Tips for Buying a Home in Sonoma County

The following paragraphs are items that I have run across over the years which will help you with a smooth escrow for your home purchase. If you have any questions about any of these, simply contact me and I will help however I can.

The Tax Man has YOU Working for Him!

Believe it or not, as of Jan. 1st 2003, Buyers are required to withhold and remit to the California Franchise Tax Board 3.333 % of the gross sales price of a property they purchase. You must withhold this portion of your payment to the seller and remit it to the IRS on the 20th day of the calendar month following transfer of title (Cal Form 593). There are exceptions, for example if the purchase price is less than $100,000 or if the Seller provides you with California form 593-C, and has the proper exemptions completed, you would not be required to withhold and remit this tax. The government figures that if YOU collect the tax, they will get it faster and “time is money”. The good news is that if you use an Escrow Company to manage the transaction, they will usually take care of this for you!

Capping Your Agent Fee at the Co-Broke Amount

Some buyer-agency agreements in the Santa Rosa Ca, or Windsor area state that the buyer will pay their agent a fixed percentage of the purchase price of the home. This percentage may (or may not) be the same as what the seller of the property is offering to pay. For example, the buyer-agency agreement might call for a 3% commission, while the seller of the home you're interested in is only offering a 2% commission. In this example, you would end up paying your agent 1% of the purchase price of the home because the seller of the property offered a low co-broke amount. This 1% additional commission would be over and above the purchase price of the home.

You could avoid this by agreeing with your agent that their fee amount will be whatever amount the seller is offering, and no more. This is a pretty common arrangement in Sonoma County, but it does create an incentive on the part of some agents to “push” properties that offer a cooperating broker payment (co-broke) they like. They might not show you a great buy that has a very low co-broke offered to the agent. In a strong buyers market, this situation may be less prevalent because most (but not all) sellers offer a very competitive co-broke fee so as to lure the buyer-agents to the property. The point is that it is very important for you to have a trusting relationship with your agent and good communication with them about both your expectations and theirs. Doing your homework, and carefully selecting your agent is where this all begins.

NOTE: there are a variety of solutions to the above scenario, some of which are discussed in my article on “Buyer Agency Agreements”.

Be Careful With Buyer Credits When Buying a Home

In a strong buyers market such as we'll see for the next year or so, sellers of properties are constantly looking for new ways to attract the attention of prospective buyers. A common example of this is when the seller offers to pay the buyers closing costs (which is OK). Another example is when the seller offers to provide cash, paid back to the buyer, after close of escrow. The cash may be for the buyer to use as they please, or it may be for the repair of a defect in the home (a new roof for example). If this cash back to the buyer is NOT disclosed to the lender (even for a repair) it is illegal.

All kinds of different scenarios like this have been going on for the last five years, some pretty creative, some pretty innocent, some with the knowledge of loan brokers and real estate agents. Lately, however, these people (including buyers and sellers) have been going to Federal prison. Along with the current economic crisis has come a huge crackdown on mortgage loan fraud. The best way to avoid getting involved with mortgage loan fraud, is to become educated about what constitutes loan fraud, and carefully select a reputable real estate agent.

To learn more about how to select a good agent read my article “How to select a buyer agent”.

To learn more about mortgage loan fraud, visit the US Department of Housing and Urban Development website.

Is There a Perfect House For Sale in Santa Rosa or Windsor ?

I walk through lots of houses BEFORE my client gets there. In most cases, unless there is a time problem (for example, a house hits the market the morning we start our house tours) I will have already been in every house we look at. Typically, I will go through five homes for every one home I show a client. I weed-out most of the homes with problems that I could not see until I toured the home. It also gives me a fresh opinion of the quality of property available in that neighborhood. In addition to the homes that are in my client’s budget, I also look at homes that are not within their budget. I want to know the overall general-quality of the neighborhood as well as I possibly can.

So, anyway, I look at lots of houses. I see many houses with minor problems, some with severe problems, but never do I see a house without ANY problems. There is no “perfect” house. So I make a list of positive and negative things about every home and share these observations with my client during our house tours. Occasionally, I have a client who is all excited about a house and they feel like I am "raining on their parade" if I point out negative items in the home. Sometimes they forget; that's why they hired me. It is not that I dwell on negative things, I certainly do not, but if I am aware of a problem it is my DUTY to my client to make them aware of the issue. My job is to be the expert and help my client avoid making a purchase they might regret when the excitement wears off. The client has the final decision of course. I have pointed out issues to my clients that I was sure would be a “deal-breaker”, only to have my client decide they cold live with, or solve the issue. I just want to be sure that any decision my clients makes is an “informed decision”. Forget about the perfect house and focus on the BEST house for your needs.

