OUR MISSION Thank you for this opportunity to work with you. As your Realtor my job is to guide you through the home buying process from beginning to end. When you have a question of any kind such as “what is escrow?” or “when do I get my keys?” – I will answer, or I will find the answer, to the very best of my ability. I am a licensed, skilled professional here to serve your needs. My goal is to take what can be an intimidating, unfamiliar process and make it enjoyable and rewarding. This is a milestone and likely the largest purchase of your life. I am excited to get started, and look forward to the road ahead. We, the Tracy Do Team, have prepared this handbook to help familiarize you with some of the common terms that you are likely to encounter, as well as to provide you with an overview of both the process and components of the successful partnership that we will share. Please feel free to contact me at any time should you wish to explore some of these items in further detail.
OUR RELATIONSHIP My duty to you: As a Realtor, I am obligated to act at all times with your best interests in mind and to exercise the utmost care in representing you. I am a member in excellent standing with both the California Association of Realtors and the National Association of Realtors and am required to abide by a strict Code of Ethics providing you with the highest level of service, integrity, honesty and professionalism. By contrast, those who simply identify themselves as “real estate agents” are not bound to such conduct. Your duty to me: Much of my work is done at my desk or in the field, preparing for the time we spend together. That includes researching and previewing homes that meet your criteria, coordinating private showings of the best prospects and networking with fellow Realtors to find homes that might be “off market” but available. I am consistently evaluating recent sales data so to better help you write a successful offer, and I can assist in your preparations to obtain mortgage financing. I will invest a substantial amount of time and effort, remaining loyal to this search until it is complete. In return I hope you will also be loyal, and ask that you communicate any concerns you might have so that I may promptly address them. It is likely that you will independently come across homes that interest you, either driving around, following an “open house” sign or discovering something online. Be sure to introduce yourself and let the hosting agent know that you are working with me, keeping in mind that hosts at open houses work for the seller and represent their interests. Having your own representation is an expected and important part of this process. How do I get paid? Very few Realtors are paid a traditional salary. The majority of Realtors, myself included, work on commission meaning that I am paid when, and only when, you have closed escrow and become the owner of your new home. All of the services that I provide to that point, regardless of how many homes we see and how many offers we write, are uncompensated. Commissions are traditionally paid to buyer’s agents out of the seller’s proceeds at the very end of the process, and at no cost to the buyer.
PRIOR TO MAKING AN OFFER Finding your perfect home is only one part of the buying process. Now we need to make it yours! In order to take the all-important step of writing an offer, buyers should first be preapproved by a reputable lender. A PREAPPROVAL LETTER confirms that you are qualified to purchase a home in the desired price range, and provides both you and the seller with peace of mind that you are a real buyer who has done their homework in advance. I maintain a network of contacts with local mortgage brokers and financial institutions whose services, rates, and products have proven to be exceptional. I am happy to refer you to one if it appears to be a good fit. After reviewing your income, credit and assets, the lender will provide us with a preapproval letter which will be submitted along with our offer to purchase. Some sellers also ask to see PROOF OF FUNDS with the offer, which is a bank statement showing a balance that covers the down payment you plan to make. It is also important to ensure that 3% of the purchase price is liquid and ready to be delivered as a deposit, should our offer be accepted. This EARNEST MONEY DEPOSIT is part of your down payment and will be held by the ESCROW COMPANY, a neutral third-party licensed by the state of California to manage the transfer of funds and facilitate a smooth transaction. Should you choose not to proceed with the transaction due to inspection or loan issues -- and you cancel the transaction within an agreedupon period – then the earnest money deposit is returned to you. With your preapproval letter and deposit ready to go, let’s write the offer!
MAKING THE OFFER The most important points of an offer include: • • • • • •
Purchase price offered. Length of escrow period, ie. the time until the home is yours (typically 45 days). Percent of down payment. Length of inspection contingency period (typically 7-14 days from the date your offer is accepted). Length of loan/appraisal contingency period (typically 17 days from the date your offer is accepted). Any items we are requesting that seller provide with the home (washer/dryer, stove, refrigerator, etc.).
It is my job to ascertain the amount of time that the home has been on the market, which might have some impact on our approach with your offer. I will also determine whether or not we will be competing with other buyers for the home. With these facts in mind, I am able to advise you on how best to structure your offer and gain an acceptance. It is important to know that sellers can also reject an offer outright or provide you with a counteroffer if you have not met their needs in the initial offer. No agreement is binding without a signed acceptance from both parties, and you have no commitment to the home until you have signed off on all of your contingencies (see next section).
