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During the real estate transaction (especially if you're a first-time
buyer), you're hit with so many foreign terms, fees and requirements
your head spins. One of those strange and unfamiliar costs is title
insurance. In most cases, borrowers have no option -- either you get
title insurance (among other requirements) or you don't get a loan.
The lender says you need it, you want the loan to go though, so you buy title insurance. Great. So what is title insurance?
When you buy a home you want to make sure that the people selling it
actually have full and legal title. The party who conducts closing will
check this out by going down to the local property records office to
research the history of ownership.
But -- and here's the tricky part -- those records down at the property
office may be official, but they may also be wrong. It's also possible
that the person who does the title search can make a mistake and also
that important information may simply not be recorded.
For instance, maybe a bill against the property was not recorded or
some taxes were not been paid. Or, suppose that 40 years ago the
property you want to purchase was owned by Smith. Let's also imagine
that Smith was a bigamist with an extra spouse. Will this matter show
up on the local property records? Not likely. Does the additional Smith
spouse have an ownership claim against the property? That may only be
clear after a lot of legal wrangling -- and if you lose, you could lose
the house.
There may be other odd and bizarre claims as well. Was an owner an
alcoholic? Insane? A drug user? Is there a contractor with a claim
against the property? Such issues can "cloud" titles and neither
lenders nor owners want clouds.
One form of title insurance, "lenders" coverage, is designed to protect
(who else?) your lender in case of title problems. "Lenders" coverage
is required and generally provides protection up to the original
mortgage amount -- if you buy a home for $300,000 and get a $250,000
mortgage, then $250,000 is as much coverage as you can get with a
lender's policy. If there's a claim, the title insurer will fight on
your behalf and if there's a claim the policy will pay off the loan if
necessary. This is good news for you because you won't owe the lender a
dime if you lose in court.
But there are also some options.
For instance, you can also get "owners" coverage. This will protect
your equity -- that $50,000 in the example above not covered by the
lender's policy. And you can often get an "inflation rider" with an
owner's policy -- as the value of your home goes up, so does the value
of your title coverage.
While title insurance is required by virtually all lenders, there is
one big exception: loans made in Iowa. In Iowa, the state says that
attorneys and others who do title work must participate in a title
guarantee program. If there's a title error, the state fund provides
coverage.
There's no doubt that if you finance the purchase of a home your lender
will want title insurance or, in Iowa, coverage under the state's
guarantee fund.
But you're unlikely to buy title insurance more than a few times in your life, so how do you get a good deal?
Title insurance is a specialized insurance policy. "Lenders" coverage
assures that in the event of a title claim against your property that
the insurance company will fight to protect your interest (and the
insurance company's interest). If the claim is successful, lender's
coverage will pay off any mortgage amount you owe to the lender.
"Owners" coverage is additional protection. In essence, it protects
your equity, the purchase price of your home above the mortgage amount,
and sometimes more.
How do you get the best deals with title insurance? Several strategies stand out.
Look for a "re-issue" rate. Find out from the title insurer (or the
attorney who has been appointed to conduct a title search) if you can
have the current policy re-issued. In other words, if there's an
existing policy that is five to ten years old, you may be able to get a
10 to 20 percent discount. Ask about re-issue rate whether buying
existing homes or new homes -- you can bet the builder's lender
required clear title before the first spoon-full of dirt was moved.
If you have a buyer's market, ask the seller to pay the tab for title
insurance. That's one less cost for you at closing.
Ask about "extended coverage." Title insurance policies
normally exclude coverage in the event of lot line debates, unrecorded
mechanics liens, and easement problems. Extended coverage can provide
protection against such claims.
See if any title insurance firm has lower rates than others.
This is not always the case if, for example, a state insurance agency
has set rates.
Ask about inflation coverage. For instance, what about an inflation
rider for owner's coverage -- as the value of the home rises, so does
the amount of protection.
Homebuyers may grumble about title insurance, but let's face it:
lenders want it so you will get it. But the requirement to get title
insurance does not mean you should not shop around and find the policy
which works best for you.
Who controls the closing date for escrow - the Buyer or the Seller?
When you make an offer to purchase a property, you will sign a Purchase
or Purchase and Sales Agreement with the Seller. This document will be
the binding contract and agreement between you and the Seller and the
provisions in that document will spell out certain events which must
take place before your escrow can close. Within the Purchase Agreement
will be a provision for the scheduled "Date of Closing." A date is
normally filled in when the offer to purchase is made by the buyer.
