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Renovating homes for profit; sometimes referred to as “flipping” houses has gained popularity in recent years.  The recent market downturn created an unprecedented opportunity to do this and several popular television shows have gained viewership which depict various people doing this and follow them through the process.  This article is a resource and snapshot of information about what the opportunities are, if any, in the Atlanta Metro Area as of the time of my publishing this article.  It will talk about my personal experiences and offer some sound advice to those who have a desire to begin doing such a thing.  I caution you that the executive summary of things is essentially that you have really missed the boat and it is unlikely that you will be able to find any good opportunities.  However, depending on the specific area, price range and even luck, if you do stumble upon an opportunity you will find some good information contained in this article.

For starters, I would like to talk about ways to acquire properties.  Many investors buy homes at the county foreclosure auction which takes place the first Tuesday of each month at the county courthouse for the county in which the property is located. If there is any place left where there is any opportunity at all, this is it however it is not for the inexperienced or the risk averse.  When you buy at this auction, it is VERY high risk as it is truly a pay immediately with absolutely no refunds and no exchanges situation.  Furthermore, if the home you purchase has tax liens or other liens associated with it, you inherit the liens in many cases and end up having to pay off someone else’s debt.  So, before bidding on any home at the county auction it is essential that you do a thorough title search to know exactly what you are buying or you could really get burned.  County auction purchases are also cash only sales; so you must have certified funds to cover the entire bid amount with you at the auction and surrender it in full immediately upon winning the bid.  In most cases, you will be buying the county auction properties without the luxury of seeing the inside of the home.  You can drive by and if the property is vacant you can likely walk the lot and perhaps even peak in the windows; but you can’t really get in without risking a breaking and entering charge.  I have heard horror stories of people buying homes at auction that are in much worse condition than they imagined or, worse yet have uncorrectable flaws like the number of bedrooms and baths not matching what was in the public record, etc.  Finally, the auction list is very dynamic and changes right up to minutes before the auction; so you must do all the title searches and analysis on the homes and be ready to bid when it is quite possible the ones you are interested in fall off the list at the last minute and you go home empty handed from the auction after a great deal of preparation efforts.

 

If you don’t have the cash and/or the stomach to buy at the auction, then the other option is to get the homes that don’t sell at auction and get assigned to a listing broker as a foreclosure or what we in the industry call an REO listing.  When buying REO listings, you can finance the home, you do have an opportunity to see it first, and you can even do an inspection and change your mind if you find any huge surprises.  However, be aware that you will pay a very substantial premium for this as the prices you can expect to pay for these homes are typically much higher than the same home would go for at the county auction.

Since the rent vs. buy equation in Metro Atlanta is so far in favor of the buy side right now (i.e. costs a lot more – almost double per month to rent than it does to own the same home), many investors prefer to buy homes with the intent of renting them until the market values recover more and then plan to sell for substantial profit in the future.  Because of the over abundance of individuals and even large corporations and hedge funds following this business model, the prices of distressed homes is going through the roof as longer term investors are always willing to pay much more than the person who needs to ensure a profit on a quick flip that they will sell immediately in the same market conditions. The sheer number of investors with the longer term model has all but eliminated any possibility for the short term flipper to get any good inventory particularly at the lower end of the price spectrum.

 

If you are lucky enough to find a home that you believe you can fix up and sell for a substantial profit in a short time period, things to consider if you want to be successful are:

