Chattanooga Real Estate Update

Title insurance is the only type of insurance I can think of which insures you for past events rather than the future events that could happen. Coverage ends on the day the policy is issued and extends backward in time for an indefinite period.  Also, it is an insurance policy that you only pay for it once and the policy is good forever, theoretically.   
 

With an active title insurance policy, should someone or something show up on the title that was not disclosed or discovered when you bought the property, you are insured and the insurance company would “defend” the title and work to correct any problem.  The problem could include simpler issues such as incorrect signatures on documents, defective recordation, encumbrances, judgments or lien for unpaid taxes.   Or more complex issues could exist such as forgery, fraud, unrecorded easements and access rights, encroachments and undisclosed heirs or previous property owners.  These hidden “defects” are dangerous indeed because you may not learn of them for many months or years. Yet they could force you to spend substantial sums on a legal defense, and still result in the loss of your property.

Title insurance is not mandatory for a property purchase. However, lender’s coverage is usually required if you need a mortgage to make the purchase. Mortgage lenders require such protection for an amount equal to the loan. It lasts until the loan is repaid. As with mortgage insurance, it protects the lender but you pay the premium, which is a single-payment made upfront.  You must purchase a separate owner’s title policy to cover you as an owner for your protection.  It is advisable to do this because the additional cost above the cost of the lender policy is relatively small.

Title insurance is a means of protecting yourself from financial loss in the event that problems develop regarding the rights to ownership of your property. There may be hidden title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim. Making sure you have title insurance is a wise decision in your property purchase.

Question:  We found a house, made an offer and gave them a deadline. But, the listing agent hasn’t given us an answer. The agent is telling us it is a foreclosed home and he can’t get in touch with the bank to get a response. Is this common?

Answer:  First, you mentioned a listing agent but no agent on your side.  I am assuming you are not represented by your own buyer’s agent, which puts you at a disadvantage.  Still, it is hard for me to believe that an agent cannot reach their client on a bank-owned foreclosure property.   Some human gave this agent the listing and that human can be reached. However, banks usually only work weekdays and may not be reachable on weekends or holidays. This could explain delays especially at this time of the year.  The listing agent should be able to communicate the amount of time expected for a reply prior to making the offer.

Regarding your deadline, in Tennessee and Georgia, all written offers must be presented to the seller in a timely manner.  However, the seller is under no obligation to respond at all or according to your requested time frame in the offer.  You may state in an offer that a response is needed by a certain date and time.   But, there is not a “rule” or “law” for the seller to abide by the response time stated in your offer.  This time limit is in the offer for the buyer to establish when their offer will expire and, in other words, off the table.

 In the case of bank-owned properties, they are dealing with lots of properties and offers.  I know you stated you gave the bank a deadline to respond to your offer.  If your offer price was not high enough, they may have no motivation to consider it in light of the other offers they are dealing with at the time.  

Ultimately, it is the buyer’s job to get an offer together that a seller is willing to consider.  Otherwise, the bank’s asset manager may simply work on more pressing matters and, in effect, procrastinate while increasing the chances they will get another offer on the property you want to buy.  My guess is that if they were convinced you were their best option – you would get a response.  This is where I spend a good bit of my time these days – making the case that my client’s offer is their best option.  The research is exhausting, but necessary. My clients need to know the real value today and at what point they should walk away or when to be patient and wait.  I can usually paint the picture that my client’s offer should be acted upon in a timely manner or we will be forced (by them) to go find something else.

Question:  Is it normal for a Realtor® to ask a buyer to get prequalified for a mortgage loan before showing you homes? 

Answer: I believe that getting prequalified is the smartest thing for anyone thinking about buying a home for a couple of reasons. Although the thought of paying a mortgage is more enticing than paying rent, it’s important to understand all the costs involved in buying and owning a home as you determine whether you can afford to join the ranks of homeowners.  First, you must have a realistic idea of what you can afford before you start to search for a home.  In other words, you will not be out looking at mansions if you can only afford a small condo.  And it is not always a matter of what you can afford.  It may be a matter of what you want to pay for your monthly mortgage payment.  You may be qualified for $1,400 per month for a payment and you do not feel comfortable with a payment of more than $1,000.   

Also, potential buyers should review different mortgage loan types and compare their required down payment amounts to the money you have available.   Most mortgage loans today require some amount of a down payment.  Popular FHA loans can be as little as 3.5 % down and the down payment can be funded by gifts from family members or borrowed from a 410k account.  FHA loans have purchase price limits and a buyer may need to explore other loan types due to price, property type or other factors.  Other mortgage loans may require more money down than the 3.5% of an FHA loan.  And there are some options for 100% financing including Veteran’s Administration (VA) and USDA Rural Development loans. Review different mortgage loan types and compare their required down payment amounts to the money you have available.

