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| Mary's Real Estate Update |
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Articles and Advice |
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| It still pays to remodel By Dian Hymer The home-sale market has taken a beating in the last few years, which begs the question: Does it makes sense financially to invest in home improvements? Remodeling Magazine's annual “Remodeling Cost vs. Value Report for 2009-10,” published in agreement with the NATIONAL ASSOCIATION OF REALTORS®, indicates that remodeling still pays off, but more so on less expensive projects. Most high-end remodeling projects don't return dollar for dollar on the investment even in a good market. That is, unless homes are appreciating at a fast clip. In this case, you might get your money back due to appreciation. But the profit on the sale might not be as much as it would have been if you hadn't done a high-end renovation. Just as today's homebuyers are making pragmatic decisions, so are today's homeowners when it comes to making improvements. Most of the remodeling projects with the largest return were for such things as replacing exterior siding and windows. On average the cost involved was less than $14,000, according to Remodeling Magazine. These projects returned from 71 to 83 percent nationally depending on the materials used. The project that paid back the highest return was a midrange front-door replacement that cost approximately $1,200 and returned an average 128.9 percent nationally. Sellers may wonder why it would make sense to invest in an improvement just for the sake of selling if it won't repay the amount invested. In today's challenging home-sale market, these improvements may be warranted for the home sell at all if there is a lot of inventory in your neighborhood. Buyers expect more for their money and gravitate to listings that are in the best condition for the price. HOUSE HUNTING TIP: Be judicious about how you spend your money fixing your home up for sale. For example, if your kitchen is a disaster, it makes more sense to do a midrange than an upscale renovation. According to the “Remodeling Cost vs. Value Report,” a midrange minor kitchen upgrade will return an average of 78.3 percent nationally. A major upscale kitchen remodel will pay back only 63.2 percent. The national average returns on remodeling investments do not give an accurate picture of the renovation returns that might be typical in your neighborhood. For instance, the payback for Honolulu homeowners for most of the 18 remodel projects analyzed returned 100 percent of the investment. San Francisco was close behind with 10 projects paying back the full investment. The cost versus value report recommends the following cost-effective improvements you might consider to prepare your home for the market: tidying up the kitchen cabinets using organizers will make your cabinets roomy; add an inexpensive tile backsplash to a tired kitchen, and use inexpensive tile to give an old bathroom a new look; add a breakfast bar by cutting an opening between the kitchen and family room; and install granite tile rather than slab. Other suggestions include: Replacing outdated light fixtures; freshening up the basement; giving the kitchen cabinets a new look by reconditioning and adding new knobs or having cabinet doors and drawers replaced; updating a bathroom without replacing tile by changing the medicine cabinet, light fixtures, vanity, cleaning the grout or replacing it and adding glass shower doors. The findings of this report were based on a survey sent to 150,000 appraisers and real estate agents in the summer of 2009. The survey included information about the cost and description of the remodel projects and median price data for the 80 metropolitan areas surveyed. Some 6,233 survey respondents estimated how much value the improvements would add to the house at resale in the current market. THE CLOSING: Before starting any fix-up-for-sale projects, seek your real estate agent's advice so that you don't waste money on improvements that won't pay back much in your area. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Fixing to sell: Don't go overboard By Dian Hymer Fixer-uppers with upside potential were in high demand when the market was appreciating at a fast pace. Once depreciation took over, speculators disappeared until 2009, when low-end foreclosure properties in some areas became hot properties -- particularly if they were selling at a 50 percent discount from the peak in summer 2006. In California, 70 percent of the homes bought by investors in 2009 were distressed-sale properties, according to the CALIFORNIA ASSOCIATION OF REALTORS®. Some were stripped of appliances and fixtures. But, at half price, there was profit potential for buyers who were up for a redo -- especially seasoned investors buying multiple homes to fix up and resell, or rent out. Fixers priced over $500,000 aren't as easy to sell today. Most buyers in higher price ranges are buying a home to live in. They want a home in move-in condition that will suit their long-term needs. There are exceptions. In high-demand market niches with few listings, there is occasionally a fixer-upper that draws a lot of attention. Usually, these fixers sell to buyers who will live in the property and fix it up themselves to save money. Often this is the only way they can afford to move into the neighborhood. Sellers of fixers in such neighborhoods should make their property as presentable as possible by cleaning out clutter, both inside and out. Many homebuyers can't visualize a property's potential. It's often worth a modest investment to show the house at its best advantage. Cosmetic improvements, such as painting, replacing outdated floor covering, or refinishing worn hardwood floors can pay off. Some fixers are staged, even though the property needs a lot of work, so that buyers can envision themselves