AmyBSells Team - Cincinnati Real Estate Blog

Amy August 12th, 2007

Attention: For Sale By Owners! Why People Are Afraid To Buy From You!

Many homeowners believe to maximize their home sale they should sell it themselves. At first glance, they feel selling a home is simple. Why should they pay a broker fee for something they could do themselves? In fact, 12% of all the homes sold last year were sold For Sale By Owner (FSBO).

However, close to half of the FSBO’s said that they would hire a professional next time they sold. Thirty percent said they were unhappy with the results they achieved by choosing FSBO. Why?

Many FSBO’s told us the time, paperwork and everyday responsibilities involved were not worth the amount of money they saved in commissions. For others, the financial savings were even more disappointing. By the time they figured the fees paid to consultants, inspectors, appraisers, title lawyers, escrow and loan officers, marketing, advertising, they would have been better off to have paid the broker’s fee that would have included many of these charges.

Selling a home requires an intimate understanding of the real estate market. If the property is priced too high, it will sit and develop a reputation for being a problem property. If the property is priced too low, you will cost yourself serious money. Some FSBO’s discovered that they lost money as a result of poor marketing decisions. In the final outcome, this far outweighed the commission they would have paid.

Before you decide to sell FSBO, consider these questions and weigh the consequences of assuming the responsibility versus employing a professional. A little time spent investigating now could pay off tenfold in the end.

Questions To Consider

Do I have the time, energy, know how, and ability to devote a full forced effort to sell my home?

One of the keys to selling your home effectively and profitably is complete accessibility. Many homes sit on the market much longer than necessary because the owner isn’t available to show the property or return phone calls within 3 hours. Realize that a certain amount of time each day is necessary to sell your home.

Am I prepared to deal with an onslaught of buyers who perceive FSBO’s as targets for “low ballingâ€??

Another challenge of selling a home is screening unqualified prospects and dealing with “low-ballers.� It often goes unnoticed that much time, effort and expertise is required to spot these people quickly. Settling for a “low ball� bid is usually worse than paying broker commissions. In addition, buyers looking for FSBO’s want to share in your savings, so they will often offer much less to share in the savings you are getting as a result of not paying a commission.

Am I offering financing options to the buyer? Am I prepared to answer questions about financing?

One of the keys to selling, whether it’s a home, a car… anything, is to have all the necessary information the prospective buyer needs and to offer them options. Think about the last time you purchased something of value, did you make a decision before you had “all your ducks in a rowâ€?? By offering financing options, you give the home buyer the ability to work on their terms. You’ll open up the possibility of selling your home quicker and more profitably. A professional real estate agent will have a complete team for you to profit from… lenders… title reps… inspection companies… they’ll be completely at your disposal.

Do I fully understand the legal ramifications and all the necessary steps required in selling a home?

Many home sales have been lost due to incomplete paperwork, lack of inspections or not meeting your state’s disclosure laws. Are you completely informed of all the steps necessary to sell real estate? If not, you may want to consider consulting with a professional.

Am I capable of handling the legal contracts, agreements and any disputes with buyers before or after the offer is presented?

Ask yourself: “Am I well-versed in legalese? Am I prepared to handle disputes with buyers?� To avoid any disputes, it is wise to put all negotiations and agreements in writing. Many home sales have been lost due to misinterpretation of what was negotiated.

Have I contacted the necessary professionals… title, inspector (home and pest), attorney, and escrow company?

Are you familiar with top inspectors and escrow companies? Don’t randomly select inspectors, attorneys, and title reps. Like any profession, there are inadequate individuals who will slow, delay and possibly even cost you the transaction. Be careful!

My hope with this report has been to educate you and help you avoid the pitfalls many FSBO’s go through. I hope you found the idea’s valuable and if there is ever any way I can be of service to you or anyone you care about, please contact me Amy Broghamer at 513-377-3637.

• Buyers , Closing , Closing Documents , FSBO , Inspections , Listing , Pre-Approval , Pricing , Real Estate Law
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Amy March 21st, 2007

This is a question that often occurs during the time leading up to the closing, or while sitting in the closing room, signing your life away. As and ABR, I work hard to educate my clients to the importance of protecting your own investment, while the bank REQUIRES you to pay to protect their investment. I recommend buying title insurance to protect the money you have in the house the day you buy it, or your down payment, and to protect the equity you gain as you live and improve your homes over the years.

