We’ve written extensively on the tax credit available for first-time homebuyers (a restriction that may get lifted).

In many private conversations I’ve had, the general consensus has been that this tax credit hasn’t had much impact, that people really don’t care, that first-time home buyers aren’t buying that many homes, even that people are not aware of the credit.

Personally, we have yet to have a potential home buyer say, “The only reason we are buying now because of this tax credit”. (And that’s a good thing, as it is a horrible reason to buy if that’s the only reason you are buying.)

But that doesn’t mean the tax credit is not a factor. Many of our buyers mention it as one of several reasons they are buying; including the tax credit with things like historically low interest rates, low home prices, “good deals”, and the age-old “I’m tired of renting”.

Are people aware of the tax credit? Is there interest in it?

I’ll let the statistics for this blog speak. You tell me. Here are the top 25 search terms people used to find this blog last week.

18 of the top 25 search terms used last week were related to the $15,000 home buyer tax credit (a total of 1,416 visits).  Granted, these top 25 searches only account for 1,730 of the 12,058 visits here last week, but the point is people are looking for information on the tax credit, and presumably some fraction of those are acting on that information. For how many the tax credit is a major factor in actually deciding to purchase a home is the big question that can’t really be answered.

For the statistically obsessed, there were 8,210 visits here last week from search engines – and 5,096 search terms were used. That’s a testament to the “Long Tail” of search. (And if you care, 7,229 of those 8,210 searches were done on Google – a testament to the fact that Google is taking over the world.)

A total of 2,975 visitors using a search term that included “tax credit” stopped by last week – that would be 24% of the visitors to this site.

Since the tax credits were first discussed back in February of this year 31,168 searchers using 11,637 different terms including the words “tax credit” have visited Phoenix Real Estate Guy.

True, 31,000 people isn’t a lot compared to the general home buying population of the U.S. But this is just one insignificant spot on the vast, world wide even, web. If there are 31,000 people looking for information here, how many more are looking elsewhere?

Trulia Voices, a conglomeration of Q&As from real estate consumers and frequent shameless grovelings by real estate agents is often a source of amusement, frustration and head scratching.

It’s also frequently provides insight into the minds of home buyers, sellers and real estate agents.

Here was a recent question from “Todd”, a “Home Buyer in Arizona”:

I am trying to buy a house from a FSBO and we have agreed on a price and agreed to buy as is. After an inspection, I don’t want to pay that much can I send an addendum to see if they will lower the price or should I cancel the contract and then send a new contract for the lower price taking into account the inspection items? Thanks.

It would appear Todd is an “unrepresented buyer” — meaning he has decided to not use the services of a real estate agent. And Todd is attempting to buy a home from an “unrepresented seller”, a “FSBO” — For Sale By Owner.

So we have both sides of a real estate transaction going it alone, both deciding for whatever reason that they do not need the services of a real estate professional.

I do find it curious that Todd, who ventured off on his own, is now seeking free advice from real estate professionals as he finds his real estate deal beginning to swirl down the drain.

The problem is, no matter how many agents think (for whatever bizarre reason) that they will somehow secure Todd’s business, no one can possibly answer his question.

Why? Because we haven’t seen the contract between these unrepresented parties.

Oh, several agents have answered assuming the standard Arizona Association of Realtors Residential Resale contract was used. An interesting assumption given that no Realtors are involved in the transaction. Even more interesting when one considers that anything in the AAR contract form can be modified.

Did Todd and Mr./Ms. FSBO take a quick trip to OfficeMax and pick up a “real estate contract”? Maybe they went online and found one. Maybe they wrote their own contract on the back of a napkin.

We don’t know what is in this contract. Therefore there is no possible way to give Todd the free advice he so desperately seeks.

There are a few things we can glean from Todd’s situation:

You agreed to buy a home in “as is” condition — now you are finding “as is” means “needs repairs”. This should not have been a surprise.

You are now considering re-negotiating, or possibly canceling a contract. Contracts are, well, they are contracts. They generally aren’t designed to just be canceled on a whim. Often you can’t “just cancel” a contract.

My favorite part of this question is, “…and then send a new contract for the lower price…” You can’t just send a new CONTRACT for a lower price. You can send a new OFFER, which Mr/Ms FSBO can then soundly reject (and likely would — why enter into a contract with the same guy who bailed on your previous contract?).