  1.  Appraisal comps – if you over improve for the neighborhood you will get burned.  If buying a home to renovate and resell, it is imperative that you check the recent sales in the neighborhood and make sure there are very recent examples of very similar age and size homes; preferably right in the same subdivision that have sold at prices that you intend to resell for.  If not, you could easily end up in a situation where you create a beautiful product, buyer after buyer are willing to pay your price; but it is not able to get an appraisal at the contract sale price and you will not be able to sell it to any buyer who requires financing.
  2. If buying with a more long term strategy that involves renting the home out for some time, make sure to check the homeowner association covenants to see if there are any rules or regulations that would prohibit you from renting the home out.  This is extremely common in the condo and townhome markets; but can even happen with single family homes.
  3. Build in a full service real estate commission into your price (budget 6% of sale price going to real estate brokers).  Don’t assume you will be able to sell by owner and save on commissions, etc. In some cases, you will get lucky and sell without an agent; but more often than not you will end up needing one.  If your margin is so tight that you will take a loss if you have to pay commissions then you should not buy the house.
  4. Leave room for unexpected repairs in your budget.
  5. Use professional contractors that are reliable or you will spend more than you save when your cheap day laborer doesn’t show up to the job site and you lose a month or two of time.  Time is definitely money when you have a vacant home that you are trying to sell.

There is a lot more to it than this but it would get way to long for a blog post.  Due to the difficulty in finding properties right now and the fact that I have my own desire to do this if I do find a one-off opportunity, I am not seeking clients who are looking to purchase low end REO homes for flipping at this time.  However, that can change as the market changes; so if substantial time has passed since I wrote this article; feel free to reach out to me for assistance at that time.  For those looking for rental properties, I sometimes look for those myself; but at times I am tapped out and don’t have the cash flow to buy one when I stumble upon a good opportunity. I do keep a database of folks who might be interested if I see an opportunity like that and will be glad to add you to that list.

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So you want to move to a new home but you already own a home.  What is the best way to orchestrate this move?   Should you start by looking at houses you would like to buy or focus on selling your home first?  The mere thought of this dilemma can be paralyzing to many homeowners.  This blog post will map out all of your options and the pros and cons of each so you can make a well thought out game plan.

Option 1 – Sell First Then Buy

Selling your existing home first is the least risky as you don’t have to worry about carrying two mortgages at the same time but you really can’t start seriously looking at homes to buy until you at least get your existing home under contract.  Once you get it under contract, you may have to be out fairly quickly and you will be under a lot of pressure to find something quickly or move into some kind of temporary housing (effectively moving twice).  Making offers that are contingent on the sale of your place may work in some markets but will not likely work in today’s market (at the time of writing this post) as it is extremely likely there will be multiple buyers interested in the home you want and the sellers will always choose the offer that doesn’t have the added risk of falling through due to you not being able to sell, etc.  Banking on the timing working out perfectly to move directly from one house to the other is also not realistic.  It is great when it works out like that and you can hope and try for it; but you will definitely need a plan B in place in case it doesn’t work out in such an ideal way.  It is also important to consider how inconvenient it can be to have your home shown to potential buyers while you are still living in it.

Option 2  – Buy First Then Sell

If you are fortunate enough to be able to qualify for financing of your new home without selling your old home first then you have another possible option:  Buy first and then sell.  By doing things in this order, you get the luxury of home shopping without as much pressure of having to find something quickly.  You will enjoy being able to move only one time; directly from your old home to your new home and perhaps save on moving costs.  When selling your home, you won’t have to put up with the annoyance of having strangers interrupt your day and trample through your home at dinner time or disrupting the kids nap time, etc. and you won’t have to always worry about whether your home is clean enough to show.  Clearly, this is the much easier and less stressful way to do things; but it comes at a price.  Many people think the price is that they are taking the risk that they may not be able to sell their old home at all and may get stuck with two mortgages perpetually.  The truth is, you can relax a little.  Your old home will absolutely sell.  The only thing you don’t know is the exact price it will sell for.  So, there is risk that you may get less for your home than you anticipated but the risk of not being able to sell it at all at any price is not really a true risk.   Every home will sell and sell quickly at the right price.

If you can’t qualify for financing on a new home without selling first then your choice is easy as it is made for you. If you can qualify to buy first then you need to look at whether you absolutely need the equity out of your existing home for downpayment money on the new home and whether you feel comfortable having some overlap for a few months with 2 house payments.