If something was found incorrect with the title while you have lived and owned your property, you could lose all of the equity you built, and only the principal you owe on your loan is protected, your cash investment is not. In Cincinnati and Northern Kentucky this story hits home more than other areas, when a now famous builder Bill Erpenbeck was creating major title issues. Many of the clients of Mr. Erpenbeck lost their homes which they paid cash for, due to his illegal title activities. If they would have purchased title insurance the day they closed on that loan, they would still own their homes and all the equity or cash they had in it.

Since I am asked by my clients about why they should spend another amount similar to their home owners insurance premium while they are signing their next 30 years away to principal and interest, I say “so that you are sure that all that principal you pay in over the next 30 years will be put back in your pocket when you sell! If the bank requires you to buy this for them, shouldn’t you protect yourself, in addition to the bank?”

My trusted legal adviser and local Attorney with Classic Title addresses these issues in a more formal way just below…

As memories of Erpenbeck slowly fade into the recesses of our mind, it is very easy to forget about the problems lurking in our titles and what we can do to protect ourselves and equally important, our clients.

As you may or may not know, very little protection is offered by the sellers’ deed of general warranty deed and lender’s who require no title insurance whatsoever. Of course, the only logical alternative is the owner’s policy of title insurance and what follows is a summary of some of the major things you should keep in mind:

• What makes title insurance different from other forms of insurance? Title insurance protects the policy holder from adverse things that occurred in the past unlike health, life, home and car insurance that insure against future events. That protection runs from the date the policy is issued and covers all matters of title not excepted in the policy back in time through the chain of title. (Keep in mind that under Ohio’s Marketable Title Act, defects in a chain of title older than 40 years are normally no longer considered defects)
• What makes a title defective? The limitations of space for this article do not permit me to list all of the defects that may render a title unmarketable. There could be a complete failure of title as when the deed to the present presumed “owner” is defective, such as where the grantor who executed the deed is under 18 years of age, incompetent, and signs the deed anyway. (Even the best title examiner will not normally be able to ascertain the age of the grantor from merely looking at the public record, nor the competency of the grantor (sometimes there will be an official declaration of incompetence in the Probate Court records but the signer may be from another county or jurisdiction) Or consider the case where the seller signs the deed without the spouse’s signature thereby creating a cloud on the title to the extent of the non-signing spouse’s “dower” interest.
• What types of title insurance policies are there? Essentially you will encounter two (2) types of policies: (a) lender’s or mortgagee policy which insures the lender up to the amount of the present principal balance of the loan (remember that most loan balances decrease due to normal amortization of principal(except the “interest only loans” that comprised about 30% of all loans made last year). It is this decreasing loan balance and coverage which causes the premium to be much less than the owner’s policies as the insurance company liability decreases with the loan balance. (b)owner’s policy which insures the policy holder up to the policy amount with no decrease in coverage and there are now enhanced owner’s policies which contain inflation riders so the coverage increases over time in pace with inflation. These policies are slightly more expensive as a result.
• What or who determines the cost of title insurance? All premiums are established by the individual title insurance companies (underwriters)who publish these rates with the Ohio Department of Insurance with the result that all the filed rates in Ohio are identical (meaning no title company can charge more or less for the premiums, but may charge more or less for the related services such as title exam, document preparation and closing)
• What is “simultaneous issue credit”? Remember in real estate to read the label and by doing so it is easy to remember that with this question, in Ohio, if you purchase an owner’s policy at closing or within thirty (30) days the cost of the owner’s policy is offset by the amount of the lender’s policy. Consequently, for a sum comparable to the homeowner’s warranty a buyer can get an owner’s policy of title insurance that is a one-time premium with all of the important protections offered.

Terrance R. Monnie @ Classic Title Agency, LLC
Email: Terry@ClassicTitle.com or 513-256-4779

• Buyers , Closing , Closing Documents , Real Estate Law , Sellers
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Amy March 10th, 2007

The HUD Statement

Whether I am working with a first time buyer or seller, I am always asked ‘What are typical closing costs for selling or buying a home?’

For buyers, a great deal depends on your down payment, and the day of the month you close the loan. There are less pre-paid costs towards the end of the month. With taxes, depending on the month of the year, you may be asked to escrow very little money for taxes, or up to 8 months.

For the seller, the costs are more predictable, except if you have agreed to pay closing costs for the buyer.

