Frequently Asked Questions

Yes! Currently in the Southern California market, if you plan on buying a home with a loan, a ‘pre-qualification’ letter from a lender is needed in order for an offer to be taken seriously. It is highly recommended you get ‘pre-qualified’ before you even begin to start looking at homes. A mortgage professional will advise and prepare you for the mortgage application process making the home-buying process that much more efficient and hopefully less stressful.

If you would like to take it a few steps further and make your offer that much stronger, you can choose to get a ‘pre-approval’. Although a ‘pre-approval’ is not typically necessary, it may be a good idea simply to ensure that there are no surprises when it’s time for your loan to fund as well as the ability to compete with all-cash offers.

If you are thinking about buying a home in Los Angeles, speak to a mortgage professional as soon as possible so you can get ‘pre-qualified’!

If you’re having trouble determining how much you can afford to spend on a home, ask your realtor to assist you. Your realtor can help you set an overall budget before beginning your home search, so you can feel confident that you can afford your monthly expenses, avoid financial problems down the road and find a home that you’ll love.

While you may have toyed with mortgage calculators and jotted down estimated payments, you’ll be able to get a more accurate and personal assessment by working with a trusted mortgage professional.

Your realtor should be able to provide you with a list of recommended mortgage professionals that you, or they, can contact to get a realistic number.

One of the most common ways first-time homebuyers approach the matter of affordability is to save up for a specified down payment — the amount of which ultimately guides the parameters of their search.

Mortgage lenders provide countless calculators with varying estimated payment options. Because these tools are generalized, be sure your realtor presents you with location-specific home insurance and tax data. See if they’re able to provide you with likely utility figures and a home improvement budget as well if possible. Homebuyers with the big picture in mind are less likely to bite off more than they can chew financially.

Realtor fees — also known as commission — are part of almost every real estate transaction. Although historically buyers aren’t responsible for paying their realtor’s fee, the realtor’s compensation is negotiable. It’s quite common to see realtor fees wrapped up in the seller's closing costs.

A buyer's representing agent is often compensated at the close of escrow. It’s common for the realtor fee to be paid by the seller to the listing broker who, in turn, shares part of it with the agent who brings a buyer to the table. They receive a commission represented as a percentage of the sale as specified in the purchase contract. Historically, it’s been very common for the commission of the buyer's agent to be paid by the seller. As a result, it’s also quite common for there to be no cost associated with working with an agent/realtor as a buyer. It’s important to remember that an agent’s fee is negotiable, however, and not every seller agrees to pay the commission to both the listing agent, as well as the buyer’s agent.

In California, the buyer and seller may be represented by the same agent.

Yes, it may help you get your offer accepted but you should ask yourself one question: Is the agent representing your interests, the sellers’ interests, or their own?

Inadvertently, it's possible you and your interests may not be protected as well as they could be and as a result, the best possible deal may not be negotiated in your favor.

Unless you have a reason to be familiar with tax laws, you are probably wondering, "What is FIRPTA?". FIRPTA stands for Foreign Investment in Real Property Tax Act. It is a tax law that ensures foreign taxpayers pay income tax on their sale of US real estate.

Why Was FIRPTA Created?

For domestic citizens, capital gains tax money is taken out of their regular income tax. In contrast, foreign persons are taxed only on certain items of income and are not taxed on most capital gains items, including real estate. This being the case, FIRPTA was put into place to ensure that the government gets its piece of the pie when a foreign person living in the US sells real estate. It applies to almost any sale where a foreign owner of a US property sells said property.

Federal Withholdings:

To ensure the taxes are collected, buyers of real estate that fall under this tax act are required to withhold 10% of the sales price from the seller and deposit it with the IRS. This 10% deposit is applied to taxes owed on the sale (or transfer) of the property. If the actual taxes are calculated to be less than 10% of the sales price, the seller will receive a refund for the difference. If no taxes were owed, the entire deposit is refunded to the seller.

State Withholdings:

Separate from the federal withholding requirements of FIRPTA, some states require buyers to withhold an additional amount to cover taxes that may be owed by sellers, even if the sellers are US citizens who reside in that state. For example, California requires that 3 1/3% of the sales price be withheld by buyers and deposited with the state's Franchise Tax Board, whether the seller is or is not a Californian resident. Just like the federal deposits, the seller receives a refund if taxes owed turn out to be less than the amount withheld.

Exemptions to the Rule:

If one or more of these circumstances apply, a seller may be exempt from this law:

1) The sales price is less than $300,000 and the buyer has definite plans to reside in the home for at least 50% of the first 24 months that the property is being used by any person.

2) The seller provides written certification that they are not a foreign person.

3) The buyer receives a withholding certificate from the IRS that excuses the withholding.