Todd is frustrated. He may even be concerned, asking himself, “What am I going to do? Am I going to be stuck in this thing and get a home I don’t want?”

I feel bad for Todd. I really do. Buying a home is a lengthy, involved process jam-packed with potential pitfalls. It’s not a process most people go through on anything close to a regular basis.

What I can’t understand is why Todd decided to go through the home buying process alone. Yeah, of course I am biased, I’m a real estate broker for Pete’s sake. But honestly, I see things like this all the time. People come through this very blog all the time, with questions, and with very valid and deep concerns. I know Realtors are a group that many love to hate. Part of that we’ve brought on ourselves. Some of that, not-so-much.

I’m not going to beg and grovel for your business. But I am going to plead with you to at least look into using the services of a real estate agent. The ramifications (in cost, time, stress, legalities and more) of not using an agent need to be explored. We are not all evil twisted devil-spawn. Yes, there some lousy agents out there. But there are some brilliant ones too. Interview a few, find one that you can work with and trust and they will work their butt off to make sure you aren’t relegated to asking unanswerable questions on an Internet message board.

Disclosure: This is not a paid review. I was provided a complimentary copy from the publisher but under no obligation to write a review.

How to Buy Your First Home, 2E by Diana Brodman Summers covers a lot of ground in 174 pages (plus 113 additional pages including a glossary and several informative appendixes). 

The book is well written and broken into a logical sequence of sections that include:

Preliminaries
Searching for Your Home
Finances
The Buying Process
The Future

Each section includes several chapters written in easy to understand language. Scattered throughout the text are “Attorney Tip” boxes and “Click On This” sidebars with URLs for pertinent web sites —both of which should be helpful to first time home buyers.

The Glossary is extensive and very well done, almost worth the cost of the book on its own.

I’d be remiss in not pointing out one flaw in the book. Granted, I am a real estate broker and may be biased, but this statement by Summers struck me as being very poor advice:

Never let your real estate agent know that you are willing to go higher in an offer for a home. The higher the selling price, the more commission they make. While it is not ethical, your real estate agent may be tempted to tell the sellers that you are willing to pay more.

If you can’t trust your real estate agent, you are working with the wrong agent. To withhold any information from them out of fear they will utilize that to gain a few extra dollars is not a good idea. Better to do your due diligence up front in selecting the right agent, and work with your agent openly and honestly in all aspects of the transaction. The vast majority of agents have their clients best interests in mind. Given typical commissions and brokerage splits, your agent might make an extra $240 if you pay $10,000 more. The agent that sacrifices a potential future client (along with their family and friends) for that kind of money is the agent that likely won’t be in business very long. 

That aside, How To Buy Your First Home contains a great deal of sound information and advice for the first time home buyer.

See the Google Book Search for full table of contents, index, and samples from most chapters.

The other day I talked at length with Jason Warick, a reporter with the Saskatoon (Canada) Star Phoenix newspaper. He was working on a story about Canadian buyers for real estate in Arizona.

In the article – Saskatoon Residents Find Arizona Opportunity — Jason (a heck of a nice guy by the way) talked to people ranging from agents such as myself and Jonathan Dalton, to some Saskatoon residents who’d bought homes in Phoenix. 

For the record, I did not say we had, “found houses for scores of western Canadian buyers”. We have had many Canadian clients, but “scores” implies a number that lies between 40 and infinity. I’d say we’re closer to 0.75 score of Canadian clients this year. 

I did indeed however say, “if it wasn’t for Canadian buyers, we’d be starving.” That was a bit tongue-in-cheek (though if you’ve ever seen a 16 year old boy eat….). You’d think I’d have learned by now you can’t be tongue-in-cheek with mainstream media reporters. All food aside, we absolutely adore all our Canadian clients. Without exception they have all been super people to work with.

As Jonathan pointed out, the most disheartening part of the article was a quote from Glenn Williamson, CEO of the locally based Canada Arizona Business Council:

You can get brand-new houses here for nothing. Nice three-, four-bedroom places for $200,000. There is a real opportunity,” said Glenn Williamson, CEO of the Phoenix-based Canada Arizona Business Council.