living there. Presale inspections will help buyers make a decision about whether or not to tackle the project. Make reports available to buyers before they make an offer to avoid having to put the home back on the market if the deal falls apart because the buyer's inspectors discover defects not previously disclosed. HOUSE HUNTING TIP: How much you spend preparing a fixer for sale depends on several factors. How much did you pay for the property? How much do you owe against the property? Is there demand for fixer-uppers in your area? Finally, how much does your real estate agent think you can sell the home for given current market conditions? Sellers who have equity in their home and cash to invest in fix-up for-sale work should consider making cost-effective renovations, like a kitchen upgrade, but not an entire renovation. Ask your agent what the home would sell for with and without these improvements before doing anything to it. The investment may not yield a profit, but could recover the costs when the home sells. In areas where fixers aren't selling, sellers might need to enhance the property to sell at all. A good real estate agent should be able to provide references for reliable, reasonably priced professionals who can do the jobs for sellers who haven't the time or expertise to do the work themselves. Buyers who bought at the peak may not be able sell for even close to what they paid. One possibility would be to rent the property, if it makes sense financially. You may need to fix up the property somewhat to attract a good tenant. Consult with a certified public accountant about the tax consequences of converting a single-family residence to a rental. Another option, if you don't have to sell now, is to stay put for awhile and fix the property up gradually over time. Avoid investing a large amount of money in the hopes of getting a bigger return. THE CLOSING: The housing market in your area may be too uncertain for speculation. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Not all buyers are worth a counteroffer By Dian Hymer After mustering the emotional energy to make an offer on a listing, it can be devastating if you hear nothing back from the seller. In most cases, if the offer isn't what the sellers are looking for, they will issue a counteroffer detailing the price and terms they can live with. When a seller doesn't respond at all to your offer, it's usually because the offer is so low that the seller thinks it's a waste of everyone's time. Ask your agent to talk to the listing agent to find out why the seller didn't counter your offer. Then, make another offer if you think the house warrants a higher price. If the sellers want too much for their house, take a breather. Let the listing sit on the market awhile before you make another offer. The risk of this approach is that another buyer could come into the picture who is willing to pay the sellers' price. Nothing is lost if you wouldn't have paid that price. Your agent should keep in touch with the listing agent during your wait-and-see period. Ideally, you'd like to know if the sellers are going to reduce the price before it shows up on the multiple listing service. A price reduction to market value could elicit interest from multiple buyers. Risk-averse sellers can be skittish about working with buyers who have a low cash downpayment. It's wise to include a mortgage preapproval letter with your offer. Also, some sellers aren't in a position to accept an offer that's contingent on the sale of the buyers' home. Another reason buyers don't receive counteroffers is because there were multiple offers. The sellers can accept only one offer in primary position. If there were five offers and yours was the lowest, you're not likely to receive a counteroffer. Multiple offers are occurring in low-inventory, high-demand markets. Buyers were out early this year due to lower home prices, low interest rates and homebuyer tax credits. HOUSE HUNTING: A typical reaction from buyers who lose in a multiple-offer competition is that they would have paid more. When you're competing against other buyers, you need to make your first offer your best offer. This seems counterintuitive because you run the risk of paying more than you might need to. One way to ensure that you don't pay too much is to include an appraisal contingency in your purchase offer. Generally, an appraisal contingency allows the buyers to withdraw from the contract if the house doesn't appraise for the purchase price. In today's wary lending environment, lenders are requiring appraisers to be conservative on appraisals, particularly in declining markets. Be aware that some buyers in a competitive situation will not include an appraisal contingency in their contract. If they have a large enough cash downpayment and the appraisal value is less that the contract price, the lender may still approve a loan amount that will enable to the buyer to proceed with the sale. THE CLOSING: Buyers who want a house badly enough will often pay more than the appraised value if they have enough cash to make up the shortfall. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Six ways to boost curb appeal By Paul Bianchina If you're thinking of listing your home this spring, now is the time to be thinking about one of the most important elements of real estate marketing: Curb appeal. It's your one and only chance to make a first impression on a potential buyer, so make it a good one! Here are some suggestions to make your home stand out from the rest: 1. Get some new eyes: The thing about curb appeal is that you need to look at your house through a stranger's eyes, not through your own. You don't even notice the faded paint on the trim or the missing house numbers, but other people do. So if you can't be honest and objective about the overall condition of the exterior of your home, find someone who can. If you have a friend, relative, or neighbor who you trust to be honest with you (and that you have a good enough relationship with that it will survive their bluntness, then ask them). Ask your real estate agent. If necessary, hire a landscaper or a contractor to act as a consultant. The main thing is to get a comprehensive, written list put together of what needs to be done to the outside of your home to improve the first impression it makes. Concentrate on the front, but don't overlook the sides and back either. 