Buying a home is one of life’s most important emotional and financial investments and exciting adventures, but even experienced buyers can find this complex process a bit overwhelming. Real-estate expert Milana Ostroy of Milana Ostroy & Associates Real Estate Broker, GRI, CLHMS, has provided the following information for home buyers in the Bay Area. Ostroy is a Fine Homes and Certified Luxury Home Marketing Specialist focusing on properties around the Peninsula and the San Francisco area. She is recognized locally among clients and peers and internationally by Who’s Who of Luxury Real Estate.

Finding the Right Home

In order to assist in finding the right home for her clients, Ostroy has developed a Home Preferences Worksheet that helps define a home buyer’s needs and wants. She prefaces the worksheet with an understanding that while a house may be modified location can never be changed. Therefore her first priority is to identify preferred and ideal locations based on the buyer needs, social activities, job location, and lifestyle preference. Once targeted locations are identified then it is important to define living needs within the house and the “style” of the buyer. 

For example, how many bedrooms and bathrooms are needed and are there any special features requested such as ample kitchen island or a separate master suite? What about the importance of having a family room or backyard? Are there preferences for the kitchen, such as gourmet features with top-of-the-line equipment or will a functional kitchen be acceptable? What architectural and aesthetic preferences are important – single level, multilevel, traditional or contemporary, bold and modern or warm and rustic? What about a swimming pool, a view or a big yard – are any of these items a priority? If so, your agent will need to know. A discussion about location or proximity to certain facilities and amenities is also an important conversation as it will influence a family’s opinion of a property.

Unless you are building your dream home from the ground up, there are often compromises involved in deciding whether or not you will be satisfied with a given property. However, the more your real estate agent knows about your preferences, needs and priorities, the better able she or he will be to get you more of what you want.

Understanding the Asking Price

The asking price otherwise known as the listing price is usually determined by comparable sales in the area and the seller desires. When buying it is vital to have an expert like Milana Ostroy negotiating on your behalf to get you the best possible price for the home of your choice. Here is information regarding the factors that impact how much you should consider paying for the home, such as:

• The prices for other comparable homes in the area

• If there are multiple offers

• How long the home has been on the market

• If the price has been reduced

• Other items that might be included in the sale - furniture, hot tub, etc.

• The "list to sale price ratio," an indication of how competitive the market is for homes in this area

• Why the seller is selling

• Whether the seller is offering an assumable loan or financing

Once educated by seeing viewing homes and learning from the expertise of their agent, they will determine a price that they are willing to pay based on the following factors:

• Price – determined by the buyer according to comparables to determine fair market value and what the buyer is willing to pay

• Condition – whether the buyer requires repairs, cleaning or replacing

• Terms – whether or not to inspect the property and if so what kind of inspections, whether or not to take the property in “as is” condition, how quickly to close on the property, what the initial deposit should be, how much down payment will be applied, who should pay for the home warranty and other factors.

Keep in mind…

Other factors that influence the price of a home:

• Current real estate market

• Lot size, square footage, condition of home

• Location of the home

• Special amenities and upgrades

• Prices of nearby comparable homes

• What is currently active in the market

• How much inventory is available in the market

• Interest rates and other lending options

Factors that don’t affect the home’s price:

• Profit/savings the seller wants to make from the sale

• Money spent by Seller on improvements

• What other sources have said the home is worth

• What the seller originally paid for the home

Negotiating the Offer and Contract

You may make your offer subject to certain terms or contingencies, including securing of financing or perhaps the sale of your current home. You may also make the contract subject to various inspections by both you and professional inspectors. Most contracts include some standard provisions, such as property taxes, insurance costs, utility bills and

special assessments that will be prorated between buyer and seller. Contracts can also outline what happens if the property is damaged before closing, or if either party fails to go through with the sale. Your agent will review every aspect of your offer and contract with you. Together, the agent and the buyer will plan a strategy for getting the most advantageous terms for the buyer, at the right price. Representation by a professional, licensed agent and skilled negotiator is key to achieving a successful sale with favorable terms and not a penny more than you need to spend.

The most important negotiable terms include: Price, Initial Contract Deposit, Property Inspection Contingency, Pest Inspection Contingency, Financing Contingency, Home Warranty Policy, As-Is Clause, and Close of Escrow Date.