Sigh. We fight this battle all the time with buyers from Canada, (and locally, and from across the US). Yes, there are some brand-new houses available in the 200K range — if you’re willing to live on the outskirts (or beyond) of the Phoenix metro area. And there is nothing wrong with buying in these areas, just do your due diligence and understand exactly what all that entails. One good idea is to make the commute (in rush hour) between where you’re looking for a home and where you will be working. It’s far better to discover before you purchase your home if the commute is something you can tolerate (and afford)

There are many opportunities for homes of all shapes and sizes across the Valley. But to imply we’re giving away new homes everywhere is simply incorrect.

This week I had the opportunity to work with a great couple from Saskatoon, Saskatchewan, Canada. We viewed a large number of resale properties and many builder communities (both single family and condos) in Mesa, Chandler, Gilbert, and Gold Canyon. By Thursday morning my clients had narrowed down the search to either a resale in Gold Canyon, or a new build at Seville in Gilbert. We revisited Gold Canyon first then headed off to Gilbert. After almost five full days in the car my clients were physically and mentally exhausted. Enter Megan Smith – a community rep for Shea Homes at La Quintana at Seville in Gilbert.

Megan was excellent! She listened to my clients. She openly answered their questions without pushing for a sale. She took the time to work up a cost sheet including determining upgrade costs. There was no sales pitch. There was no push to upgrade. It made it so much easier for my clients to think about what they really wanted.

We returned to work with Megan at La Quintana on Friday. She patiently answered questions from my clients as well as from me. If she didn’t have the answer she told us she didn’t know but would be able to get the information by email within a few minutes – and she did! My clients are happy and I am happy for them. Megan Smith gets it and I have to believe that Shea Homes gets it too.

Megan was great, and was extremely helpful – by far the best builder’s rep I’ve worked with. If you are looking for a home in La Quintana, you should ask for her. But, as always, you really should ALSO have your own agent representing you if you are purchasing a new-build home!

Thinking about purchasing a Shea new build in the Phoenix area? There is a coupon available for $1000 in upgrades at Shea’s web site. It’s a little tricky to find (I can’t link to it directly). Go to this page, and click on this icon:

You must complete the information (including your accurate email address) to obtain the coupon.

Realtors: You can obtain a Realtor coupon by registering for the Shea Realtor Network.

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Thanks to everyone who wrote and encouraged me to complete this series.  The last few weeks have been crazy! 

Escrow
When the buyer and seller have reached an agreement on the contract; the contract, counters and addendums are signed – its time to open escrow.  In the state of Arizona escrow is handled by a title company.  The title company should be indicated either in the offer or counter offer(s).  They will need *readable* copies of all the paper work, the earnest money, contact information for buyer, seller, and their agents.  An escrow number is assigned to the account and a receipt for the earnest money will be issued.  They will investigate the title of the property to ensure the seller can legally sell the property.  They also order payoff information on existing liens, order information from the homeowner association (if it has one),calculate and prorate taxes, liens, interest, rents and insurance policies; arrange for title insurance protection for the buyer and lender; pay costs and liens as agreed upon by the parties to the transaction; close the transaction after all instructions from buyer and seller have been satisfied; prepare a closing statement for the parties to the transaction, showing disposition of funds in the transaction; and arrange for recording of the conveyance documents and any other legal instruments necessary to transfer title to the property pursuant to the purchase agreement.  Escrow closes when the county recorder notifies title that the deed has been changed from the seller’s name to the buyer’s name.

Inspections
In the state of Arizona the inspection period is typically the first 10 days of the contract for dwellings and 15 days for bare land.  These time frames – as with just about anything else in the contract can be negotiated as part of the offer.  The inspection period begins at midnight after the contract (including addendums and counter offers) are signed and delivered.  The contract states that it is the buyer’s responsibility to inspect *everything* about the property.  This isn’t just the condition of the property.  Your inspections should include the schools, HOA, utilities, square footage, services, earth fissures, crime statistics and anything else that could affect your decision to purchase the property.  We occasionally have a buyer who does not want to pay for a home inspection. Their justification is that if it looks OK then they don’t need to pay the cost of a professional inspection.  Image if you decline the professional inspection and later find the property has some major structural issues – and you now own the home AND the problem?