2. Start with basic repairs: The very first thing on your curb appeal list should be basic repairs. Is there a broken window? A torn screen? A loose gutter or downspout? A sagging screen door? It doesn't matter what it is or how small it is, fix it. They may seem like little things, but making sure that everything is in proper working order can make a huge difference in how people perceive your house and the care you have taken with it as a homeowner. Make sure you have big, bright, easily visible house numbers. Oh yeah -- and don't forget to squirt a little oil on those squeaky door and gate hinges. 3. Next, do some cleaning: Break out the broom and clean the outside of your house better than it's ever been cleaned before. Rent a pressure washer, and clean the driveway, walkways and patio. Clean your decks and your siding (a scrub brush is a better choice in these areas than a pressure washer, to avoid damage to the wood). If your wood deck is badly weathered, consider a deck cleaner and brightener made specifically for that purpose -- available at paint stores. Wash all your windows, inside and out, including the window screens. 4. Declutter: Just as you would with the interior, you want to declutter the outside of your house as well. Pick up the kids' toys, and put away the garden tools and hoses (remember, you're going to have people visiting the house, so this is also a liability issue). Remove all that accumulated junk from the sides and back of the house, and haul it to the landfill. 5. Next, tackle the landscaping: As part of the decluttering and general cleaning, do the landscaping areas as well. Prune overgrown plants and trim back overhanging tree limbs. Pull out anything that's dead. Rake up leaves and needles, and pull weeds. If you have an underground sprinkler system, make sure everything is working properly. If you have a lawn, fertilize and water it regularly to green it up, and run an edger along sidewalks and driveway edges. In your planter areas, you can make a huge difference in how your house looks with the simple addition of some fresh bark and colorful flowers. And if you don't have any planter areas, create a few, or add some simple planter boxes to do the same thing. There's nothing like color to really catch the eye and give your home a bright, fresh appeal. 6. Consider a trip to the paint store: Few things help your home show better than a fresh coat of paint. If it's been awhile since the outside of your home's been painted, this might be a worthwhile investment, especially in a tough seller's market. If you're handy with a brush and an airless sprayer, you might just want to undertake the project yourself. A long weekend and a few hundred dollars in paint can make a world of difference in how well the home shows and how quickly it sells. Otherwise, talk with a licensed painting contractor for an estimate. Maybe painting the entire house isn't really necessary. Sometimes just a fresh coat of paint or maybe a new color on the trim, exterior doors, garage door or window shutters can make a big difference as well. A word of caution about paint colors: When painting the house for resale, select colors that complement the house and the neighborhood and that will appeal to the greatest number of buyers, whether they happen to be your favorites or not. You may really have been itching to paint the house purple with black trim, but save that for another day. |
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| Appraisal rules tough on additions By Dian Hymer Recently a homeowner in the hills above Oakland, Calif., applied for a refinance. An appraiser visited the property and measured both levels of the house. The appraiser called the homeowner a few days later to find out if the lower level had been added with a permit. The public record indicated the house had three bedrooms, two bathrooms, and 1,513-square feet. The actual house in its current configuration has four bedrooms, three baths and a recreation room, giving it considerably more square feet than the public record indicates. The owner didn't know if the lower level had been added legally, claiming the house was in its present configuration when he bought it about 30 years ago. Due to changes in appraisal guidelines for residential properties that took effect in 2009, appraisers usually don't give livable square footage credit for work that was done without building permits. Without the extra square footage, the appraised value will be less than it would have been if the work were done legally. This doesn't mean that the lender won't grant a loan. But, if your house appraises low and you were expecting a loan amount based on a higher figure, you'll be disappointed and perhaps unable to complete the refinance -- or, if you're a buyer, you may be unable to purchase. Let's say you wanted a loan for 70 percent of an $800,000 value, or $560,000. The appraisal comes in at $600,000. On a refinance, the lender probably won't lend more than 70 percent of $600,000, or $420,000, which is $140,000 less than what you requested. HOUSE HUNTING TIP: What can you do in a situation like this to increase the appraised value of your home? The first thing to do is go to the local planning department and request copies of all permits on the house going back to the original building permit. If you can find a permit for the additional work that was done, give a copy to the appraiser. The appraiser will have measured the unpermitted square footage. With