4) The amount the seller realizes on the sale or transfer of the property interest is zero.

A good rule of thumb is 2-5% of the purchase price, yet home buyers should always ask their lender for a copy of their HUD-1 statement, which will give them the final breakdown of costs associated with buying their home.

Real estate agents who are familiar with titles and escrow are well-equipped to advise first-time clients on the ins and outs of origination and deed recording fees.

Good agents also know that lenders will collect interest for the current month at closing. By setting the closing date later in the month, your clients can reduce the amount of interest collected. Closing at the beginning of the month means they’ll be paying the full month of interest while closing towards the end of the month means paying just a fraction of that cost.

The contingency removal date is the date defined in the offer when the buyer will remove contingencies and commit to a firm intent to close escrow. Standard real estate contingencies typically include the right to 1) ‘Review Title’, 2) Inspect the property’ and 3) Review the seller's disclosure packet.

What’s the importance of the contingency removal date?

When a buyer and seller agree on an offer, the buyer effectively has an option to purchase the property, subject to their satisfaction of various contingencies. Once the buyer removes contingencies through the delivery of a contingency removal form in California, the option turns into a binding commitment.

Contract attorneys often point out that an offer to purchase real estate isn't literally an option. Though they are right, in practice, an offer very much resembles an option. For this reason, the shorter the contingency period, the better for the seller because the sale has the opportunity to move forward more quickly. Conversely, the longer the contingency period, the better for the buyer because they have more time to make sure the house they're pursuing is a good fit for them.

The contingency removal date is typically 17 days from acceptance. Acceptance occurs on the date that the buyer and seller agree on offer terms, contingencies included. As mentioned at the beginning of this post, there are a number of different contingencies that are present in most real estate offers. 1) One of the most common is called a loan contingency. This is the clause that states your buyer's offer is contingent on being able to secure financing for your house. It's quite common for a loan contingency to extend beyond than 17 days and for it to have a separate removal date.

If certain criteria are met, it's also possible to have a contingency period that's less than 17 days.

You can have a shorter contingency period if:

・The seller completes all disclosures prior to listing.

・The seller has a general home inspection prior to listing.

・The seller shares a completed disclosure packet and an inspection report with the buyer before the buyer submits an offer.

In California, the contingency removal date itself is not what actually removes contingencies. Rather, it's a buyer's submission of the contingency removal form. If the contingency removal date is March 1, 2015, and no form has been submitted, that day can come and go and contingencies will still exist. Contingencies will only be removed when the buyer submits the removal form; and that can happen before, on, or after the removal date. Once the removal form is submitted, the sale can move forward.

Essentially, in California, the removal date can be thought of as the deadline for the buyer to submit the removal form. If the buyer fails to submit the form by the date outlined in the contract, then the seller can take steps related to a buyer breach. This can include serving a notice to perform or seeking to cancel escrow.

An appraisal contingency is a standard real estate contingency in any offer drawn up for any buyer who needs to obtain a loan to purchase a home. It gives the buyer the right to cancel escrow without penalty if the bank appraiser determines the price of the home to be worth less than the purchase price.

It is somewhat rare for a bank appraiser to determine that a home is worth less than the purchase price. Usually, the appraisal comes in at exactly the purchase price because appraisers view what a buyer is willing to pay as great evidence of what a home is worth. Nonetheless, appraisals do sometimes come in low.

The Appraisal is Low - What Happens Next?

If the appraisal comes in at less than the purchase price, that does not necessarily mean that the sale is going to fall apart. If the buyer has the means to do so, they can pay the difference between the appraised value and the purchase price in cash and still obtain the loan.  In this case, the cash down payment for the buyer increases to cover the difference between the appraised value and the purchase price.

Is There Any Reason to Remove The Appraisal Contingency?

Most buyers obtaining a loan view this contingency as vital and will not proceed without it. Only in rare circumstances does the contingency present a problem for the seller. That being said, if a seller wants to enter escrow with a buyer who is obtaining a loan, it is usually best to allow both this contingency.

All offers in California require the seller to provide a natural hazard disclosure report.

This report, which is mandated by California state law, tells the buyer if the home they are purchasing lies within a zone containing any one of six types of hazards, including:

- A Special Flood Hazard Area

- Dam Inundation

- Very High Fire

- Wildland fire

- Earthquake fault zone

- Seismic hazard

It's a straightforward one-page form, containing several yes-or-no questions about the property. On the disclosure form, the seller must indicate whether or not each threat applies to the property. The form costs approximately $125, a fee that's usually paid by the seller at the close of escrow.

Supplemental Hazards are also commonly reported in the same report.

These include:

1. Radon Gas exposure

2. Airport influence area

3. Megan's Law disclosures

4. Military ordinance

Deposit your earnest money with escrow within  3 days of the date of contract acceptance/ratification date. Your Escrow Officer will provide you with wiring instructions once escrow has officially been opened.