If you are wealthy enough to put together a down payment on a new home without using the equity in your existing home and you have enough cash flow or savings to float both homes for at least 6 months without completely draining your savings then I would recommend the Buy first approach.  The reason is that it is a lot easier and more enjoyable experience.  When all is said and done (after you sell your old home), the outcome will be nearly identical as will your financial standing.  You will be comfortably in your new home and your old home will sell for the same exact market value.  The only thing you really lose is the ability to know exactly what the net proceeds from the sale of your existing home will be in advance; but the net proceeds will be ultimately be the same in hindsight whether you buy or sell first so the financial outcome really is identical and you get there with much less stress.  A good real estate agent should be able to give you a range of what your home will likely sell for in a worst case and best case scenario.  I suggest you use the worst case scenario price in your decision making and don’t use a number given to you by an agent who is trying to tell you what you want to hear to “buy” the listing.  If you want a real, honest best to worst case price range expectation for your home, please give me a call today and I will be glad to provide one fo you.

This choice can be a difficult one for those who have all of the options to pick from and there is not always a right or wrong answer.  No matter which way you decide, it is important to make this decision early in the process because if you don’t think through this part and have a game plan, you will spin your wheels looking at homes you may not be able to buy and get frustrated as you find your dream home and perhaps don’t have the means to make it yours, etc.

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Real estate auctions have become more popular in recent years as they were used to unload a great number of foreclosures that we had in the marketplace during the recent recession.  Before you head out to an auction to buy a property, here is some helpful information that you should know:

There are 2 basic kinds of real estate auctions:  (1) a county foreclosure auction and (2) a 3rd party auction that is run by a separate for profit auction company.  The process and things to know differ for these so I will address them separately here.

Regarding the county foreclosure auctions:  In the state of GA, these auctions are held on the 1st Tuesday of each month at the county courthouse for the county in which the property is located.  For example, in Cobb County GA, the auction would be at the courthouse in Marietta Square.  When buying a property at the county auction, buyers need to be aware of the following:

1. All sales are 100% cash only (no financing available) so if you plan to buy a 150K home, you must have a certified check for 150K in your pocket when you head out to the auction and pay immediately upon becoming the winning bidder.

2.  Many homes appear on the auction list right up until auction day and never actually get auctioned; so any work you do to investigate and examine a property prior to the auction date may be a complete waste of time and effort if the property you are seeking to purchase gets pulled from the list at the last minute as many do.

3.  All sales are completely as-is with no refunds or exchanges.  You have to buy the properties without even getting a chance to see them and assess the condition.  You can, of course drive by and see what you can from the outside; but you can’t get in to tour the home and you can’t do any formal inspections.

4.  When you purchase at the county auction, you inherit any liens that are on the property as well; so if the previous owner did not pay their property taxes for 5 years, you could be on the hook to pay that bill.  It is up to you as a buyer to do your own title work to make sure you know what liens you will need to pay off and account for them in your maximum bid price.

5.  If the home you purchase is still being occupied by the previous owner who has overstayed their welcome, it will be your responsibility to go through proper legal procedures to get the previous resident removed from the home.  This may require legal expense if you are not familiar with the process.

For the reasons above, many people; especially first time investors and owner occupant buyers find it impossible and/or undesirable to buy at the county auction.

The other type of auction is the 3rd party auction held by for profit auction companies like Auction.com.  Some of these auctions are held online and some are in person at a convention center or similar location.  The rules and fine print varies from auction company to auction company; but it is somewhat typical for them to have the following rules (though it is possible a particular companies rules will differ and I encourage you to check the web site for the sepcific auction company that you are considering purchasing from to find out what their rules are.  Nonetheless, most require:

1. Preregistration – you must sign up for the auction in advance and this sign up process sometimes requires a fee just to register.  Even if no fee is required, they likely will require submission of proof of funds or preapproval with an approved lender if financing before even allowing you to register.

2.  Many charge a premium on top of the price you bid (average of 5-7%); so if you bid 200K for a home, that will really likely require 210K – 214K to commence the deal when you add the buyer fee into the mix.