confirmation that this space is legal, the appraiser will be able to include the additional square feet and increase the appraised value. Take a copy of the permit that confirms more rooms than is reflected in the public record to the county assessor's office and have them update their records. You may be reassessed based on the fact that your house has a legal addition, so your property taxes could increase. However, your house will appraise and sell for more if you can substantiate that the additional space was added with permits. If you discover that the work was done without permits, you can attempt to have the work legalized after the fact. This can be a complicated and expensive project, depending on when the work was done and how many square feet were added. If the addition is 10-20 percent of the size of the house, the permitting process will be less onerous than if the illegal space equaled 50 percent of the entire house. You will need to meet certain code requirements. For example, if a stairway leads to the unpermitted space, it must be 36 inches wide. Replacing an entire staircase can be prohibitively expensive. Walls may have to be opened to inspect the plumbing and electrical. If something doesn't meet current code requirements, it will probably have to be brought into compliance. You might have to add or change windows. Plus, if the building inspector discovers other items in the house that do not comply with current code requirements, you might have to correct these in order to receive final approval of the project. THE CLOSING: Sometimes contractors take out permits for work, but don't take the time to have the final inspection done. In this case, call the contractor and have him finish his job. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Why real estate price padding doesn't work in today's market By Dian Hymer Many sellers are in denial about the current value of their home, particularly if they bought within the past five to six years. The market peaked in the summer of 2006, and home prices dropped significantly in most areas from 2007 through 2009. Sellers often see no harm in asking a higher price -- one based on their needs or desires rather than what the market will bear. "We can always come down" is a common refrain. Letting your home sit on the market at a price that's too high can result in price reductions and a lower sale price, especially if the market is still declining. Today's homebuyers are nervous, pragmatic and well educated about the market. Not only are buyers cost-conscious, fewer buyers can qualify for a mortgage than was the case in 2006 due to recent credit tightening. Many who bought in 2006 couldn't qualify for the same mortgage today. There is a smaller pool of motivated, financially qualified buyers than there was several years ago. These buyers have an edge in most markets. Buyers want to know how long a listing has been on the market. If it has been on the market for some time, they wonder why it hasn't sold. Is there something wrong with it? A high price can signal that the seller isn't motivated. Buyers don't want to waste their time. Don't waste yours as a seller if you aren't serious about selling at current market price. No one knows for sure when the housing market will turn around. Many economists think we've hit bottom or are close to it. Analysts also forecast that home prices will bump along the bottom for some time. They don't expect a quick rebound. There isn't an urgency to buy before prices rise; buyers are taking their time to find the right long-term home. They are not overpaying. Even in low-inventory markets where multiple offers can occur, the price is usually not bid up radically, unless the listing was considerably underpriced. Interest rates are low. Buyers' nervousness about the housing market has thawed recently. The combination of lower home prices and interest rates has made housing more affordable than it has been in years. There is a risk that interest rates will increase to around 6 percent by year end. If so, this will affect the affordability equation and could have a downward influence on home prices, depending on the condition of the job market and the economy. HOUSE HUNTING TIP: To take advantage of this window of opportunity to sell, your home needs to be priced competitively. There was a time when sellers padded their list price so that they'd have room to negotiate. That strategy doesn't work in this market. Your house needs to look great and be priced competitively so that buyers realize they have to jump before someone else does. An analysis of data from the multiple listing service for Piedmont, Calif., properties listed in 2009 provides an insight into the importance of pricing right for the market. During 2009, the listings that didn't sell were listed on average 26 percent higher than the listings that sold. The market is constantly changing. If you find after your home is on the market that it's not receiving the interest you'd anticipated, ask your agent for feedback from agents who showed the property. Find out if similar listings in the area have sold recently. Did buyers who looked at your home buy other listings instead? The market will tell you quickly if your home is priced too high. THE CLOSING: Lower your price as soon as you discover it's too high so that you don't lose marketing momentum. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
