That is what Sellers assume, but today’s California Association of Realtors Residential Purchase Agreement (RPA) is a little more complex. If the Buyer and Seller have initialed the Liquidated Damages clause, the Buyer has removed the Inspection Contingency, and the Buyer cancels for no reason, then yes, the Seller may keep up to the amount of the Earnest Money Deposit (EMD). However, it is extremely rare that a Buyer would actually forfeit their deposit with all the loopholes available today.

 

Bottom line, in a real estate transaction today, there are no guarantees that the buyer will close the escrow until you receive the call that the recording is confirmed. As Bette Davis said in All About Eve, “Fasten your seat belts, it’s going to be a bumpy night.”

Dear Tracy,

What are closing costs? How much will they cost a buyer?

A: Buyer’s closing costs can run 2-5% of the loan amount, depending on a number of variables. Since many costs are prorated over the month and year in which the property closes, there can be a wide range of costs.

More questions a buyer can ask are “What are Non-Recurring and Recurring closing costs? Can someone else besides the buyer pay them?" Now we are talking some complexities here.

Lenders will typically allow sellers and/or agents to pay a buyer’s non-recurring closing costs. The limits are up to 6% of the sales price if the buyer is putting down 10% or more, 3% if the down payment is less. Some lenders allow someone else to pay recurring or non-recurring costs, but this does not include prepaid interest.

Really important to know is that lenders will now only allow the credit to be the actual amount of the closing costs in the transaction. So even if 6% is allowed, if you only have 2%, that is what the seller can pay and no more. And credits relating to repairs or improvements are NOT allowed.

Here are typical recurring and non-recurring closing costs:

Non-Recurring:

• Points (origination fee)
• Appraisal
• Credit report
• Escrow fee
• Sub escrow fee
• Title insurance fee
• Underwriting fee
• Processing fee
• Document prep fee
• Tax service contract
• Wire fees
• Flood
• Certification
• Recording fees
• Realtor client service fee

Recurring:

• Prepaid interest
• Taxes
• Fire insurance
• Private mortgage insurance.

What to do? The only solution to how to give more money back to the buyer is to reduce the price. Or forget about getting the credit.

Q. Do you think staging a home for sale works?

A. Let me answer this question with a little case study.

Highland Park (90042 zip) is undergoing an interesting renaissance. This area lost about 50% of the average price value in the 2 years from the peak to its valley, between 2007 and 2009. When prices dropped that low, a number of investors began buying properties, fixing them up and re-selling them.

I sold a small 2-bedroom 1-bath fixer in Mt. Angelus last year for $235,000. The investor did a huge amount of work including a reworked foundation, listed it for $429,000 and it sold for $455,000 in March of this year.

Even the fixed-up price seems pretty reasonable compared to hip areas like Silverlake and Los Feliz, and so the re-birth has begun. Companies like Better Shelter are going in and doing quality flips. They install good quality systems, artful paint schemes, nice finishes—and then they go all out and stage them even at the lower priced level. It pays off, too. The house at 4955 Meridian was listed for $499,000 and sold for $540,000 earlier in the spring.

Does staging make a difference in the ultimate sales price? It’s hard to say. The flip done from the one I sold last year wasn’t staged, but the one on Meridian was.  It seems to be trendy in Highland Park to stage homes these days. There was a property on Lincoln listed for $399,000 and designed by Native Homes LA that was staged and went into escrow within 3 weeks of listing. My listing on Range View (also listed for $399,000) was staged and went into escrow after just 2 weeks. The key to how staging works is that it makes the property look really attractive and in top condition.  It also helps prospective buyers imagine how their own furniture might work in the house  such as where the television might go, or if a breakfast table and chairs would fit in that corner. It can be difficult for a buyer to figure out a completely blank canvas especially if the floorplan is less than ideal.

Price is just as important, however. If any of these homes had been priced too high, the staging wouldn’t have helped. When you see properties selling for over asking, you know that more than one buyer thought enough of the home to bid on it.

Location is the last piece of the value puzzle.  Here is where the condition and the price are essential. There is a property in a very less-than-desirable part of Highland Park near the freeway that looked adorable in the photos and was priced well for the rest of Highland Park, though not really that inexpensive for that particular area. It went into escrow 11 days after it was listed.

So what’s the answer to the staging question? Some sellers feel that if it’s priced under $500,000, it doesn’t need staging because the low price will sell itself. Others stage any priced home. While it costs money to hire a stager, the money is probably justified by selling the house quicker, possibly with more offers, maybe pushing the price up a bit. If you have a property that has an odd floorplan or is vacant, you may want to consider some staging. If you want tiptop dollar, you probably want to do everything you can to get it. Don’t you?

Dear Tracy,

Every now and then when perusing the homes for sale in the area I’d like to live in, I see a description that states it is a Fannie Mae HomePath property.

What exactly does this mean?  Does it make the buying process any different?

Thanks,

Home buyer

When a property is a HomePath property it means that it is (a) a bank-owned home owned by Fannie Mae, and, (b) the buyer of the property is eligible for the Fannie Mae HomePath mortgage program.

As you may know, Fannie Mae is the largest lender in the United States.  Fannie Mae currently has thousands and thousands of homes on their books due to the large number of recent foreclosures.  In an effort to help banks liquidate their Fannie Mae REO inventory, Fannie Mae came up with the HomePath program.

The HomePath program gives lenders and buyers less stringent finance requirements, which is great because more buyers can actually qualify for a loan.  Another great thing – you can get a HomePath mortgage for owner-occupied OR investment properties.  Fannie Mae also has a HomePath renovation financing program for those distressed properties that need a little help before they’re ready to be lived in.

Going the HomePath route makes the home buying process different for a few reasons:

1. No appraisal is required.


2. You can make a down payment of as little as 3% of the purchase price.


3. No mortgage insurance is required (therefore, less up-front cash from buyers and lower monthly payments).


4. Credit score requirements are more flexible.

So, the million dollar question – why would a lender agree to such a loan?

Well, Fannie Mae is offering a couple of incentives to lenders who process these loans.  First, loans can be sold back to Fannie Mae, so lenders aren’t holding the loans in their own portfolios.  Second, the more loans a lender makes, the more fees it generates for originating and servicing the loans.

I know what your next question will be – with all the cash investors snatching up distressed properties in the area, is it even possible to get one of these properties with a HomePath loan?

I’m not going to tell you that it will be easy, a lot of the time if a bank can get cash, they’ll take it.  But!  We are actually in escrow on a HomePath property and, except for a delay in opening escrow because it has to go through the Fannie Mae channels, everything is going smoothly so far (knock on wood).

My big advice for going into escrow on HomePath properties is to fully exercise your due diligence – get that property inspected thoroughly!  These banks don’t know a lot of the details on the condition of the property, and they rarely will do repairs before the close of escrow.  So do your homework and really understand what you’re getting into.

For more information and a database of HomePath eligible homes, visit www.homepath.com.