Buying a Home

Seller Offering a Flooring Allowance

September 18, 2023 by Jon Griffith

This and many other offerings are frequently added to listings in the MLS. From a marketing standpoint, it’s a perk designed to keep you interested at the same price even if something needs to be brought up to date.

Let’s say I wanted to sell a home for $500,000 knowing that the flooring is outdated and needs to be replaced. So, I get a bid on what it would cost to bring that floor up to date and I offer the seller less than that amount in hopes of showing them that I’m willing to “credit” them the cost of the flooring, we’ll call it $30,000, at closing, effectively making the price of the home $470,000.

If the buyer is putting 20% down ($100,000) then the amount of the loan will be $400,000 plus closing costs. The assumption with a “credit at closing” is that there will be cash from the lender that will go to the buyer to cover the cost of any improvements (such as new flooring.) Again, this is not allowed because essentially what you’re suggesting is that the lender convert part of the proceeds they’re providing at closing to an unsecured loan for a cosmetic repair, i.e. cash back.

Even if this was allowed, it doesn’t make sense to juggle numbers around like this. If I sell the house at 500,000, as the seller, I’m going to be paying a commission based upon this value. If the flooring is going to cost $30,000 to replace, then this should be reflected in the final contract price. If the seller is willing to give $30,000 at closing for something, just lower the price, and consider what the seller can contribute.

The seller IS allowed to contribute towards prepaids and closing costs to close the deal, but there are limits. If the loan is conventional, the maximum amount allowed is 3% of the sales price if the buyer is putting down less than 10%. If they are putting more than 10% down, the seller can go as high as 6% of the sales price. For investment properties, it’s capped at 2%. FHA loans also allow 6% and VA loans are stuck at 4%.

If the seller’s contribution exceeds the amount allowed, the buyer can roll the balance to pay down points on the loan to stretch it as far as possible, but anything left over simply becomes seller proceeds (i.e. money that belongs to the seller at closing.)

If the buyer and seller come to some sort of money agreement outside of the real-estate transaction, then it’s 100% on them to hash out the agreement, but it cannot be a part of the actual closing, and all parties involved in the closing can have no hand it that agreement. This is similar to when a buyer purchases additional property from the seller, such as furniture or appliances that are not included in the sale of the home, etc.

Current national average for a 30 year fixed mortgage sits at 7.16%.

Real Estate Update as of March 2015

April 28, 2015 by admin

Inventory is down, and as long as demand driven by re-bound buyers (people who sold their homes during the mortgage crisis who can now qualify) are taking advantage of low interest rates remains the same, that only means prices increase.

March showed us more closings than any other single month in the entire year 2014 and pending sales are also up.

As always, the media is behind the 8-ball on reporting and only now will be telling us that the real estate market is hot. If a home is priced right, it goes rather quickly, and this is coming from first-hand experience in the trenches with buyers who are having a hard time negotiating contracts with sellers. Sellers control the market right now.

If you want it, you need to be able to jump to action quickly, which means you need your financing in place before you even think about buying.

New HOA Rules Change The Way a House is Sold

January 28, 2015 by admin

On February 2nd, there will be new procedures when it comes to selling a home that is located within a Home Owner’s Association (HOA.)

Download the new HOA Form Here

Until then, we will continue to use the standard HOA Addendum that is part of the purchase contract when the property being transferred is part of an HOA.

In the past, this document was typically completed and submitted by the buyer as a part of the contract, defining such things as who would pay specific fees related to the transfer of property. The problem with this is that without investigating the HOA, it’s difficult for a prospective buyer to determine how much those fees will be.

Consequently, buyers frequently submit their offer without knowledge of facts that would enable them to make an informed decision.

– Holly Esligner, ABR, CRB, CRS; Chair – 2014 HOA Workgroup; 2010 President of Arizona Association of REALTORS®.