I have included a sample HUD-1 Settlement Statement, required by the government to document the costs when closing on a loan. The Department of Housing and Urban Development formulates a Settlement Statement or HUD-1. This HUD-1 Serves as your final accounting of all of the costs that are associated with your home purchase or sale. This document is required by law and should be given to your tax person the year you close on your home.This document is usually issued to you between 3 days to 1 hour prior to the closing. The law says you must have a copy 24 hours prior to closings. Depending on your lender and title company, this does not always happen. For this reason, I prefer to use the services of Guardian and Classic Title to make sure that we have the correct statements within 24 hours of the closing. They do a great job, and I always recommend their services for an uneventful and smooth closing.

Classic Title has been generous enough to prepare for you an example HUD-1 Statement (PDF) with an explanation provided by Terry Monnie one of Cincinnati’s best Real Estate Attorneys. You may find it most helpful to print out the HUD-1 and note the sections as you read through the blog article and its annotations. This is not a simple legal document to navigate on the screen.

The HUD-1 Settlement Statement Explained

• General: The federal government through its various agencies requires (pursuant to the ‘Real Estate Settlement & Procedures Act (RESPA), that all 1-4 family residential closing transactions involving a lender utilize the HUD-1 Settlement Statement (HUD-1). This document is supposed to reflect the terms of the Contract to Purchase between the parties.
• HUD 1 Explained:
  • There are two sides to the HUD 1, the left for the purchaser and the right for the seller and the second page reflects subtotals from Page 1.
  • Lines 100 and 400 reflect the purchase/sale price, and if you note, Lines 102 and 402 include “personal propertyâ€?. Most mortgage lenders are very sensitive to having items of personal property included in a loan transaction since they are limited to making loans on real property alone. (Many contracts will state that even though the sale includes a stove or refrigerator, they will not be assigned any value)
  • Line 103 lists the total of all the ‘settlement charges’ which are listed on the buyer’s side of Page 2 (total being shown at Line 1400).
  • Lines 106-108 will often show as owing by Purchaser and a credit to Seller for seller prepaid taxes or HOA fees as in this case.
  • Lines 120 and 420 reflect total sums owing by Purchaser and amounts owing to Seller. (Do you see the pattern-each side reflects the other in most instances to this point). What follows are credits to the purchaser and deductions to the seller’s side.
  • Line 201 is the earnest money paid by the Purchaser at the time of contract signing and this normally will be held by the Realtor, in this case, Amy Broghamer @RE/MAX Unlimited, in her broker’s trust account pending closing. At the time of closing, this earnest money deposit of $2,000 will be retained by the Realtor and the balance of commission will be taken from the Seller’s proceeds. (See Line 702 Seller’s side on Page 2)
  • Look at Lines 211 and 511. This is the tax proration credit section and arguably the most misunderstood portion of the HUD 1. Why? Because, in Ohio, taxes are paid in arrears and there are two tax bills every year, one half being paid as the December bill and the other half paid in June. (the time period to pay these bills will vary from county to county). Now’s the tricky part. Each tax bill, when paid, pays a tax period six months in arrears. For instance, the December tax bill 2006 pays taxes in arrears for the tax period, January 1, 2006, through and including June 30, 2006. Consequently, if the closing is 3-25-07 and the most recent tax bill has been paid (remember the December 2006 bill), taxes are only paid through June 30, 2006. Most contracts provide that the seller will give the purchaser a credit from the paid through date (6-30-06) through the date of closing (3-25-07) and that is what is reflected on Lines 211 and 511. Easy, huh? Now that this has been clarified I have to tell you that in certain areas of Ohio (Montgomery, Greene and certain parts of northern Warren County, the local practice is to use a ‘short proration’ method) If you closed in those areas, the tax proration credit to the purchaser would only be the period 1-1-07 through 3-25-07. Your Realtor will be familiar with local custom.
  • Line 303 will then reflect the total owing by purchaser less any credits or the amount the purchaser will have to bring to closing. * A word of caution here. Under Ohio’s “Good Funds Lawâ€?, closing/title companies are not allowed to accept any sum in excess of $1,000 at closing unless it is in the form of a certified or cashier’s check. You may either make the check payable to yourselves and endorse it to the title company at closing or make it payable to the title company.
  • Note that on the seller’s side, Lines 500-519 reflect all the deductions from the seller’s proceeds with Line 502 being all the deductions from Page 2. (Line 504 shows the amount of the seller’s mortgage loan payoff, and keep in mind sellers, that most all loans are paid ‘interest in arrears’ so your payoff will include the principal balance and accrued interest to the date it is normally received by your lender.