3.  Unless the auction is being presented as an “Absolute Auction”, the seller is not obligated to sell.  That means they essentially have a secret eBay style reserve price and if the proeprty doesn’t get bid up to that price or higher, they will not agree to sell to you even if you are the highest bidder.  They will not reimburse or compensate you for any time you or money you wasted registering for, traveling to, and attending the auction.

4.  Most homes sold at these auctions are sold as is with no refunds or exchanges or due diligence period.  You can, however usually get in to see the property prior to the auction at specified buyer viewing times.  However, inspections cost money so you either have to spend money on inspections, surveys, appraisals, etc. for a home you may not be able to buy or forfeit the ability to do such inspections.

Occasionally, people get some good deals at auctions; but before heading out thinking that it’s an easy path to a below market value home, you should take these things into consideration and make sure to ask the correct questions up front before signing up for a particular auction.

If you are set on going to an auction in spite of all of these risks, it is possible to have an agent represent you at many auctions provided that you initially register for the auction through your agent.  If you have interest in this, you can contact me and I will be glad to help you if the particular auction you are interested in allows for buyer agent representation.

Many of my clients with loans in process have been concerned about the government shut down and how it will impact their home loans.  I have checked with several lenders on this matter and here is what I was able to find out:

Conventional loans will likely not be impacted at all.  However, buyers who are purchasing with FHA loans, VA Loans or those purchasing a property that is owned by HUD, FDIC, the VA or other goverment agencies might expect some delays.

A short term shut down will have little to no effect on loans.  If the shut down extends beyond 10 days or so, it is more possible to experience some issues.  The most likely issues to come up will involve tax return verificaiton via the Internal Revenue Service, Social Security Number verification via the Social Security Administration and loans seeking assistance from government programs such as USDA loans.  It is my understanding that the Department of Vetrans Affairs will remain open and VA loans should not be impacted any more than non VA loans.  FHA loans will most likely remain as usual though it is possible to experience some delays as staff may be thinner than usual.  Another area that could impact loans is when a lender needs to get a flood certification as FEMA will likely be down as well.

Some lenders seem to be attempting to proactively come up with work arounds and will still close loans even without the ability to verify tax returns via the IRS, etc. provided other documentation is provided which gives them confidence the information provided is accurate and not falisfied in any way.

The bottom line is, the government shut down will not be good for any of us and the true fall out from it is somewhat unprecedented and, as usual, we will all need to be patient and work around the issues that it causes the best we can and expect a somewhat bumpy road as a result.

Note that if you are a government employee who has been furloughed, you will likely need to wait until the shut down has ended before your loan will be funded.

http://cartermachinery.com/company/construction-report/#georgia just released by Carter Machinery ranked Fulton County (Atlanta) the #2 county in the entire southeast states for new home building, as measured by residential building permits issued in the second quarter of 2013.

The report details the recovering housing market in the southeast, noting that new construction efforts increased 6.6% in Q2 in the southern region alone. Atlanta ranked twice in the top-10 list of counties, proving again that Atlanta is one of the largest housing markets currently in the United States. In the second quarter, Fulton County spent $469,140,679 on new residential construction, second only to the Tampa Bay region. Gwinett County also spent $186,846,953, and Cobb County $154,132,949.

These numbers are encouraging for prospective Atlanta homebuyers and business owners alike, since construction spending is a strong economic indicator of job growth and market demand. According to MetroStudy, another company that reports on market research, there were 3,714 new homes started in Atlanta in this period, nearly 77% more than the previous quarter–an unexpected jump that exceeded many experts’

estimates. With a limited supply of new homes and ever-heating demand, the city of “Hotatlanta” is truly living up to its name.

A model house on a pile of US currency. White background.

I am often asked by both buyers and sellers who is responsible for closing costs. There is a lot of misconception about this so I thought I would write this post to clear things up.