And there are closing costs associated with a mortgage loan.  These costs will generally add up to between 2 and 6 percent of the property value.  You’ll receive an estimate of these costs from your lender after you apply for a mortgage.  Some loans allow the seller help pay some or all of your closing costs for the mortgage loan.  You need to know the permitted amount of seller’s contribution before making an offer.  Asking the seller to contribute to your loan closing costs can reduce the amount of money required to make a home purchase for a buyer significantly.

 Consulting with a REALTOR® or mortgage lender for mortgage pre-qualification is the first step to beginning your home search.   

Question:  I was told there is 100% financing available for homes in areas that are considered rural. Is this so?  

Answer:  Yes! The federal government, through a program with the USDA, has 100% financing available for Chattanooga area homes.   When most people think of the USDA, I would imagine they don’t think the USDA can assist you getting into your next home. But, they can.  The USDA has a Rural Housing Development Program that is charged with providing 100% mortgages in rural areas of the country. 

In the Chattanooga area, over 80% of the area of the Georgia counties of Catoosa, Walker and Dade are eligible for the 100% mortgage program as rural areas.  In Hamilton County, the eligible rural areas includes Soddy-Daisy, Lakesite, Sale Creek, Birchwood, Collegedale, Apison and other outlying areas north and east of Chattanooga.  Not all of the USDA eligible rural areas would be considered to be exactly “rural” by most of us.

Location is just one of the few requirements that exist to take advantage of this incredible opportunity.  Combined household income is another requirement. But, many buyers fall under the income guidelines.   In the Chattanooga area, the household income limit for a 1 to 4 person household is $73,600 and for a 5 to 8 person household is $97,150.  Families must be able to afford the mortgage payments and must have reasonable credit histories.  Loans are for a 30 year term.

Homes financed under the program must be modest in size, design and cost. Also, there are building and site standards required.  Manufactured homes can qualify with additional requirements.  USDA will require an inspection of the property to determine if it meets the program’s requirement.

Also, in addition to the USDA 100% financing program, buyers can be qualify for the first time buyer tax credit of up to $8,000 or trade-up buyer credit of up to $6,500.  The tax credit program will end in April of 2010.  Buyer should act now to take advantage of both programs - 100% financing and cash back from tax credit.  Buyers interested in learning more should contact a Realtor®.

Question:  I submitted an offer on a property and the seller rejected my offer.  It was a very low offer. However, I was expecting a counter offer.  Should a seller be expected to counter my offer?  

Answer:  An extremely low offer is not usually the best strategy in a real estate offer.  In a buyer’s market, such as ours in the Chattanooga area, sellers have become aggressive in their pricing.   A realistic seller is listening to their Realtor® (and the market) and setting a listing price for the property according to market value.  The seller that prices their property so it is priced competitively and accurately in the current market expects to receive a reasonable offer from the potential buyer.    

For the past two years, the Chattanooga area has closed home sales at a consistent average of 96% of the listing price of the home.  In other words, the selling price accepted by home sellers has only been reduced from the asking price, on average, by only 4 percent.   For a buyer to expect an offer to be accepted by the seller at 70, 80 or even 90 % of the asking price for a properly priced property should not be a reasonable expectation when making an offer.   Offer a price that has some shred of reality to it.

Sometimes, the “low ball” offer can work out, but more often than not, they can backfire miserably especially if the seller feels insulted.  Sellers who have priced their property fairly tend to simply reject the “low ball” offer.  It usually does not send a message to the seller that you, as a savvy buyer, are a tough negotiator. It can simply send the message that you, as a buyer, are not in touch with the current market. 

Other things a buyer should consider when making an offer is seller concessions.  If you’re going to ask the seller to reduce their price and pay your closing costs, you need to consider that as a net offer price to the seller…because they sure will.  Buyers should know what’s most important to them because an offer too low may not find a willing seller to pay anything in concessions such as closing costs, home warranty or repairs.

Buyers should strengthen their offer with clear and concise approved financing terms, adequate earnest money, realistic inspection periods and quick closing dates.  Also, excessive contingencies do not allow the buyer to negotiate from a position of strength. So, eliminate as many contingencies from the offer as possible without being reckless. 

Real Estate Market Update for

Dade County, Georgia

Including the city of Trenton, Georgia

Data gathered for November 1 – November 30, 2009

New Listings

In November, 19 single family listings in Dade County were added to the inventory of homes for sale.  This was virtually no change from October 2009 and an increase of 26.32% from November last year.

Pending Sales

4 homes in Dade County received a pending status in November. This was a 25% decrease in pending sales from October 2009 and a 75% decrease from the same month in the year prior.

Sold Listings

6 homes closed in Dade County in November. This was a 33.3% decrease from October 2009 and a 33.3% decrease from November last year.