    • For instance, this seller paid their March payment, 2007, and because interest is paid in arrears, this paid the interest from 2-1-07 through 2-28-07. Accordingly, interest is still owed from 3-1-07 through the date the lender actually receives the payoff.
    • Keep in mind that title companies have to insure that adequate monies are collected for this purpose and the payoff will normally include 3-5 days of interest and your lender will refund the excess.
    • Also keep in mind that the payoff statement will not include a credit for any monies you may have in your escrow account. These monies are handled separately and will usually be sent to seller 2-4 weeks after the loan is paid in full.
    • one last thing in this regard and that is that Ohio law requires lenders to cancel their paid in full loans within 60 days of their being paid off. Few comply with the law resulting in thousands of uncanceled liens which may cause you problems in the future. Both Amy Broghamer, and Classic Title recommend that you insist that you get a copy of the cancelled liens for your permanent files.
  • Page 2 of the HUD 1 reflects the subtotal of all the purchaser’s closing costs and related charges and the same for the seller.
    • The 700 series for the seller reflects the total commissions paid to the Realtor, in this instance, Amy Broghamer at RE/MAX Unlimited. Please note that the actual check written to the Realtor in Line 703 will be the amount shown in this column less the earnest money deposit that Amy has already deposited in her broker’s trust account.
    • The 800 series will reflect the closing costs owing to the lender by purchaser and these should reflect the “good faith settlement estimateâ€? that the lender is required to give to borrowers. There are normally variances in these numbers.
    • Line 901 will reflect the interest owing by purchaser from the date of closing through the end of the closing month. Then the first payment will normally be due the following first of the next month succeeding. Translated: Purchaser’s first payment will be due May 1, 2006 (interest in arrears).
    • If purchaser has agreed to or is required to establish an escrow account the initial deposit will be reflected in Lines 1001 through 1008. Direct your attention to Line 1008 “Aggregate Adjustment Analysisâ€?, a fancy label for a mandatory test that lenders and title companies must perform to insure that the minimum amount is placed in escrow since the lenders don’t normally pay interest on escrow monies.
      • If Line 1008 indicates 0.00, this means the test was performed and the correct amounts were escrowed.
      • If Line 1008 reflects a negative number this means that the test results mandated that too much was placed in escrow and the adjustment was made to insure compliance with this regulation.
      • Lines 1100 through 1113 reflect all the closing fees, including such things as:
        • Settlement of closing fee
        • Title Exam
        • Title Insurance Binder: (this is the fee that is required for the title company to issue any title insurance policy, either for the lender or for a purchaser buying an owner’s policy. (See attached article on title insurance). In this instance, the Seller has agreed to pay $795.13 towards the cost of the Purchaser’s title insurance premium and this is reflected in Line 1108. The contract to purchase has provisions for seller to pay a portion, all or none of this important coverage.
        • The 1200 series reflects the charges imposed for the title company to deliver and record the deed and/or mortgage.
        • On the seller’s side, Line 1202 reflects the conveyance or transfer fee that is required to be paid to the County Auditor and is normally $3.00 for every $1,000 of sale price plus 50 cents for each parcel.
        • There will also normally be a $75.00 charge to the seller to the attorney who prepared the deed.
        • Home warranty payments will be reflected on Lines 1303-5 or alternatively on Line 507 on Page 1.
        • Line 1400 reflects the subtotals of all the charges for both purchaser and seller and will be carried forward to the Page 1.

I hope you enjoyed this detailed explanation of the HUD-1 Statement by Terry Monnie. As we near the closing table for your sale or purchase, I will be talking with you regarding the HUD-1 for your property. In addition, the good people at Classic Title do an excellent job explaining this in a very similar way at the closing table, or prior to that via phone conference if you have questions, or think you may need a brush up before going to the closing table. As your Realtor, I review this as well to make sure that your Earnest Money has been credited, that any Home Owner Warranties, or Closing Costs that we negotiated being paid by the other party have been noted, and any other adjustments made in the contract were completed.

I hope this gives you SELLERS an idea and a method for calculating what your closing costs can be expected to be.

If you are a BUYER, your lender should issue you a Good Faith Estimate with an idea of what these closing costs will be when you make application for your loan. This is a requirement, and you should ask for a Good Faith Estimate if your lender is not providing one for you. This is only an Estimate and may change a bit from time to time as you wait for your loan to close or to lock in your rate.

To Contact Terry:

Terrance R. Monnie, Attorney at Law
Classic Title Agency, LLC
513-984-0440 or Terry@ClassicTitle.com

• Buyers , Closing , Closing Documents , Real Estate Law , Sellers
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