through the roof? The reasons vary: • A desire for an advocate who’s not working directly on the project, so he or she can run interference with the general contractor, designer, architect or sub contractors if problems arise. • A lack of knowledge about who to hire, what each person’s responsibilities should be, why certain materials and technologies are best to use and what

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procedures should be followed. • A lack of interest or time, perhaps due to a busy work schedule, kids’ schedules or other personal needs. Paula and Bill Hunnicutt never planned to hire a CM when they moved to a different apartment on New York’s East Side, which they planned to gut and remodel as their empty-nester home.They felt comfortable having their contractor oversee work. But after playing tennis one

day, Paula met Julius A. Nasso, who had 32 years construction experience and had just formed a construction management firm, Big City Development in Garden City, N.Y., with his mother, Julia, who previously worked for a contractor. “He explained that his company could help me find a contractor. I told him we already had one. He suggested we still inter-

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CLOSING COSTS CONTINUED FROM PAGE 1 to pay the closing costs.’” Requesting the payment of closing costs usually involves a trade-off, however. “The disadvantage is that the buyer may not get the best price on the home,”Wittig says. “Sellers like clean deals.A seller who feels a buyer needs their help may feel more empowered to stick to their price. Sellers are as emotional as buyers, and they want a smooth transaction, too.” Eileen Hamblin, broker/owner of RE/MAX Heritage,Wakefield, Mass., views closing costs as “one more area of the real estate transaction that is open to adjustment as the market goes through transitions. We see sellers offering to pay closing costs as an incentive without being asked.We see buyers including some credit from the seller toward closing costs as part of the offer.” To the seller, Hamblin says, “the bottom line is always the bottom line. If the seller ends up with a fatter bottom line by selling at a higher price to someone who wants a credit toward closing costs, the seller will do it. If the closing cost credit places the seller below his bottom line, he won’t do it.” Anette Nordvall, Broker with Coldwell Banker HPW, Raleigh, N.C., says that in her market, the matter of who pays for closing costs is dependent on several factors. It’s more common for sellers to foot the bill “if the buyer takes the house for full price or if the seller has closing contacts that can be used for a smoother

MANAGER CONTINUED FROM PAGE 1 view three others.We took his advice but decided to go with ours. He also proposed that we hire him to oversee the project to be sure the contractor was doing what the designer and architect wanted,” Hunnicutt said. Because she and her husband had never tackled a renovation, they decided to hire Big City Development and pay a flat fee that represented a percentage of their job cost. Although their contractor felt they were spending money they didn’t need to, the Hunnicutts are glad they did, primarily because Paula’s mother’s died during their renovation and she was unable to check progress daily.“It gave us peace of mind that Julius was there every day,” she says. Nasso, who is vice president of operations of his company, performed other roles. He organized weekly meetings at the new apartment that he, the Hunnicutts, their designer and contractor attended, so they could go over the project’s progress at the site. Nasso also offered construction input such as recommending that doors be 8 feet high rather than 6-feet 8-inches as originally planned because the owners had wanted to stick to their budget. In that case Nasso advised them to make the more expensive switch.“As you look at a project, you make suggestions that will enhance it.An 8-foot door is a better aesthetic choice and doesn’t add tremendous cost to the project,” he says. In another case, he suggested a less expensive high-performance window but without the name recognition and price of an Andersen or Pella.

transaction,” Nordvall says.“Also, if you take a home with some repair to be made, I think who pays what is totally negotiable.” Hamblin says she always tells “to give up what they can afford to give so they can keep what they cannot afford to let go. If the buyer wants the seller to pay closing costs because cash is an issue, the buyer has to expect to pay more for the property than a buyer who does not make that request. Maybe the buyer also can be very flexible about a closing date. Or maybe the buyer can relieve the seller of some other obligation, like removing or repairing something that won’t cost the buyer a lot but will make life easier for the seller.” Ultimately, negotiating leverage is often determined by how long a home has been on the market, says Hamblin. “If the property has been listed for a year with no offers, the buyer might be in the driver’s seat. If the property came on the market today, the buyer won’t have much leverage,” she says. Before making such a request to the seller,Wittig recommends that a needy buyer should explore other avenues to affordability and untapped options to secure the necessary funds. “Can you borrow these funds from another source in an effort to get the house you want for a better price?”Wittig says.“Can you put down 10 percent instead of the customary 20 percent?”