“House Stalking”, a Catchy Name for a Plan of Action

A very common sequence of events for homes in the Santa Rosa or Windsor area that are a great buy is as follows; A decent house goes in the market at a price that is too high and then through a sequence of price drops eventually gets to a point where it is a good buy. Sometimes this happens "overnight" as a result of a particular price drop by the seller. If a buyer has been seriously considering the home for a while, they know the price point, the positives and negatives of the property, and are ready to make a quick decision once the property hits (or gets close to) a price point that is a great buy. This buyer has been “Stalking” the property, waiting for an opportunity to pounce.

Contrast this to the buyer who sees the price drop and says "Hey that house might be a good buy... I will begin my investigation now and find out! Of course by the time they have taken the time to evaluate the home, the “Stalker” has already placed an offer and is in escrow. The concept behind House Stalking is that while you are touring homes looking for the perfect home, you will find homes that have good potential, but the combination of features and price just aren’t quite right. For some of these homes take the time to identify a price point for that particular home that would get you excited about making an offer. If you're using a real estate agent be sure to coordinate with your agent so that they can instantly feed you information on this property as it changes. Make sure they keep this property on the radar screen. So, now you can add House Stalking to your arsenal of buying weapons, and be thankful it has such a catchy name.

Avoid the Most Expensive Home in the Neighborhood

My personal opinion is you do not want to buy the most expensive house in a neighborhood without serious deliberation. The reason is that as time passes, a home like this is more at the mercy of what happens to the neighborhood. If your neighbors slack a little in their home maintenance and the over-all value of the neighborhood drops slightly, the most expensive homes quickly go with it. Homes in the middle and lower of the neighborhood price-range, however, tend to hold their value better. They are not as quickly impacted by minor changes in the neighborhood. This concept is, of course, more important in transitional neighborhoods than solid, mature neighborhoods.

In my opinion, the best value can often be attained by finding a home that fits my clients budget, but is located in a neighborhood of higher values. This isn’t always possible, but when it is, it gives my client the flexibility to make future improvements to the home (if they choose to do so), and yet not over-improve the home for the area. Carefully compare the asking price of any home you are considering to other homes for sale and homes that HAVE sold recently and market trends before making an offer to buy.

Is the LISTING Agent Any Good on That Santa Rosa Home?

There is so much information out there about particular real estate agents, it is worth checking. For example, as a buyer’s-agent, prior to preparing an offer on a house, I will search the MLS for properties previously listed by the same agent listing this house. I want to see what kind of history this agent has had. What I am looking for is an agent who consistently drops prices every 30 days, 45 days or whatever. If I find clock-work repetition, I compare this cycle to the current properties "days on market" to determine if the agent is in the process of talking to their client about a price decrease. If so, I know my client can probably submit a lower offer. I also look to see the quality of the MLS presentation, the number of homes sold/listed, and other indicators of the agent’s abilities. When I identify a low-performing agent, I know my client has a better chance of successfully submitting a lower offer. I do feel bad for the seller, but had they done their homework, they would probably NOT have used this particular agent in the first place. MY job is to get the best deal for MY client (because THEY DID do their homework!). Select your own agent carefully and then do a “Comparative Agent Analysis” on any homes that interest you before making an offer.

Insulting the Seller is Not a Good Tactic When Buying a Home

Never insult a property while making an offer. Even if a property has deferred maintenance, or is in a bad part of town or whatever is wrong with it; DO NOT use derogatory terms while referring to the property in your offer or your conversations. There is no way this is ever going to make the seller feel more like selling you the property. I have seen offers that were written something like; “I am doing you a favor to make an offer on your crappy little house. You have lots of bad things in your house, it smells, and nobody but a crazy person is ever going to make you an offer”.

Well, at least they got the “crazy” part of it right…

For other examples of negotiation tactics that don’t work, read my article “The Art of Negotiation”.

Do Not Talk (or think) in Terms of Monthly Payment.

When talking to real estate agents or lenders, never allow the conversation regarding your budget to be discussed in terms of monthly payment. The amount of the monthly payment is very important, and is part of the initial process of determining your budget. However, your budget should be the maximum purchase price for a home, not the monthly payment required to pay for that purchase. The reason for this is that when you talk (and think) in terms of a monthly payment, you leave yourself open to all kinds of manipulation.

If you have ever purchased an automobile from a car dealer, you know they only want to talk to you in terms of the monthly payment. They do this because it is so easy to manipulate the amount of the monthly payment while hiding the actual cost of the purchase. This can make a very bad deal look like it is everything the buyer wants. Agents (and lenders) can do the same thing. Listing agents will often take this approach to upgrade you to their (more expensive) listing using the phrase “Think of it as only an additional $200 per month”. A good buyer’s agent is very helpful here because they will be at your side helping to keep you on track for your original budget goal.

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If you have any questions about this article, or would like additional information, please Contact Me and I will be happy to help you in any way possible.

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