Per the contract the seller should provide the buyer with two forms within the first five days of the contact:

1) A Clue Report; 2) and the Sellers Property Disclosure Statement or “SPuDS”. This is the statement of what the seller knows about the property.  If the seller has never lived in the property it can be difficult for them to have information about the property.  The buyer will be required to initial receipt of this document.  Initialing receipt does not mean that the buyer accepts what is in the SPuDS.  You should be aware that if there is an underlying problem that the seller has not yet discovered – it would be impossible for the seller to disclose it.  The buyer should use the SPuDS to aid their inspection process. (Here is a sample blank SPDS)

A professional inspection of the structure can take two to five hours depending on the size and age of the property. If possible, the buyer should plan to attend at least the last 30 minutes of the inspection (but this is not required).  Attending will give the inspector the opportunity to explain any issues noted in their report.  Due to liability issues the inspector is required to note every tiny thing that they find – no matter how minute or insignificant.  Keep in mind, sometimes things sound a lot worse than they are.  Meeting with the inspector at the end of the inspection to go over the issues they have noted will help you understand the inspection report and the condition of the property.  Most inspectors will be glad to answer your questions by phone as well.  You are paying for the service – so don’t be shy about asking questions and getting verification.

Be sure to complete your inspections by the last day of the inspection period.  There is a form that must be completed, signed by the buyer(s) and received by the seller’s agent no later than 11:59pm the last day of the inspection period (if the form isn’t received by that time your inspection automatically ends and you do not have the opportunity ask for repairs to be made.  You have to take the property “as is” or risk loosing your earnest money). The form is called the Buyer’s Inspection Notice and Seller’s Response (BINSR). The BINSR is *only* used to address inspection issues and cannot be used to negotiate the contract (it cannot be used for changes to the closing date, sales price, etc).  There are *not* a lot of negotiations available with the BINSR and you should discuss with your agent the importance of each item you wish to have repaired by the seller.  Is that item important enough to you that you are willing to cancel the contract and move on to another property if the seller refuses to fix it?  The seller is only obligated to repair a “warranted item” that is non-functional (such as the heater or air conditioner).  If it works – even if it doesn’t work well – they don’t have to fix it.

There are currently a lot of Phoenix properties being sold “As Is”.  This does not mean that you cannot have the property inspected – you should as you need to know what you are purchasing – it means that you may not ask for repairs.

The Arizona Department of Real Estate deems the inspection so important that they have attached an advisory to the front of the standard residential resale contract. 

Here’s an inspection situation we had with one of our buyers:

The inspection cost was difficult as they were first time buyers who had saved just enough to cover closing costs and moving expenses. They were very close to not getting an inspection, but they eventually decided to have it done. The inspector found that there had been a fire in the attic several years earlier. The tresses were weak and were starting to have issues holding the weight of the tile roof.  The home needed major repairs.  The current sellers had declined the home inspection when they purchased the property – they said they couldn’t afford it.  Now they are faced with thousands of dollars in repair costs from a fire that happened before they purchased the property.  Our clients cancelled the contract on this home and are now happily living in a property they love!

We recommend you should always, ALWAYS have a home professionally inspected (yes, even brand new homes).

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Write and negotiate an offer:  The Arizona Residential Resale Purchase Contract is the primary form used in residential sales.  There is a corresponding purchase contract used for vacant land sales.  The contract is between a buyer and a seller and establishes the terms and conditions of the sale of residential property. There is a lot of “boilerplate” language and items that can be modified by either party.  Keep in mind that just about everything can be negotiated. Your agent should be able to explain each item and any additional addendums required.  The property and type of sale will dictate which addendums are necessary (Home Owners Association, As Is addendum, Short Sale addendum, etc).
 
If you aren’t paying cash, the standard Arizona Residential Resale Purchase Contract requires a Loan Status Report (or LSR) be submitted with the offer.   In the Phoenix real estate market and in the current lending environment, it is critical to demonstrate to sellers that you are not only willing to purchase their property, but that you are able to. An LSR signed by your lender is in effect a statement of pre-qualification. It is not a guarantee that the loan can be obtained but it does show that you are a strong potential buyer. The LSR outlines the loan terms, down payment required and qualification amount. 