There is generally no language explicitly preventing the buyer from changing things up. Most contracts do specify that buyers have a specific time period within which they have to get financing and perform. As long as the buyer can secure financing within the timeframe specified in their contract there will be no consequences for switching. It should be mentioned that it can be challenging to switch lenders during escrow under typical contract deadlines and should be discussed with their Realtor in advance.

You will need a homeowner’s insurance policy in place before settlement, it is a good idea to start looking around in advance. Obtaining homeowner’s insurance is typically a requirement of the lender in order to secure financing.

Buyers with a home improvement vision or a commitment toward sustainable living may want to update major features before moving in.

If energy efficiency is their thing, consider searching properties with old windows, appliances, or a sketchy boiler system.

Switching to eco-friendly models as a best-interest scenario for the buyer is the perfect impetus to ask for reasonable financial compensation instead of holding the seller responsible for repairs. Whatever can be conceived as a win-win concession proposal improves chances for a satisfactory sale all around.

While most buyers know they need a traditional home inspection, where items like the electrical, HVAC, and plumbing will be inspected, a great agent will know to advise them of other types of inspections that may be standard in your local area.

A wood-destroying organism inspection, for example, looks for termite infestation and damage. They may also need a chimney, lead-based paint, foundation, pool, septic system, soil stability, or easement inspection.

You will need to contact a local Home Inspector to schedule your inspection prior to your inspection deadline. Here is a list of our preferred vendors for your reference - but you are welcome to use any company you'd like!

If you are unclear on which inspections to schedule, your realtor can help you decide and also clarify what is stated in your contract.

Parameters for finding information about the condition of any property should be clearly defined. Identify who arranges home inspections at the get-go, as well as whether or not they can be completed before an offer is made.

Results of inspections that take place after both parties sign an agreement may alter the original terms. Make sure bids are contingent upon relevant findings and a time limit is set within which down payment amounts may be returned if homebuyers change their minds.

Agree, in advance, who will be present during all home and pest inspections as well as which party is responsible for service payment. If possible, compile a list of area providers known for thorough and quality work.

Most contracts revolve around closing dates within 30-45 days of signing. Loan pre-approval, satisfactory completion of the home and pest inspections, and mutual contingency agreement all move the timetable along quickly.

Examine the homeowner’s situation.

1) Are they motivated to sell? Is the house listed as-is?

2) Do they sit in a position where they can comfortably wait for a competitive offer?

Next, look at comparable market data.

3) Is the property in question on the high or low end of area home values? If demand is great, consider presenting as attractive an offer as possible, such as cash only or one that agrees to limit contingencies.

Informed bids based on a combination of factors such as research data, market trends, and the motivations of both buyer and seller have the highest chance of being accepted.

We all know this is a tough one to answer, but it’s arguably the most important question in the entire transaction. There are so many factors to consider. Your realtor can help you evaluate and understand the difference between reasonable offers, competitive offers, and the right offers – all of which can be different.

Many home buyers believe that they should immediately lowball an offer; however, this may not be reasonable. A reasonable offer is one that carefully considers market data, how the property compares to others that have sold, and the buyers’ overall desire for the property.

A competitive offer, on the other hand, often means taking it a step further and considering other terms, in addition to price, that may give the buyers a leading edge. For example, can they make an all-cash offer? Can they include a full loan approval letter with their offer? Perhaps they can limit the number of contingencies in the offer or can close quickly with a sizeable earnest money deposit.

Making the right offer is not an emotional decision – rather, one that is based on research and market data. Your realtor will provide you with comparable data, show the competition, and discuss the current market’s temperature. Your agent will provide you with expertise and guide you so that you’re able to make the most knowledgeable and informed decision possible.

You’ve found the house you love – but so have three other buyers. When faced with a multiple- offer situation, today’s great agents know how to make their client’s offer stand out. It’s important to remember that the listing agent needs to be the readiest, most willing, and most able buyer to purchase the seller’s house, but they also need to make sure the deal is going to stick. Great agents help their clients give the impression that if their offer is accepted, the seller will soon see the closing table.

Perhaps this means scheduling an inspection prior to placing an offer, giving your clients more knowledge of the home, and making it easier to waive inspection contingencies. One of the best ways to communicate that your client’s offer has a better chance of sticking than the competition is to improve its terms and limit its complexity. Offer more money down, attach a pre-qualification letter, and shorten the due diligence period. We’ve even heard of buyers writing letters to the sellers expressing their interest in the house, their plans, and how much their kids will love the treehouse out back.

Walk your clients through a multiple-offer situation all the way to the closing table by thinking outside the box.