Once your offer is presented to the seller, the seller may choose to
change this date before accepting your offer.
Both you and the Seller will come up with a closing date which seems
reasonable. The closing date should allow you enough time to apply for
and obtain a mortgage, if you will be getting a loan to help finance
your purchase, and the seller will choose a closing date which allows
ample time to move out and find a new home or property. The closing
date which is agreed upon should also take into consideration such
contingencies as property inspections, the title report review, and any
special circumstances, such as one or more parties being out of town or
out of the country, an estate or probate situation, or other
complications which may involve legal assistance.
To set a reasonable closing date, both parties need to understand what
their individual responsibilities are before closing can occur. You and
the Seller should list the tasks you each must perform and then try to
calculate a time limit for each of these tasks. The Seller, for
example, may find that there are liens or other encumbrances on the
title of which he was not aware, and these "clouds" on the title will
need to be cleared up before the title can be transferred. The property
inspection might show up minor defects which the Seller may be required
to repair, or major defects might become evident, in which case you and
the Seller may need to come to an agreement as to who will pay for
these repairs. These types of events are not unexpected in a property
purchase and should cause no delay in the closing, as long as they have
been provided for ahead of time. Before setting the closing date, try
to think of any situations which must take place before you go to
closing.
The Seller may request that the closing date be contingent upon the
sale of his present home. This date may be rather arbitrary, but a
tentative 30, 60 or 90 day closing date could be set and when the
actual closing date can be set, then an addendum to your purchase
contract can be drawn and signed by both you and the seller. In this
case, you would want to be sure to notify your escrow or closing
officer of any changes in the date for closing.
Keeping the escrow officer informed of exact dates is very important,
as she will be prorating and calculating certain expenses and credits,
such as interest, taxes, and insurance and these will be calculated
right up until the day of closing.
The lender may have an important role in setting the closing date. Your
loan may take longer than traditionally expected, perhaps you have
additional items the lender needs to verify, or perhaps you are
self-employed and the lender will require Profit and Loss Statements
and other documentation to document your financial profile. Perhaps the
lender will require that certain repairs on the property take place
before they will agree to fund the loan. To avoid any unnecessary delay
in closing by a lender, you might want to consider getting
"pre-qualified" by a lender and asking them if they see anything
unusual in your credit which could hold up your loan. If property
repairs are required, you could ask that money be held in escrow for
these repairs, rather than hold up the agreed upon closing date.
The closing agent may have a role in controlling the closing day. Check
with the escrow officer to get an idea of how long it will take to
issue the title reports and how long it will take to prepare the
closing documents.
Schedule your closing as soon as possible in the transaction, as escrow
officers often are busier on some days than others and you would want
to be sure to reserve your time and day. When scheduling your closing
with the title or escrow company, let them know that you want ample
time to go over and review all the paperwork. Oftentimes, Buyers and
Sellers are rushed through this critical process, as the closing agent
may have a busy schedule that day and these documents are all standard
and commonplace to her. Closing agents may forget that each provision
and each commitment listed in a document may be new to the party and
will need to be explained carefully.
When an attorney is involved in the transaction, whether representing
the Buyer or the Seller, normally the attorney will explain each
provision in detail. Keep in mind that the escrow officer or closing
agent is a neutral third party only. The title company cannot give
legal advice or interpret documents for you. The closing officer can
explain each item and review how the numbers were calculated, but for
any legal opinions, you will want to consult with your attorney.
Click here for Buyer Help Topics
People wandering through model homes come in several
varieties. Some are dreamers, forming fuzzy mental images of what their
future home may include.
Others are true shoppers, about to make some hard, fast
decisions. And then there are the"looky-loos;" those who are there to
absorb ideas about decorating and take away mental pictures for home
improvements.
This latter category of visitor usually wastes little time talking to a
salesperson, opting instead to make mental notes of their likes and
dislikes about the model homes in a devil's advocate kind of
approach.Their mission illustrates a good way for homeowners to
formulate perspective on where they may be heading while they are
preparing to add value and improve their current homes, even if the
goal is to ready their homes to sell within the next few years.
Some ideas are inexpensive and cosmetic; others take a lot of planning.