Any buyer should know, before they submit the offer, what the true costs to join an association would be, whether there is one association, two, or in rare occasions, three governing associations on the subdivision (Grayhawk would be an example of this.)

The new form will change this. The revised HOA Addendum will now be generated by the Seller, just like the Seller Property Disclosure Statement. When someone offering a home for sale lists their home, it will be their responsibility to provide information about the governing agencies of the HOA as well as the costs associated with selling the home and include it with the listing on the MLS. The buyer will still be able to propose which parties will be responsible for the fees, but now they’ll know what the true costs are before making the offer.

As a result of these changes, buyers will be informed in advance which will help alleviate the problem of unexpected fees prior to closing which often kill the sale of the home and cause headaches for everyone.

If you’d like to know more, a Frequently Asked Questions page has been posted as well as a Best Practices page.

Buyers Beware: Time Is Running Out

August 3, 2008 by admin

For years and years the real estate market has been up and down, up and down, a cycle that repeats itself every 7 to 14 years on average. SEVEN TO FOURTEEN YEARS!!! That’s long enough to start a family and have kids in elementary school AND high school. Remember how long 4 years was when you were young?

Are you renting? Are you living at home, just out of college? Consider your options now because time is running out. You don’t want to be someone who’s looking back

What is the market condition?

Today, the market is in distress. We experienced unnatural gains in 2005 and as a result, we had our second bubble of the new millennium. The first bubble was the outlandish condition of the stock market, a market where people invested in ideas, not in solid products. The second bubble was the same but with homes. People investing in ideas like. The idea that you could purchase a home for $100,000 and sell it for $200,000. Some people were lucky enough to buy at the right time and sell at the right time, but nobody knew it was going to go down the way it has.

What do I mean when I say that the market is in distress? In 2003, people were buying homes on adjustable rate mortgages because the interest rates were so low. In 2005 as people saw the prices of real estate skyrocket, they did one of two things. They either sold their property, or they pulled money out on interest only loans with adjustable rates to buy cars, boats, other homes (bad timing,) you name it. A remodeling and new builds went nuts. Those who sold probably had a legitimate reason to sell and weren’t doing it because they were fearful of a market bubble bursting. Most of us asked the same question: “If I sell now, where am I going to go?” Read more about retirement investing at https://moneypacers.com Your Guide To Financial Stability .

Here’s why there is so much distress. Those adjustable rate mortgages were typically 5 years fixed, then adjustable after that. If you purchased your home in 2003 on an adjustable rate mortgage, then you pulled money out of your house for who knows what, you are probably experiencing hard times now because your mortgage has expired and has adjusted by around 2 points, and now you can’t afford your payment. To top it off, your home is worth less than you owe the bank and you can’t pay. Foreclosure is imminent, you must sell short.

Think of Owning as a Long Term Proposition

Before you own, understand that you need to come to terms with the way the market swings. If you play the stock market and you have been successful trading short term trades, then perhaps you’ll do well managing real estate the same way, but if you cannot handle the swings, don’t buy real estate. Buying today means owning for a longer time.

Owning a home builds long term wealth. As you pay your mortgage, every month a little more of that house becomes yours. Every year, on average, the value of your investment increases. History shows that the market always increases over time, barring natural disaster or other completely unexpected anomalies. Scottsdale is quite solid in its growth history.

What Does the Future Hold?

Nobody knows. Isn’t that comforting. The only thing we see are patterns, and right now, the patterns of the past tell us that even though our circumstances are unique compared to other times the market has been in distress, we are not spiraling towards our doom. In 2008, the number of homes sold has increased. In 2008, the number of foreclosed properties has increased. By the end of 2009, when we have a new president in office, and people have cooled down, and interest rates have begun to climb, consumers will be more confident about spending, and more money will be invested in long term real estate holdings.

If you find yourself watching this come true and you haven’t purchased your first home by then, it will be too late.