Firstly, it’s important to understand what closing costs are.  Closing costs are any costs associtated with closing a real estate transaction.  For the seller, the most significant of these costs would be the real estate commissions that the seller agreed to pay their listing broker.  For the buyer, these costs include the lender fees associated with obtaining financing, attorney fees for getting the sale closed and recorded properly as well as pre-paid items (i.e. first year of insurance premiums and prorated taxes and homeowner association dues).   For a more detailed explanation of what these closing costs are, you can read my other blog post about the costs themselves by clicking here

Technically speaking, the buyer’s closing costs are just that; the Buyer’s responsibility.  However,  since many buyers are cash poor at the time when buying their home and need all the cash they can scrape together to pay for their down payment and moving expenses, many buyers wish there were a way to finance those closing costs into their loan instead of having to write a check for all of that at closing in addition to their down payment, etc. There is no direct way to finance these costs. However, there is a very common work-around for that.  A buyer can effectively finance their closing costs by paying a little more for the home and having the Seller contribute money to pay for their closing costs as part of the deal and this is done more often than not; especially on lower end transactions (under 200K).

Since this is done so often, many buyers and sellers have come to believe that it is simply customary for these costs to be paid by the Seller and an assumption is often made incorrectly by buyers that the seller will automatically pick up the tab for the closing costs and by sellers that they will definitely have to factor in paying closing costs for the Buyer.

When an offer is made on a home, the seller will evaluate the entire package including purchase price and closing contribution as well as any other concessions and focus on the bottom line net price.  So, for example, an offer of $200,000 on a home that also asks for a $5,000 closing cost contribution is acutally going to net the seller (before commissions and other seller fees) only $195,000.  Therefore, it would be more favorable for a Seller to accept an offer of $198,000 with no seller concessions / closing cost contribution than it would be to accept on that has a price of $200,000 and asks for a $5,000 contribution from the seller.  In actuality, if a Seller agrees to a $200,000 price with a $5,000 closing cost contribution, then they also would have most certainly agreed to an offer of $195,000 that doesn’t have the additional concession request tied to it.

We tend to value homes based on sold comparables.  When looking at sold prices of homes, it’s important to also look at how much closing cost contribution the seller made to get a real feel of what the “effective” sale price was.  This is important for both Buyer and Seller.  Since most transactions do involve an average of 2% of purchase price in closing cost contribution, a Seller who sets their price based on comps should most likely expect to end up having to contribute those closing costs for the buyer as well if the neighbors who sold the comparables also did.

In a nut shell, the closing costs are technically the Buyer’s responsibility; but every Seller should expect that the offers they receive will most likely have a closing cost contribution request by the Buyer and in many cases, the Buyer will really need that to happen as part of the deal in order for them to have the cash necessary to get the deal closed.

Image courtesy of Arvind Balaraman / FeeDigitalPhotos.net

There is a bit of a misunderstanding among people about whether the buyer or the seller is respoinsible for certain closing costs.  Most (but not all) of the closing costs are officially the buyer’s responsibility in Georgia.  However, a large percentage of transactions close with the seller paying most or all of these costs.  This is because many buyers are cash strapped at the time of purchase; having to save as much cash as they can to cover their down payment, moving costs, and post-closing furniture purchases.  Therefore, it is very common for a buyer to make an offer on a home at a certain price but to include that as part of the deal, the seller must pay a certain amount towards the buyer’s closing costs.  So, even though the seller is technically paying these costs, it is important to understand that essentially what has happened is that the buyer has paid more for the home to have the sale cover their closing costs.  The seller negotiates based on their net; so a seller willing to sell a home for $500,000 and pay $10,000 towards the buyer’s closing costs as part of the deal would certainly have also agreed to sell for $490,000 if the buyer picked up the tab for their own closing costs.  Therefore, in that case, the buyer effectively paid $10,000 more for the home in order to get $10,000 of their closing costs covered.  In a sense, this is an indirect way of financing the closing costs instead of paying them in cash at closing.  The additional $10,000 loan amount will have a minimal impact on their moonthly payment and many buyers would rather have that additional cash flow in exchange for a slightly higher monthly payment.  It is also important to note that most loan products have limitations on the amount of seller paid costs are allowed and that is typically limited to 3% of the purchase price though it can vary.  Also, the home must appraise for the full purchase price; so bumping up the price to add a great deal of seller paid closing costs can increase the likelihood of having appraisal issues.