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information showing us how to get started, what loans to use, how much to put down and when to hire a broker.

A: “Flipping” homes generally means buying real

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The company’s charges vary according to the size and complexity of a project. It generally charges between 6 and 10 percent.“If it’s a $100,000 job, we might charge 8 percent to 10 percent, but if it’s $1 million job or more, we usually take a lower 4 percent to 6 percent,” Julia says. If the company is brought in from the get-go and helps to find and select other work staff, it often charges an hourly rate for those services.The company’s ultimate goal is to work within a homeowner’s budget, not make fees prohibitive and get the job done, says Julius. Not all general contractors welcome a CM with open arms, since it can mean a loss in ego and control. In the Hunnitcutts’ case, the contractor accepted Nasso’s involvement, Paula says. And sometimes, even if the initial reaction isn’t favorable, the contractors usually come around when they realize the difficulty of working with inexperienced homeowners, Julius says.“When they see someone getting involved who understands the process, can interpret for clients what’s happening and help make decisions they realize there’s a benefit,” he says. Max Kirk, a professor of construction management at Washington State University in Pullman,Wash, adds two additional benefits of a CM: their knowledge of the increased advances in technology and discrepancy in building codes in different communities, both of which some other design pros may not be aware of. Still, not every job warrants hiring a CM, says Julia Nasso, president and CEO. One that doesn’t, she says, is a small bathroom or any project under $50,000. In those cases, she and her son recommend a skilled general contractor.

And sometimes, the decision should rest simply on faith in those you hire, says Carol Wall, president of Mitchell Wall and Associates, an architecture firm in St. Louis.“You trust your physician, lawyer, accountant,” she says.You therefore need to have faith in the architect or contractor you hire without adding another layer. Chuck Schagrin, an architect and founder of Amherst Corp., St. Louis, agrees.“If everyone is doing their job and trustworthy, the position may be superfluous. It also may slow down a job by adding a level of approval,” he says. But it’s those “ifs” and “mays” that could spur those with extra dollars embarking on big projects to hire this new type of personnel.

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estate and quickly re-selling at a profit.Essentially what you’re looking for is an undervalued property, a property that can be fixed up at minimal cost or a distressed owner who needs to get out quickly. Each of these options requires cash and borrowing power in hand, thus you first want to meet with lenders to see how much financing is available given your credit standing and income.To conserve cash, you most probably want a mortgage with low up-front costs such as an “option” or “flex”adjustable-rate mortgage. Such loans are sometimes available with nothing down,however these loans should be seen as extremely risky because once the initial period of low monthly payments ends, monthly costs can shoot up and sometimes even double. In addition, you still may need more cash or a line of credit for closing costs, repairs and holding expenses until the property sells. It would be smart to work with an experienced broker, both to acquire and sell properties.Brokerage services have a cost, but a good broker can make deals happen. Flipping arguably is the most unlikely, high-risk way to invest in real estate. Because of the huge numbers of people looking at the market,it’s enormously difficult to find bargain properties; repairs and improvements may cost far more than originally thought, and by the time you’re done with closing costs to buy, repair costs, mortgage costs to hold and closing costs to sell, there may only be a minimal profit and perhaps none. Rather than flipping real estate, a less risky approach for first-time investors is to buy a property with two to four units, live in one and rent the other(s), fix-up at nights and weekends and in time move onto another small multi-unit property.There’s far less risk with this strategy, you can qualify for low-cost residential financing if you live on the property and you would learn a lot about ownership by doing your own repairs. Lastly, you should be aware that flipped properties may be enormously difficult to sell. For instance, you cannot finance a private home sale if the property has been sold within the past 90 days under the Federal Housing Administration loan program. Other mortgage programs also may have restrictions aimed at real estate flippers.Why? Because lenders and mortgage insurance companies have been burned too often by flipping which involves fraud. © CTW Features Need real estate advice? Peter G. Miller, author of “The Common-Sense Mortgage,” would love to hear from you. Send your questions to [email protected].