But which ones actually pay off, reaping at least as much, if not more
than the investment in the improvement itself?
We'd like to think that a potential future buyer for our own home could
appreciate that the money and time spent on a total remodel to our
kitchen is as valuable to them as it is to us. But we must face the
reality that potential buyers have no idea of what our kitchen looked
like before we got our hands on it and in many cases, don't really
care.
This is, of course, unless we're talking about the renovation of something truly remarkable, like an historical, period home.
The simple fact remains that homebuyers tend to look at what is in
front of them and whether it's in line with the market and area they
are considering.
Here, then are some points to ponder for determining which projects add
value when preparing to launch on a home improvement campaign.
Eliminating "functional obsolescence." Edith Lank, in her book "The
Home Seller's Kit," (Dearborn Press) describes functional obsolescence
as the practice of as improving a house beyond its practical use for
the occupants. An example of a functionally obsolete home would be one
with an added wing of bedrooms, but only the original number of
bathrooms retained, or a home where someone has knocked out a wall to
make a huge kitchen within a two bedroom, otherwise modestly sized
home.
Lightening,brightening, and painting, inside and out. One of the most
cost-effective improvements many homeowners can make is to add light,
update and diversify lighting within their homes, and add a fresh coat
of paint to the interior, as well as the exterior of a home. Lighter
colors and natural light add visual size to any area.
Improving kitchens and baths and flooring to match levels of
surrounding homes. If everyone around you has already eliminated the
lime green tile from their bathrooms, ripped out five differently
colored wall-to wall carpets within their homes in favor of an updated
and uniform style and color throughout, and replaced the flat,
unappealing kitchen cabinetry that came with their homes, it's probably
time to take a hint.
Enhance curb-appeal. HomeStore.com's
remodeling expert Broderick Perkins in his article "Lookin' Good!,"
says, "Curb appeal is the impression your home's exterior conveys. It
should create an emotional desire to own the home and live the
lifestyle and status it represents." The paint job mentioned earlier
can make a huge difference in curb appeal, but more detail work may
work wonders as well, like landscape mow strips and the addition of
more greenery and color, a new roof, a new front door or garage door,
or newly paved or enhanced flatwork.
Any or all of these basic improvements may pay off in the long run, but
don't underestimate the value of updating your home's energy efficiency
as well, with newer windows, added insulation, fresh weather-stripping
all around, and more cost-effective heating and air conditioning
systems. The Web is chock-full of enlightenment, ideas, suppliers and
vendors for home improvement projects, including HGTV.com, Remodel.com, BuilderOnline.com, and HomeImprovement.com.
You've found a buyer and she's made an offer. But the offer is not
quite what you were looking for, so you make a counteroffer back to the
buyer. A good idea? Perhaps. But to be a strong, in-control seller,
it's imperative that you understand the good, the bad, and the
potentially ugly regarding counteroffers. Let's explore what a
counteroffer is, how it works, and how you can use it to best
advantage.
When counteroffers occur:
Counteroffers are replies to original offers (as the name implies).
Just like making a verbal counter-point to another person's statement,
the counteroffer is a response to an original offer. For example, the
buyer asks that you leave the washer and the dryer with the house. You
decline and counter back to the buyer with the washer and dryer marked
off of the personal property section of the contract. You have made a
counteroffer.
Counteroffer snafu:
It sounds simple. But there's one twist. A counter offer is an entirely
new offer, one that the buyer doesn't have to accept. Any change, no
matter how minor, voids the first offer, and the buyer is under no
legal obligation to respond to the new offer. This means that even
though the buyer first offered to pay full-price (in cash) for the
house, you may have just killed the sale because you balked at leaving
the washer and dryer worth $200!
Communicating your acceptance:
There's an additional point to understand regarding offers of all kinds
(counter or otherwise): The offeror, the person making the offer, has
the right to withdraw the offer prior to it being accepted with that
acceptance being communicated back to the offeror. This means that a
buyer could withdraw the offer (with earnest money being returned)
anytime prior to receiving word from you that you had accepted the
offer.
For example, you are trying to decide whether or not to accept a
buyer's offer when you receive a call stating that she is revoking her
offer and purchasing another property. Or worse yet, you accept the
buyer's offer, and, in your state of euphoria, forget to call her to
relate your acceptance. Prior to receiving word of your acceptance, the
buyer could withdraw the offer.