Start looking today. Downpayment Assistance is going away. Think about ownership rather than preference. Buy something! Find a home that might not be ideal and start building ownership so you can look back in 10 years and say, “Thank you…I am so glad you helped me begin building my wealth when you did, because I would have missed out.”

Real Scottsdale Living: Flex MLS Property Portal

July 8, 2008 by admin

The world of Real Estate in Arizona is about shift. July is a big month for the technically savvy agent because our property listing system is being completely overhauled. But more importantly, it’s a big month for you because the system that you rely on to view property searches is being vastly improved.

Client Gateway is a clunky online system that allows you to see various properties based on searches that I have created for you. Client Gateway will soon be a think of the past. The new Flex MLS system enables you to login to a free online “Portal” to your property information. Through this portal, you have far more information that Client Gateway could ever provide, and the system is much more efficient and responsive. It’s also fun to use.

Rather than attempt to describe how it works or outline all of the features, I’ve included a link to a video tutorial that you can watch before you get started.

If you’re ready to begin searching for a home and you’d like to have your own personal portal login please complete the form below and I’ll set you up.

Man Buys House, Raises Annual Income

July 1, 2008 by admin

I frequently find myself in conversations with people who are unaware that they could in fact purchase a home. There is a misconception that homes come with more bills than apartments, and that owning a home locks you in to living in one place forever. Ownership doesn’t mean you’ll incur additional expenses if you choose the right place for you.

On the latter point, if you’re planning on making a move and you’re hoping to get rich quick, don’t hold your breath. It costs more to sell a home than it does to buy a home because of the marketing costs involved, so you’ll want to make sure you stay in your home long enough for the value of the home to exceed the brokerage fees you’ll incur when selling. So, yes, you would probably be looking at a longer stay in a home if you own it than if you rent it, but here’s why it’s a better financial decision for your long term financial growth.

Owning real estate builds wealth. Renting builds someone else’s wealth. How can this be? Let’s look at a simple example. We’ll take two single adults, Joe and Larry, each making $30,000/year. (Note: I am not a lender and cannot be held responsible for the accuracy or realism of these calculations, but I’ll do my best.)

Joe Makes $30,000 year. He rents. His monthly rent is $1000.00. For the sake of simplicity, we’ll assume he has no other expenses. I know, not too realistic, but it cleans the canvas for the brevity of my point. Joe pays the government based on a 15% tax bracket. His tax bill for the year will be roughly $4099.00. That means that of Joe’s $30,000 salary, he takes home $25,901 and of that, he spends $12,000.00 on rent, leaving him with $13,901 for the rest of his discretionary and non-discretionary expenses.

Larry also makes $30,000 / year. He bought a $160,000.00 home at roughly 6.25% for 30 Years, fixed. (No idea how mortgages work? Check out one of my sponsors, Michelle Minnoch.) His mortgage payment is about $1000.00 / month, but the key difference is that part of the mortgage payment is interest to the lender, and the rest pays down the balance of the loan. Over the course of one year, where Joe would be throwing away $12,000.00 in rent, Larry only “throws away” $10,100.00 and the difference of $1900 becomes equity in his home and increases in value over time.

So, while Joe has thrown away $12,000.00, Larry has saved nearly $2000.00. Not only has he saved over the course of the year, he can also reduce his taxable income because the interest paid to the lender is tax deductible. Where Joe found himself in the 15% tax bracket, Larry can reduce his taxable income by the amount of interest paid out during his first year of ownership which amounts to about $10,000.00. Larry is still in the 15% tax bracket but he is taxed on only $20,000.00, which means his tax bill will only add up to $2599, a savings of roughly $1500.00 over Joe.

Joe pays Uncle Sam $4099 and throws away $12,000.00 on rent. Larry pays Uncle Sam $2599 and throws away only $10,000.00 on tax-deductible interest.

When Larry bought his house, he gave himself a $3500 raise. Joe is still renting. They both spent $12,000.00. Which one do you want to be?

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