The most common question we get is, “How long does this process take?”  If you are obtaining a loan for a standard home purchase (not a short sale).  It’s usually best to plan on 30 to 45 days.  If you are paying cash it can be done in about 21 days (I’ve seen shorter time frames but it is very stressful and I don’t recommend it).  Short sale purchases can take significantly longer.

Probably the second most common question from first time home buyers is “What is earnest money and how much do I need?” Jay previously wrote a post about earnest money.  It’s a great post and I don’t really have anything to add.

The down payment is often indicated in the LSR and is typically discussed with your lender prior to locating a property. 

The buyer should determine the price offered for the property – not the agent.  Your Realtor can provide information (such as the latest comparable market analysis or “CMA” for the neighborhood) to help you with your decision.  Properties in the last few months sold (not those that are listed for sale or under contract) are usually a good indicator of current value.  Upgrades do not necessarily add value to the property but condition issues can reduce the current market value.  Your agent should be able to help you determine if any of the recent sales were foreclosure or short sale properties.  These “distressed” properties are often sold below market value.  Once you determine an approximate market value, ask yourself two questions:

1 – Is this property realistically priced?
2 – What am I willing to pay?

Successful negotiations begin with realistic expectations by both the buyer and the seller.  Buyers don’t want to pay too much for a property – sellers want to get the most from their investment.  If the property is priced significantly higher than the comparables the seller may be unrealistic and it could make negotiations difficult.  A higher than comparable price may also create a problem when the property is appraised for your loan.

A common negotiation mistake made by a buyer is to submit an unrealistically low offer with the expectation that the seller will counter the offer somewhere between the list price and the offer price.  This isn’t usually what ends up happening.  Many sellers have a difficult time seeing their property as an investment –they’ve made memories there.  They’ve made improvements. They are emotionally bonded with their home.  Extremely low offers tend to irritate the seller to the point that they don’t want anything to do with you or your offer.  It can be better to start with the amount you expect to pay (maybe just a little bit less) and be willing to walk away from the property if the seller asks for more.

Walking away is not easy, but it may be necessary so prepare yourself. It’s important not to fall in love with a home while you are in purchase negotiations! There will be plenty of time to make memories and fall in love with your home after you’ve moved in.

There is more to submitting an offer and negotiating the purchase of a home than just the price (though obviously that is the major factor). Other considerations are the amount of earnest money, the inspection period, items that the buyer and seller will pay, length of escrow period and even loan terms all come into play. Your offer is a combination of all these factors and each factor will be weighed differently by different sellers. Make sure you understand all of the purchase contract terms and conditions BEFORE you submit an offer. Work closely with your real estate agent and let them help guide you and educate you on the nuances of submitting and negotiating a purchase offer.

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Francy’s note: I have tried several times to shorten this post. It appears I have a lot more to say than I initially thought (no Jay, that doesn’t mean I’ll be posting more often – it just means this may have to be a multi-post series).

Identify a property. The internet can be a great asset to your search for a property – especially if you’re not sure of the area where you want to be. There are some terrific tools available to search crime statistics by zip code, check out schools and even see what the neighborhood looks like – all from the comfort of your home. A good on-line search not only will allow you to see what is available in your price range, but can answer many of the questions you may have about a specific property such as if there is a homeowners association fee, property taxes, school information, etc. Some searches have information about the area a property is in, give you the ability to save your searches, download the listing or can even send you updates. If you feel overwhelmed a Realtor with a membership to the multiple listing service (MLS) will have the ability to set up an automatic search for you using your needs, wants, area you want to live, your price range and other criteria.

We are often asked where the “good neighborhoods” or “good schools” are. Real Estate Agents cannot legally give you their opinion of an area. Giving their opinion could be considered a form of discrimination called “steering”.

This is usually the point where I like to mention to my clients about going to an open house, or a new home builder, without your Realtor being present. It’s really not a good idea to preview homes by yourself. As mentioned in Part 1 of this series — “Once you have been shown a home by an agent, that agent is considered to be working with you for that particular property”. So if you go to opens, including new model homes, you will find yourself being represented by an agent who has the sellers best interest in mind, not yours.