When counteroffers make sense: Does this mean that you should never
make counter-offers to a buyer? No, but make sure you know the price
you pay if you do! The buyer doesn't have to accept the offer, can walk
away from the sale---can even counter back at terms more in his favor
and less in yours. Make sure you weigh the pros and cons before
proceeding and be ready to accept the consequences.
In general, win/win negotiating will take you a long way in making and
accepting counter offers. If you keep the other party's position in
mind when negotiating, meeting the buyer half way will be easier to do
and more productive as well.
Buying a home without having it professionally inspected first is about
as risky as engaging in a game of Russian roulette. But buyers aren't
the only folks who can benefit from home inspections.
If you're a seller, your knee-jerk reaction to hearing that a home
inspection for owners is a good idea might be "Why? I'm afraid the
inspector will uncover a hidden problem that will cost me thousands to
repair. Or, I'll have to disclose the problem and subsequently bring my
asking price down to compensate the buyer for the necessary repairs."
Well, actually, there's a good argument that owners are best served by having a home inspected prior to the sale.
Why? Because if an inspector seconds your opinion that your home is in
good condition, then you've got an excellent marketing tool that should
help your Realtor sell your home more quickly and for the highest price
possible.
Your pre-inspection report is your negotiating tool that gives validity
to your asking price. It also places confidence in the minds of
prospective buyers, who know that they're not jumping into uncertain
territory.
Chances are good that a serious prospective buyer would hire his or her
own inspector to conduct an investigation of your house, but your
report signals to the buyer that you're serious -- that you're so
confident in the structural integrity of your home that you paid to
have it inspected. In addition, the prospective buyer can compare the
pre-inspection report with the findings of his or her own inspector. If
everything adds up and both reports are favorable, the buyer will be
much more likely to pay full asking price without a challenge.
Your Realtor has undoubtedly already covered with you the cosmetic
improvements -- a fresh coat of paint, simple landscaping out front,
new carpeting or perhaps even some minor home improvements such as
appliance replacement -- that will help add value to your home and
boost its selling price. The limitations of your Realtor's knowledge
lie behind the walls of your home, where hidden problems might be
present. And although your Realtor will attempt to be as thorough as
possible in his or her assessment of your home's quality, it's likely
that he or she will miss more subtle problems like leaks and water
damage, minor electrical problems or the breakdown of various
appliances in your homes.
Your Realtor will ask you to report any problems which could affect
your selling price, and it's your responsibility to report any of which
you are aware, under the terms of the sellers' disclosure laws in your
state. But if a problem has been brewing behind the walls or in the
foundation of your home, and you're unaware of its presence, the buyer
could come back to haunt you within months, waving his or her copy of
the seller's disclosure, if the problem rears its head shortly after
the transaction is complete.
Let's say the buyer does just that -- but you protected yourself by
having a home inspection conducted before you placed your house on the
market. The inspection, performed by a professional, never uncovered
such a problem. If that's the case, you may not be held responsible for
a problem that could have been the buyer's own doing.
Having your home pre-inspected can also prevent any problems from
occurring at the "eleventh hour" before the transaction closes. Many
sellers have experienced last-minute hassles when a prospective buyer's
inspection report reveals a hidden problem which could bring the entire
transaction to a screeching halt. At this point, the buyer could walk
away altogether if the problem seems like more trouble than it's worth.
If the problem had been revealed up front buy the seller in the
beginning, however, the buyer would have been much more amenable to
dealing with it -- most likely through a deduction from the selling
price so that the buyer could assume the responsibility of the repair
costs.
Proactive disclosure, in many cases, is met with appreciation on the
part of the prospective buyer; and it's not likely to kill the deal,
either. If the problem is unveiled later, however, the buyer is likely
to think the seller tried to deceive him or her, even the seller had no
prior knowledge that the problem existed.
Last, pre-inspections protect the safety of both the seller and the
buyer. A professional inspector could, in fact, uncover a potential
disaster waiting for the first opportunity to strike. Since the seller
is likely to remain in the home for a period of time during the
transaction process, the discovery of such a problem benefits everyone
-- seller and buyer. Even relatively new homes that appear to be in
perfect condition can be hiding a serious defect. And the sooner the
problem is discovered, the less expensive it is to repair.
