Real estate frequently asked questions. Information about real estate agents, mortgage brokers and real estate appraisers, buying a home, selling a home, rental property."

Why should I pay for reports offered by the Real Estate Advisor when other sites give the information for free?

Great question! Many of the other sites are run by agents (or their offices) in an attempt to get you to buy or list a home with them. They attempt to impress you with all kinds of free information (that generally supports their position and excites you to work with them). Do you really think that they will tell you all the details about how they run their business or how to negotiate a lower commission? Do you think they are really going to take the time to give you the detailed information you need for each step in the buy/sell proceess (if they even knew)? Some agents' sites are good, and in fact we will link to several of them. But the good agent sites are ones where they are clear about their expertise, and don't try to be all things to all people. The Real Estate Advisor leverages information and experience from professionals in each area of the industry. The information is far more complete and lays out the good, bad, and ugly for you in plain english.

Another point to consider is that 15% of the agents make 85% of the money, are you getting information from an agent who’s in the top 15% or the bottom 85% of the industry?

Very, very few agents, appraisers or title insurance officers have the overall experience of The Real Estate Advisor. Our motives are simple, charge you a little and give you a lot of knowledge.

Should I use a Real Estate agent or try to sell my home myself?

Unless you are very experienced in selling your home and have done it before - do not attempt to sell your home by yourself. The sale of your home involves numerous legal challenges and questions, all of which, if answered wrong, could cost you thousands of dollars, not to mention your home.

Here's an example; you place an advertisement in a local paper and carefully choose the best wording. Of course, you also recieved the best discount - right? Anyway, that advertisement successfully entices everybody in the world, qualified or not, to call you up at all times of the day and night, usually after 10:00pm, in order to ask you all sorts of personal questions about your home and life, in an attempt to set up an appointment to see your home at the most inconvenient time. So, you will spend your entire day off waiting for someone to maybe show up and then they don't. After making another appointment with a 'client' you allow a total stranger, with clothes that look gang related, to wander through out your home when only your wife is home, remembering the location of all of your valuables, only to say that this just isn’t the home for them. If you find the person who wants your home you get to fill out, or review, all sorts of legal documents that will give away the largest asset you ever owned, at some future date, if the inspections, lender and closing agent perform their job correctly, of which you know nothing about because you have only gone through it once before, if you're lucky.

Call up and use the services of a local Real Estate agent, it will be the cheapest thing you have ever done. If you need a referral for a good agent please see our page entitled "Recommended Professionals." You will be provided a list of the very best people that we know and are found to be reliable and professional.

Why is an appraisal necessary?

An appraisal is ordered by the lender to placate their fears and paranoia, not yours. The seller, buyer and agent know the value of a home. However, the bank knows nothing about it, so they need a report that describes the home and its value. Since the bank is lending the money, they want to be sure the home’s value is larger than the loan amount. Therefore, they hire a third-party-independent, the appraiser, to dispassionately determine the value of a home and make the lender more at ease in lending you money.

Should I get the home inspected?

The safest answer is, yes. Before you buy a shirt, you look at the seams and the stitching - right! Well a house is typically the largest purchase you will ever make, shouldn’t you be looking at the way it’s put together? Every home, and I mean EVERY home including new construction, have dozens of small problems. The small problems are not what can bite you in the wallet, it’s the big problems that you need to know about, and a building inspection is the best solution.

The biggest problems are how to find a good inspector and knowing what they inspect. Not all inspectors are created equal and the cheapest inspector is usually not the best. Therefore, if you're going to hire an inspector, hire the best and get the job done right. To fully understand what you need, please see the section on “Home Inspections and Warranties” in the Insider’s Knowledge section of our web site.

What is PMI insurance?

PMI stands for Private Mortgage Insurance. This is going to sound silly so please bear with me. PMI is an insurance policy that lenders require if refinance loans have an LTV greater than 80%, OR if you are buying a home and are placing less than 20% down. In instances like this, lenders want protection if you should fail to make your monthly payments and they have to foreclose on the property. Lenders want an insurance policy that will protect the Bank from loss associated with foreclosing on the property. Mortgage Insurance is not Life or Homeowners Insurance. The funny thing with this policy is, you the borrower pay for it, and if there is a loss, it pays the bank, not you.

What is title insurance and who pays for it?

Title insurance is a policy that protects against problems with the title to real estate. If there were past problems with property lines, ownership, transfer of ownership through fraudulent or inaccurate paper work (deeds) or unpaid liens, then this policy (depending on which type) will pay for the loss. There are several different levels of protection and policies, some protect the bank and some protect the bank and the buyer. The Seller of the home, typically pays for the policy, but this is a bare bones policy. If you want more protection then buyer pays for it. If you go to a title insurance web site, they will list out your options and possible costs.