Average Sold Price

In November, single family homes that sold in Dade County sold at an average of $148,575 which was a 19.82% decrease from last month and a decrease of 10.24% when compared to the same month last year.

Days on Market

Of the homes which closed in November in Dade County, the average days on market were 133, a .75% decrease from a year prior and a decrease of 9.77% from last month.

 Information has been compiled from data of the Chattanooga MLS.  Information is considered reliable but is not guaranteed.

Real Estate Market Update for

Walker County, Georgia

Including the cities of Lafayette, Chickamauga and Rossville

Data gathered for November 1 – November 30, 2009

New Listings

In November, 65 single family listings in Walker County were added to the inventory of homes for sale.  This was a 40% decrease from October 2009 and an increase of 13.85% from November last year.

Pending Sales

27 homes in Walker County received a pending status in November. This was a 41.67% increase in pending sales from October 2009 and a 58.33% decrease from the same month in the year prior.

Sold Listings

43 homes closed in Walker County in November. This was virtually no change from October 2009 and a 6.98% decrease from November last year.

Average Sold Price

In November, single family homes that sold in Walker County sold at an average of $100,793 which was a 5.77% decrease from last month and a decrease of 2.49% when compared to the same month last year.

Days on Market

Of the homes which closed in November in Walker County, the average days on market were 93, a 3.23% increase from a year prior and a decrease of 53.76% from last month.

 Information has been compiled from data of the Chattanooga MLS.  Information is considered reliable but is not guaranteed.

Real Estate Market Update for

 Information has been compiled from data of the Chattanooga MLS.  Information is considered reliable but is not guaranteed.

Real Estate Market Update for

Hamilton County, Tennessee

Including the cities of Chattanooga, East Ridge, Red Bank, Signal Mountain, Soddy-Daisy,  Collegedale and Lookout Mountain

Data gathered for November 1 – November 30, 2009

New Listings

In November, 482 single family listings in Hamilton County were added to the inventory of homes for sale.  This was a 35.89% decrease from October 2009 and an increase of 10.58% from November last year.

Pending Sales

204 homes in Hamilton County received a pending status in November. This was 26% less than were pending sales for October 2009 and a 23.5% increase from the same month in the year prior.

Sold Listings

214 homes closed in Hamilton County in November. This was a 58.9% decrease from October 2009 and a 23.36% decrease from November last year.

Average Sold Price

In November, single family homes that sold in Hamilton County sold at an average of $166,738 which was a 7.68% increase from last month and a decrease of 13.94% when compared to the same month last year.

Days on Market

Of the homes which closed in November in Hamilton County, the average days on market were 111, a 25.23% decrease from a year prior and a decrease of 5.41% from last month.

 Information has been compiled from data of the Chattanooga MLS.  Information is considered reliable but is not guaranteed.

Purchasing a distressed property is a great way to purchase a larger home for money and pick up some instant potential equity.  However, there are many mistakes that buyers of foreclosure properties make that can can leave you feeling like you’ve bitten off more than you bargained for.

Mistake 1: Buying a Foreclosed Home at the top of your price range.

Doing this causes two problems.  First, the selling bank will not typically perform repairs needed to make the house habitable.  If your budget is wiped clean by closing costs, you may start off life in your new house deep in credit card debt bringing the home up to acceptable standards.  The second problem deals with the property taxes.  Depending on how property taxes are handled in your locality, the property taxes may be based on the actual market value of the property, not your extremely low purchase price.  Here in Chattanooga Area, property taxes are based on a tax appraisal, which is typically 10 -15% less than market value.  The issue comes when at the next reassessment, the tax value increases so dramatically that the home becomes unaffordable.

Mistake 2: Not having the home inspected.

While the bank usually will not do any repairs, this doesn’t mean that you should not perform at least the basic battery of inspections.  Often the power, gas, and water are not on. Some Chattanooga area utility companies allow buyers to have the utilities turned on for just a single day.  However, some Chattanooga area utility companies only allow the owner of the property to have utilities turned on.  Just like a typical transaction, you need to know what you’re buying.  Plus, you never know what has been stolen in the home like the copper tubing, electrical lines, exterior a/c units, etc.

Mistake 3: No money in reserves.

Depending on the person who lived there before, there may be hidden suprises as soon as you fire up the appliances and systems for the first time.  While everything can be repaired, you’ll need some cash reserves.  Depending on the price of the home, an extra $5,000 can be a real lifesaver.  Also, consider purchasing a home warranty for just those unexpected breakdowns.  Just make sure that the warranty doesn’t have some silly REO property (foreclosure)  exclusion clause.

Mistake 4: Moving in too quickly. 

Don’t show up to closing with the moving truck outside the building.  Give yourself a week or so to make repairs, change the locks, paint and clean thoroughly.