Inspections

Real estate contracts often contain contingency clauses that allow buyers to inspect the property. Buyers are advised to do their own diligence and their own inspections to satisfy their knowledge of the condition of the home. Certain inspections are required by lenders and others are a matter of observation and what is particular to a region or area. In the San Francisco bay area, most properties listed have the Seller’s inspections already conducted. If the buyer is satisfied with the Seller Provided inspection they may opt not to do their own. However, California law and real estate professionals do advise that the buyers do their own inspections.. The two most common types of inspections are:

• Wood Destroying Pest and Organisms (Termite) Inspection

This inspection identifies existing or potential pest, dry rot, fungus and other structure-threatening infestation or conditions. The initial inspection fee covers only those areas that are accessible to the inspector. Inspections of inaccessible areas cost more and are subject to an estimate by the inspector. These inspectors must be licensed and can give estimates to correct noted problems, can make the suggested repairs and/or can certify that the work has been completed.

• General House Inspection

This inspection identifies the condition of all the main components of the home and the material defects observed at the property based upon a noninvasive physical inspection. There are no licensing requirements for someone to be a home inspector. These inspectors are not allowed to give estimates to correct noted problems, nor can the inspector perform any of the repairs.

Preparing for Home Acquisition: The Closing Costs & Who Pays for What

A home purchase is a complex transaction involving many parties and associated fees. In addition to your deposit and down payment, there are a variety of other costs involved in the close of escrow:

• Loan origination fees, appraisals and reports

• Surveys and inspections subject to buyer discretion

• Mortgage insurance if required by lender

• Hazard insurance if required by lender

• Taxes (prorated between buyer and seller)

• Assessments (if required by a Homeowners Association)

• Title insurance,

• Escrow Fees (including recording fees, notary fees)

The lender and the escrow company will provide a good faith estimate of these costs prior to the close of escrow, so that you will know in advance what to expect. Generally financed transactions closing costs are between 2 percent and 3 percent of the purchase price. Typically, the agent will walk through each item in the closing with the buyer to ensure every detail is understood.

Real Estate and Financing Go Hand and Hand

Determining How Much You Can Afford

It’s best to determine how much you want to spend on a home before you begin looking. The important distinction to understand in this confusing part of the real estate process is that you determine how much you can afford based on the summation of the monthly mortgage payment you are comfortable making and the amount of down payment you can comfortably pay.  For example, let’s say Susan can afford $5,000 for monthly mortgage and has $150,000 for down payment. Let’s also say that interest rates  (or the cost of borrowing money) is about 6 percent. As a quick estimate, if the interest rates are 6 percent that means that it would cost $600/month to borrow $100,000. To calculate how much that monthly payment wuld buy you in the form of a mortgage you would divide $5,000 / $600 which equals 8.3. This means that you can afford to borrow $833,000. Then you add your down payment $833,000 (loan amount) + down payment of $150,000 means your total purchase price comfortable is approximately $983,000.  Based on your desired payment level and type of financing you prefer, it’s possible to determine your purchasing power.

A bank or other lender will be able to show you a variety of different types of financing programs that will each offer different lending conditions and interest rates (fixed rate, adjustable and interest only).

Getting Your Loan Preapproval Process Underway

Being preapproved by a lender can put you in a much stronger negotiating position because it shows the seller that you are a qualified, ready to buy buyer, financially capable of buying the property and more likely to close on the property. Getting preapproved also allows you to understand your financial condition and how much you can afford before you begin your home search. Preapproval is different from prequalification, which is merely an estimate of what you may be able to afford. Pre-approval occurs when the lender has reviewed your credit and believes that you can finance a home up to a specific amount based on collected preliminary information. However, neither preapproval nor prequalification represents or implies a commitment on the part of a lender to actually fund a loan. Here are some of the current documents you’ll need to get started:

Income

• Current pay stubs

• W-2s or 1099s

• Tax returns, usually for two years

Assets

• Bank statements

• Investments/brokerage firm statements

• Net worth of businesses owned (if applicable)

Debts

• Credit card statements

• Loan statements

• Alimony/child support payments (if applicable)

Navigating the Financing Process

The financing process can take anywhere from 15 to 45 days, but typically runs 30 days. Your agent should be involved throughout the process to help it run smoothly. The basic timeline for what will happen along the way is as follows:

• You submit the completed 1003 application and any required supporting documentation to the lender;

• The lender orders an appraisal of the property, a credit report and begins verifying your

employment and assets;

• The lender provides a good faith estimate of closing and related costs, plus initial Truth in Lending disclosures;

• The lender evaluates the application and your supporting documents, approves the loan and issues a letter of commitment;

• You sign the closing loan documents and the loan is funded;

• The lender sends its funds to escrow; and

• All appropriate documents are recorded at the County Recorder’s Office, the seller is paid, and the title to the home is yours.