What is an Earnest Money Agreement?

This is a contract that outlines who is buying what, for what price, and on what date the money will change hands. While this sounds simple, the actual document can be 10-20+ pages long because it contains every detail, instructions to the closing agent and describes what happens IF someone cannot buy or sell the home by the due date. It’s the little details (or lack thereof) that can kill a sale or place everybody in court. That’s why I strongly suggest that you use professionals for any sale of real estate.

What is a Contingent Sale or Contingency?

This is a sale, on Real Estate, that’s condition upon a future, pre described event. This condition, or contingency, can be for anything you wish, the most common examples include:

a) The buyer will buy a home IF, or condition upon, the buyer selling their current home.

b) The buyer will buy a home IF, or condition upon, the home passing a building or pest inspection.

c) The sale will close if the buyer can obtain a loan from a bank.

Contingent sales usually have a date by which the condition must be met. If conditions are not met by that date, then the sale fails and the house is now available for sale to the next buyer.

How big does the earnest money deposit have to be?

No limit, it’s entirely up to the buyer and seller. However, as a rule of thumb, the bigger the deposit, the more serious the buyer. I like to start off with $1,000 earnest money and try for 5% of the home’s value, if possible.

How low do interest rates have to drop before it makes sense to refinance my current loan?

This depends on how long you are going to live in the house. Therefore, there’s no standard answer. However, it’s easy to figure this out on your own. Figure out the cost of obtaining a new loan and compare that with your monthly savings on the new, lower loan payment. Typically, the cost to refinance a loan is between 1.5-3% of the loan amount. Once you figure out the loan cost, have a lender, or lender’s web site, calculate your new monthly payment based on the lower interest rate. It’s simple math to calculate how quickly you will recoup your loan costs. The shorter the period it takes to recoup costs, the better the loan, but it still depends on how long you are going to live in the home.

If I lock in my interest rate, prior to obtaining a loan, is the interest rate really locked?

This depends on your point of view and whom you work with. In times of volatile interest rates, many borrowers want to lock in their interest rate, when rates are low, while the lender processes the paper work. The lock works but in reality this depends on the lender and how they do business.

Here are some examples: The first thing a lender needs to do is turn in the proper paper work that locks in the rate. Many times I have heard about lenders screwing up by not turning in the right paperwork to the head office - no paperwork, no lock! So you need to get the lock in writing!

Is the lock for a period that allows the lender enough time to process the loan? Many, many times I have dealt with lenders that locked the rate for only 10 days, full well knowing that it will take more than 20 days to process the paperwork. In this case, is it really a lock or something to make you feel good? Get a lock-in period that lasts for at least 30 days.

I dealt with one commercial bank that kept requesting information from the borrower until the lock expired, then blamed the borrower for failing to deliver documents on time (even though the bank lost the documents 3 times). In this case, the time limit expired and the lock, along with the lower interest rate, was gone.

So to answer your question, is a lock a lock? It depends on the lender and how ethical they are in business. For this reason I strongly suggest that you look at my list of “Recommended Professionals” and use one of them for your business. While they may not be perfect, I find that they are among the best.

What or who controls mortgage rates?

The Federal Reserve controls Discount Rates not Mortgage Rates and the two rates are not connected. In simple terms - The Fed. (Federal Reserve) does not directly control mortgage rates, but the market does. Mortgage rates (long term) are based on the supply of money and the demand for that money and the 10-year Treasury Bond yield.

If people are placing money in savings or are buying 10 and 30 year Treasury Bonds (as an investment), then the supply of money, available for lending, is increased. If people are buying stuff and not saving or investing then the supply of money goes down. When the supply of money goes down, banks raise rates as a method of attracting people to invest or save their hard earned dollars instead of using them to buy stuff. The other side of this equation is the demand for the money. The more people who are buying homes, the greater the demands for money and the higher the interest rates go ---- usually.

When the Federal Reserve cuts interest rates, does that mean mortgage rates will also drop?

Not necessarily. As mentioned above, the two are not directly tied together. The Federal Reserve controls short term interest rates such as the overnight discount rate and the rate banks charge each other. Though lenders tend to follow the Federal Reserve's hikes and cuts.

Loan Fees, are they negotiable?

Yes, fees are negotiable, but only to a very minor degree. It costs money to obtain and process loan applications and somebody has to pay for the cost. There is so much competition in the lending industry that massive profits, and the ability to negotiate a lower fee, is not present like it used to be. Therefore, trying to squeeze the lender for lower fees has the potential for minor gains only, though there are several ways to reduce some costs and protect yourself from gouging. Please go to the section “LENDERS AND BORROWING” (realestate-advisor.com/advisor/lenandbormon.html). Here you will find a host of reports that outline what you need to know to get the best deal in life.

More answers are being published every day, so visit as often as you like.