In part 2 of this post, I will outline what those costs are.  You can read that post by clicking this link:
Georgia Closing Cost Break Down

FILING FOR HOMESTEAD EXEMPTION IN 2013

Homeowners may need to provide their Warranty Deed book and page, proof of residence, social security numbers, driver’s license and car tag info. In most counties, to be eligible for the current year, you must have owned and occupied the property as of January 1st. If the property is located within city limits, the homeowner may be required to file with the city as well.

Cobb County – deadline is April 1, 2013 770-528-8600
http://www.cobbtax.org/Forms/HtmlFrame.aspx?mode=content/Exemptions.htm&LMparent=189

Cherokee County – deadline is April 1, 2013 678-493-6120
http://www.cherokeega.com/departments/department.cfm?displaySection=Homestead%20Exemptions.txt&de partmentid=30

Clayton County – deadline is April 1, 2013 770-477-3311
http://www.claytoncountyga.gov/departments/tax-assessor/residential-property.aspx

DeKalb County – deadline is April 1, 2013 404-298-4000
http://web.co.dekalb.ga.us/taxcommissioner/homesteadgen.html#applications

Douglas County – deadline is April 1, 2013 770-920-7272
http://www.douglastaxcommissioner.com/

Fulton County – deadline is April 1, 2013 404-612-6440
http://www.qpublic.net/ga/fulton/basic_homestead.html

Forsyth County – deadline is April 1, 2013 770-781-2106
http://www.qpublic.net/ga/forsyth/homestead.html

Fayette County – deadline is April 1, 2013 770-461-3652
http://www.fayettecountyga.gov/tax_commissioner/index.htm

Gwinnett County – deadline is April 1, 2013 770-822-8800
http://gwinnetttaxcommissioner.manatron.com/Tabs/Property/HomesteadExemption.aspx

Henry County – deadline is April 1, 2013 770-288-8180
http://www.co.henry.ga.us/taxcommissioner/PropertyTaxExemptions.shtml

Paulding County – deadline is April 1, 2013 770-443-7606
http://www.paulding.gov/index.aspx?NID=210

Homestead Exemption

Generally, a homeowner is entitled to a homestead exemption on their home and land underneath provided the home was owned by the homeowner and was their legal residence as of January 1 of the taxable year. (O.C.G.A. § 48-5-40)

Application for Homestead Exemption

To be granted a homestead exemption, a person must actually occupy the home, and the home is considered their legal residence for all purposes. Persons that are away from their home because of health reasons will not be denied homestead exemption. A family member or friend can notify the tax receiver or tax commissioner and the homestead exemption will be granted. (O.C.G.A. §48-5-40)

Failure to apply by the deadline will result in loss of the exemption for that year. (O.C.G.A. § 48-5-45)

Exemptions Offered by the State and Counties

The State of Georgia offers homestead exemptions to all qualifying homeowners. In some counties they have increased the amounts of their homestead exemptions by local legislation above the amounts offered by the State. As a general rule the exemptions offered by the county are more beneficial to the homeowner. https://etax.dor.ga.gov/ptd/adm/taxguide/exempt/homestead.aspx

I am often asked for an expectation of closing costs.  Closing costs will vary slightly depending on which attorney is conducting the closing and what loan product, if any is being used to obtain financing.  Furthermore, taxes and homeowner association dues will be settled up on a prorated basis based on the exact closing date.  This can be a credit or debit for either buyer or seller side depending on what time of year it is and whether the seller has paid their current year bill in advance or not.