If you live near the city/area where you are planning to look for a property, I highly recommend trying to narrow down your search to roughly 5 or 6 properties before your first showing appointment. Many buyers find that they will need to make adjustments to their needs/wants after viewing about five homes. This brings up a point that differs from agent to agent, “How many properties should you view before you buy?” I believe this number to be different for each individual buyer. I have had a buyer who purchased the first home he saw (to be sure it was the right one we viewed 10 additional properties before he made an offer). I have had clients who looked at more than 80 properties before they found what they were looking for.

Buyers who are relocating from out of town may not have the luxury of viewing a small number of properties and making adjustments. Many of our relocation clients are given a mere two days to find a home. For those of you in this situation I caution that viewing a large number of properties in one day can be mentally and physically exhausting — be prepared! I dare not share my record of homes shown in a day for fear that I will be asked to repeat it!

Once you’re ready to begin viewing properties in person you will want to contact your agent for an appointment. A common misconception is that Realtors are always available. A good agent is often working with several different clients at a time. Even in a slow market an agent may have appointments set up days (and sometimes even weeks) in advance. If you are coming in from out of town you should make an appointment with your agent as soon as possible to be sure they will be available. It can be very frustrating to drive 300 miles, call your agent from in front of the first home you want to see and find that they have appointments with other clients for every day you are in town.

Coming soon, more info on the remaining steps!
Write and negotiate an offer
Property inspections
Close escrow

Jay’s Note: I’ve been trying to get Francy to write a post for months years. Today, after handling email inquires from two first time buyers, she finally caved.

For most of us buying a home is the most expensive purchase in our life. Making the right choices can save time, money and future headaches. We are often asked about the process and I thought it might be helpful for home buyers to have an actual list with some references. Whether you’re a home buying novice or you’ve purchased a home before the process is pretty much the same:

1. Talk to a lender
2. Evaluate your needs
3. Choose your Real Estate Professional
4. Identify a property
5. Write and negotiate an offer
6. Inspect the property
7. Close escrow

Talk with a lender. This important first step is sometimes skipped over by even the experienced buyer. Nothing can be more disappointing than finding a home that you love only to realize that you either cannot obtain a loan or you cannot afford the payment for that property. Lenders have tightened their criteria in the last year. Even if you currently own a home it may be difficult to obtain a new loan with a payment you can afford.

Evaluate your needs vs. your wants. This includes location (where do you need to live vs. how far are you willing to commute). Do you need a den or can you get by without one? Is a pool a must or would you like to have a pool? Some “wants” can be difficult to locate in some price ranges. Knowing what you cannot live without can be very helpful when beginning your home search.

Choose a Real Estate Professional. Choosing the right agent to represent you can make the rest of the process easier. Real estate agents are *not* all the same. Experience and expertise can vary greatly. Is your next door neighbor or your cousin’s friend really the best choice for you? A common mistake is that a potential buyer will locate the property before locating an agent. The agent listed on the ‘for sale’ sign already has an agreement to represent the best interests of the seller. Although they can help you purchase the property with what is called “dual agency” it is extremely difficult for one agent to give their best representation to both parties. Another problem we often see with first time buyers is that they view a lot of properties with a number of different agents. Once you have been shown a home by an agent, that agent is considered to be working with you for that particular property. This can be a difficult situation if you locate the perfect home but you happen to be with an agent you don’t feel comfortable working with.

Coming Monday – We’ll cover the remaining steps in the process!

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Someone submitted a great question to The Real Estate FAQ, so I thought I would share it here.

The question was, “What is a realistic number of homes you should view prior to buying?”

It’s a tough question to answer… there is no hard and fast answer. Beware the agent that limits how many homes they will show — and it does happen, at least in the Phoenix real estate market. I’ve never understood the agent who says, “I’ll only show someone X number of homes.” (I had someone tell me their agent limited showings to five homes. How utterly ridiculous.)

On the other hand, no one wants to wander aimlessly, looking at dozens and dozens of homes with no progress or end in sight.

The short answer to the question is, “as many as it takes”. But there are some strategies and things to keep in mind in any home search, and I discuss some of them in the answer I left to the question on The Real Estate FAQ.

[tags]real estate FAQ, home buying[/tags]