LIFECYCLE OF A TYPICAL 45-DAY ESCROW Day 1 • • • •
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Offer accepted by seller. Buyer’s deposit wired to escrow company. Buyer’s agent delivers signed offer to escrow company and lender. Escrow writes “escrow instructions” outlining the agreed upon terms of our offer, orders state-mandated reports, and sends a package to both buyer and seller for review and signature. Lender locks in the rate for your loan and orders an appraisal of the home.
Day 1 - 13 Prepare and coordinate INSPECTIONS. I strongly recommend that you obtain a general inspection of the home as soon as possible after acceptance of your offer. Prices for inspections vary; my experience is that the expense is well worth it. In addition, you may wish to employ the services of specialists to examine particular areas in greater depth, such as a termite inspection, sewer line inspeciton, roof, etc., as needed. Receive and review state-mandated DISCLOSURES from seller. These include any known defects in the home’s operating systems, environmental hazards, issues in the surrounding neighborhood and/or any other items that may be of material interest to a prospective buyer. These disclosures should never take the place of our own inspections, and are completed only to the “best of the seller’s knowledge.” Day 14 Sign off or “remove” INSPECTION CONTINGENCY, indicating that we are pleased with our investigation and wish to proceed with the purchase. At this time, we may also exercise the option of requesting that the seller corrects or credits you for any deficiencies that have been found, though seller is not obligated to do either.
Day 21 After confirming with your lender that there are no unforeseen circumstances that could affect your loan, and that the home has appraised at the price in your offer, you will
remove your LOAN/APPRAISAL CONTINGENCY. This is the last contingency in your offer, and the “no-turning-back” point of the process. Day 22 - 39 This is the time when your lender is finalizing the particulars of your loan and working with the escrow company to coordinate paperwork and funding requirements so that you can close escrow. At this time, you will need to provide evidence of HOMEOWNER’S INSURANCE to the escrow company and prepare to WIRE THE BALANCE of your down payment plus CLOSING COSTS. Closing costs average approximately 2% of the purchase price of the home, and include the fees you pay to the lender, escrow, and title company. Day 40 Perform the FINAL WALK-THROUGH of the home to ensure that it is in acceptable condition and that any repairs that were requested and agreed upon have been completed. The escrow company will make an appointment with you to sign your LOAN PAPERWORK, and will ask you to deliver the balance of your down payment and closing costs, generally done by wire transfer. Day 45 The escrow company receives your final funds as the funds from your lender, and works with the title company to RECORD the home in your name. Congratulations! You are now a HOMEOWNER and will promptly receive your keys!
REAL ESTATE JARGON 101 acceptance A seller’s consent to enter into a contract and be bound by the terms of the offer. adjustable rate mortgage (ARM) A mortgage loan whose interest rate fluctuates according to the movements of an assigned index or a designated market indicator, such as the weekly average of one-year U.S. Treasury Bills, over the life of the loan. To avoid constant and drastic fluctuations, ARMs typically limit how often and by how much the interest rate can vary. agency The legal relationship between a buyer or seller and his/her agent. amendment A modification to an existing contract, mutually agreed to by all parties, and executed by the escrow company. Examples include a change in the closing date or any repair credits negotiated after the inspection. appraisal A determination of the value of real property. A professional appraiser -- ie. a qualified, disinterested expert -- makes an estimate by examining the property and comparing it with recent sales of similar homes. Your lender will typically arrange the appraisal to ensure the home is valued at the purchase price agreed upon. asking (list) price The price placed on a property for sale. assessor A local government official who determines a property’s value for taxation purposes. brokerage
The company that agents work for. Examples include Coldwell Banker, Sotheby’s, and my brokerage, Compass. I can, and often do, sell homes listed with another brokerage – the brokerage of the listing agent. closing The conclusion of the sales transaction when the seller transfers title to the buyer. closing costs Costs the buyer must pay at the time of the closing in addition to the down payment. These may include lender fees or points, title fees and escrow company fees. A good rule of thumb for calculating closing costs is 2% of the purchase price. closing statement A detailed written summary of a real estate transaction, showing all charges and credits made, and all cash received and paid out. commission The compensation paid to a licensed real estate broker or by the broker to the salesperson for services rendered. Usually a percentage of the selling price of the property. comparables a.k.a. “comps” Properties which are similar to a particular property and are used to compare and establish a value for that property. contingency A provision in a contract stating that some or all of the terms of the contract will be altered or voided by the occurrence of a specific event. A typical offer will include an inspection contingency, as well as a loan/appraisal contingency. counter offer The rejection of an offer to buy or sell that simultaneously makes a different offer, changing the terms in some way. A counter offer can address price or terms -- anything from the closing date to possession of the refrigerator. Counter offers to multiple buyers competing for the same home are not necessarily the same. covenants, conditions & restrictions (CC&Rs)