Nonetheless, the following should be useful in estimating what your costs will likely be:

 

Items on every sale (even Cash sales)

Transfer Tax – This is a tax charged by the state for the transfer of the deed.  It uses a convoluded formula that charges a different rate for the first $1,000 than it does for the rest.  My guess is this law and rate was established in pre civil war times when it was realistic to have homes sell for under $1,000.  However, to keep things simple it is safe to consider this fee to simply be $1 per $1,000 of purchase price (i.e. $500 on a $500,000 sale).    It is rather interesting that the state tax web site indicates that this fee shall be paid by the seller of the property unless otherwise agreed to in the contract (See the GA Tax Guide); yet the standard GA state contract states that the buyer shall pay this fee.  Since I typically utilize the GAR contract, the buyer does typically pay this fee.

Closing Attorney Fees  – Range from $300 – $500 depending on attorney

Title Insurance – There are 2 kinds of title insurance: Lender’s title insurance is required to be paid when there is financing involved.  This insurance protects the lender’s interest in the property. There is also Owner’s title insurance which protects the owner’s equity in the property.  In Georgia, owner’s title insurance is optional but it is highly recommended that the buyer obtain it.  The fees for these fluctuate and may vary between attorneys who essentially act as resellers for these policies.  However, a ballpark figure to use is approximately $250 per $100,000 in home price for both lender’s and owner’s policies combined.  In a cash transaction, there is 100% equity; so there will not be any lender’s title insurance but the owner’s policy will be higher due to the increased equity that is being insured on behalf of the owner.  This fee is paid one time and will remain on the property for as long as you own it even if you subsequently refinance.

Real Estate Commissions – Typically paid entirely by the seller.  This fee is negotiated between the seller and their listing agent in their listing agreement for the property though they are most commonly 6% of the purchase price.

Title Search – Approximately $150. Required for financed transactions.  Optional on cash transactions but will be required if owner’s title insurance is obtained.

Hazzard Insurance – this will be required when a loan is involved and highly recommended even for a cash buyer.  The fee will vary a great deal depending on the type of property (investment homes may be higher than owner occupied, etc.), the size and location of the property.  Typically, I have seen an average of approximately $800/year for this but the buyer would have to contact their insurance provider to get a quote for a particular property.

Items only charged when financing is involved

Loan Origination Fee and other lender fees – this is a form of “commission” that the lender charges to facilitate the loan. Some loan products do not have this fee and others do.  A good faith estimate from the lender should indicate what lender fees including origination fee will be charged.  Other lender fees that sometimes show up are application fees, processing fees, etc.

Appraisal – Required when financing is involved and optional on cash purchases.  Typically around $400.  Most lenders require this fee to be paid up front at the time of loan application though it is still considered a closing cost.

Flood Certification  – Fee to verify if the home is in a flood zone. Averages $100.  Only required when financing is involved.

Completely Optional Expenses

Home Inspection – Approximately $400 average fee – Paid at time of inspection directly to the inspector.

Survey – Approximately $450

Termite Inspection / Bond – Inspection is typically Free or $75 Max.  Bond will vary but typically between $400 – 1,000.

Home Warranty – typically approximately $400

It is important to note that in addition to the above fees, the Seller will be required to pay any back taxes or homeowner association dues.  Some attorneys and lenders will charge both buyer and seller some small junk fees like mail out fees, etc. but these are typically only $10 – $25 each.  It is unfortunately not possible to know exactly what all of these fees will be in advance of seeing the settlement statement but if both buyer and seller budget for an additional $100 padding they should be fairly on target.

Prepaid / Prorations

In addition to the above fees, buyer and seller will settle up current year property taxes and homeowner association dues.  If the seller has paid the current year amount in full then the buyer will be debited an amount to reimburse the seller for the portion of the year that the new buyer will own the property.  If the seller has not paid yet, then the seller gives a credit to the buyer for their portion of the year of ownership and the buyer will then be responsible for the full bill when it becomes due.

If a loan is involved, it is common for the lender to require the buyer to pay additional money to start off an escrow account to ensure that by the end of the year, there will be enough in the escrow account to cover property taxes.  There is a complicated formula that indicates how much can and should be collected based on the closing date.

They say history has a tendency to repeat itself.  I believe that to be true in the housing market as well.  For the past several years, I have watched homes sell in my market (Atlanta Metro Area) for prices that I have always considered way under valued.  Atlanta has been on the hot list of cities with the most foreclosures and the most loss of value percentage-wise.  However, the interesting thing is, Atlanta always was a bargain compared to other cities of similar size.  With few exceptions for certain urban neighborhoods, home prices have always remained affordable and when other areas like NY, California and Florida were experiencing tripple digit increases in price each year in an unsustainable house of cards, metro Atlanta homes were only appreciating at a very sustainable rate of 4-5% per yer when the market was healthy.  Even in the peak of the market, a middle class family could purchase a decent 4 bedroom home (2400 SF or so) in a respectable suburban neighborhood with good schools, good access to highways and reasonable proximity to the city (15 miles away or so) for under 200K.  I was always shocked when I watch the TV shows on HGTV and other networks showing a 2 bedroom 1 bath bungalow in California going for 800K and I asked myself, how can normal people afford to live there?  Somehow, I always took comfort in knowing that in my city, the cost of living housing-wise was very reasonable and there was a good quality of life for a middle class family.

Image Courtesy of Njaj / FreeDigitalPhotos.net

When the market began to decline and foreclosures started to rise, I honestly felt immune as I watched the initial stories on the Internet talking about home prices falling by 20% and more, etc.  To me, it seemed like that was happening because the original price was unsustainably high and since I lived somewhere that didn’t have such high prices to begin with that we would not see the kind of decline that those other overpriced cities saw.  Admittedly, I was wrong.  I learned the hard way that an economic crisis like that ripples through the entire country.  Also, I learned that since Atlanta was one of only a few non judicial foreclosure states, that we were topping the list of foreclosures.  Also, mortgage fraud was rampant here; primarly because of the extreme growth in the 90′s that caused really nice renovated homes and new construction McMansions to be located right next to old and neglected homes which enabled unscrupulous people to utilize that to jack up appraisals to commit fraud with lenders, etc.
As I watched what was already a reasonably priced home fall in value to levels that were too low to believe, it dawned on me that this can’t continue forever.  I also watched as buyers sat on the sidelines trying to time the market and wait for the bottom.  The cycle was obvious to me but frustrating that very few others seemed to see what was going on:  the evening news would run stories about home prices falling; putting extreme fear into people so that even with low prices and low interest rates (and even with a home buyer tax credit too) many were still continuing to rent and sit on the sidelines for fear that what they buy today will lose value.  I knew that at some point, the foreclosure inventory would slow down, the news would finally print the first stories of recovery – indicating that home prices have once again started to rise and it would be at that moment that everyone would want to buy and get in on the deals before it’s too late.  The problem is, by the time the news announces the time is right then the ship has sailed and it’s too late to get in.
Now, we are at that point.  I constantly see clients and friends who have tried to wait for the perfect timing completely miss the boat.  It is happening today in the lower end of the market especially that demand is WAY up and supply is way down.  We have shifted to an extreme seller’s market by definition and homes are selling fast.  It’s virtually impossible to put an offer on a home that is under 200K in my market without facing a multiple offer situation and bidding war.  Prices are still low compared to their peak highs; but they are heading up rapidly now and many are still thinking that it’s business as usual and wondering why they keep putting offers on homes and not getting them.
The concern now is that it’s unhealthy for the market to increase at too quick of a rate.  It seems that we are at the begining of yet another bubble.  My prediction is prices will rise and once momentum gets underway, they will rise even faster; potentially causing a second bubble.  Though there are some wild cards at this point which could prevent this from happening:
1.  Much of the increased demand is from investors who are buying up property for rental income and long term gains and that can go away overnight leaving a demand void.
2.  The appraisal process will likely have some influence on keeping prices in check.
3.  The overall economic climate is still very unstable and until unemployment goes back down and job security increases that may keep prices in check somewhat as well.
Still, the potential is there for yet another bubble.