Rules governing the use of condominiums, usually enforced by a homeowner’s association. CC&Rs typically address monthly dues, whether pets are allowed, etc. deed A written instrument by which title to land is conveyed. disclosures During the inspection period, sellers are obligated to provide to buyers with disclosures addressing physical defects, environmental hazards and neighborhood nuisances, to the best of their knowledge. For Sale By Owner (FSBO) An individual homeowner who is attempting to sell his/her property without a real estate broker. in foreclosure A legal process instituted by a lender after the owner’s default. Foreclosed-upon homes are also known as “bank-owned” or “REO” (Real Estate Owned) properties. home warranty A service contract typically paid by seller and provided to buyers in a standard sale that covers the major systems and appliances for one year from the date a house is sold. leaseback A scenario in which a buyer closes escrow on a home but allows the seller to remain in possession for a fixed period of time, typically 30-45 days after closing. During this period, the seller is “leasing” the home from the buyer at an agreed-upon price, and the buyer acts as landlord. market value The price that a willing buyer and a willing seller, both given full information, and neither under pressure to act, would agree upon. mediation
A dispute resolution method designed to help warring parties resolve their dispute without going to court. In mediation, a neutral third-party meets with the opposing sides to help them find a mutually satisfactory solution. mortgage broker A person or company having contacts with financial institutions or individuals wishing to invest in mortgages. Mortgage brokers “shop” different banks to find you the best rates and terms on your loan, whereas banks like Bank of America and Wells Fargo do not. Banks market their own products exclusively. Multiple Listing Service (MLS) An online, members-only website by which a number of real estate firms share information about homes that are for sale. I typically provide buyers with access to the MLS so they are made aware of new listings that fit their criteria as soon as they become available. multiples When a home is “in multiples,” it means that the seller has received offers from more than one prospective buyer. This indicates that the home is highly sought-after and is likely to sell for more than the asking price. NHD (Natural Hazard Disclosure) A required report paid for by the seller and provided to the buyer with other disclosures. The NHD includes information regarding any fault lines, flood zones, fire severity zones, and industrial use zones within the home’s immediate vicinity. open house An opportunity for prospective buyers to view a house in a low-pressure environment. PITI Principal, Interest, Taxes and Insurance, which comprise a buyer’s monthly payment. property taxes Taxes that are paid annually in two installments on real property. Property taxes are “ad valorem,” based on the assessed value of the real property. Annual taxes are currently 1.25% in Los Angeles county.
prorate To divide or distribute proportionally. At closing, various expenses such as taxes, insurance, and interest are prorated by the escrow company between seller and buyer. REALTOR® A special designation for a real estate associate who holds active membership in a local real estate board affiliated with the NATIONAL ASSOCIATION OF REALTORS®. Not to be confused with a “real estate agent”, who has no obligation to abide by the Board’s strict Code of Ethics. recording The act of entering in the public records the written record of title to real property. rent control Laws that limit the amount of rent that landlords may charge, and that state when and by how much the rent can be raised. Most rent control laws also require a landlord to provide a good reason, such as repeatedly late rent, for evicting a tenant. Many communities in Los Angeles county are subject to rent control provisions. If you are purchasing an income property, it is imperative to investigate local laws that may impact your investment. retrofitting Los Angeles county requires that all homes sold be retrofitted with low flow toilets, gas shut-off valves, water heater bracing, as well as smoke detectors in all hallways and sleeping areas prior to closing. It is customary in standard transactions for the seller to complete the work required and submit evidence of “certification” to the escrow company. short sale A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what they owe. Short sales do have negative impact on the owner/sellers credit. “third party” real estate websites
Zillow, Redfin, Realtor.com, etc. Places where buyers and sellers often search for inventory, comparables and other information – which is aggregated from the MLS and various government databases. time is of the essence A clause which makes failure to perform by a specified date a material breach or violation of the contract. Purchase agreements in LA contain strict timelines which good agents will monitor closely to ensure that all agreed-upon deadlines are met. title The right of ownership of a property. title company A company that provides title insurance policies. Title companies conduct title searches ensuring that no one else has any right or claim to the home being purchased. title insurance Protection for lenders or homeowners against financial loss resulting from legal defects in the title. title search Checks all the records relating to the property to determine whether the seller can sell the property, and can do so free of liens. underwriting The process of verifying data and approving a loan. unpermitted Additions or modifications to a home made without the benefit of a permit, such as a converted garage. Though common, these structures or improvements may not be in compliance with current building codes. walk-through A buyer’s onsite inspection of the property being purchased, just prior to closing, in order to ensure the home is in substantially the same condition.