| Assessed vs. market value By Benny Kass DEAR BENNY: In 2006, the assessed value of my house had climbed to $756,000 and then dropped to $714,000, trailing the declining market. I filed an abatement based on erroneous information that my town was using, and was successful. My house was reassessed at $531,300, very close to my suggested valuation. About the same time, I refinanced my house based on a bank appraisal of $678,000. Since then, my house valuation has decreased each year and it now has an assessed value of $442,600; our area is being re-evaluated this year. Here is my dilemma: I firmly believe, based on almost daily research, that the market value of my house is somewhere in the low $500,000s. I think by filing this abatement, I shot myself in the foot. I know buyers look at the assessed value, which is easily accessed on our town Web site. In my case, this differs dramatically from two years ago as well as the appraisal I had during the same month my abatement went through. Can I realistically list my house at what I consider to be market value and expect a real estate agent to explain these events to potential buyers, or am I stuck with an asking price closer to the current assessed value? --Karen DEAR KAREN: I don't think you shot yourself in the foot; in fact, you have been paying real estate tax on the lower assessed value. You can list your property for any amount you feel it is worth. Some real estate agents may balk if your valuation is too high, but if you have the research (comparables) showing what other similar houses in your area are selling for, you should be able to convince the agents of the value of your house. From my experience, assessments in many parts of the country are not consistent with a home's true value. Many older homes are not carefully inspected, so the government assessor does not always know what kind of improvements have been made. Keep in mind that based on today's economy we are in a buyer's market. Regardless of the price you set for your house, potential buyers will lowball their offers. Obviously, you do not have to accept any offer and have the absolute right to counter with a higher price. When an offer is made either to a seller or a buyer, the recipient has three alternatives: you can accept it, you can counter, or you can reject it outright. One suggestion: Because most buyers do not pay all cash, they will need to get a mortgage. Lenders will obtain an independent appraisal before committing a loan, and appraisers are coming in very conservatively with their valuations. So, to satisfy yourself, I suggest that you consider obtaining your own appraisal before you sign up with a real estate agent. It will be worth the $300-$500 dollars that most appraisers will charge you. DEAR BENNY: I own a condominium unit in a fairly large association. Over the years with good management, we have amassed a sizable reserve account. Recently, the board announced that because we are earning only a very small amount of interest on this account, it wants to start investing these funds in the stock market. The announcement stated that with interest rates starting to increase, the board believes that the stock market will be a good place to earn more money for our association. Can the board do this? --Charles DEAR CHARLES: If absolutely every owner in your association agrees to go to Las Vegas and gamble with your reserve account, I would reluctantly have to say this would be legal (although clearly inappropriate). Notice that I said that every owner must affirmatively agree. Your board of directors has a fiduciary duty to all of the owners who elected them to their positions on the board. If they want to spend their own money on the stock market -- or in Las Vegas -- that of course is their business. They certainly have the right to spend their own money as they see fit. But your reserve account does not belong to the board; it belongs to every owner in your association. The clear obligation of the board of directors is to invest your money in secure, insured investments -- even if that means that your money may not be earning as much as everyone would like. Reserve accounts are very important to the well-being of any community association. If, for example, your elevator or your roof needs replacement, and if the association does not have enough money in reserve to pay for these matters, each owner -- including you -- may be faced with a special assessment. This may cost you a lot of money. More important in today's market economy, lenders are insisting that a condo association have adequate reserves before they will commit to a mortgage loan. Indeed, the FHA loan -- which today is probably the most important mortgage around -- requires associations to have a minimum reserve requirement of 10 percent of the annual budget. For example, if your association's budget is $400,000, you have to allocate $40,000 annually for future reserves. A reserve simply means that the association should have money set aside "in reserve" to cover the cost of future emergency or major repairs. Reserves are (or should be) an essential part of every community association. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
| Tips on remodeling to sell By Paul Bianchina Q: We are planning to sell our home next year. We tried the easiest route to brighten up the kitchen: Painting the dark wood cabinets a lighter color, as we have a faux wood laminate countertop. We went with a two-toned effect, with the cabinets done in white and the doors and drawers done in a semigloss beige. It does not look all that great and the doors stick: What would you suggest? Also, the drawers are an odd rail system with a wheel on an arm at the back of the drawer that hooks into the rail above the drawer -- they always come off and stick horribly. Any advice would be wonderful and highly appreciated, as we are on a very tight budget. A: When remodeling to sell, always stick with colors and materials that are as universally appealing as possible. In the kitchen, I would go with all white on the cabinets, since the two-tone look is not something that will appeal to most people. It's hard to say why the cabinet doors stick. If they didn't stick before the paint job, my suspicion would be that you got paint on the hinges, or you built up too much paint in the area of the hinges that is binding the door, or you closed and/or reinstalled the doors before the paint was completely dry. If you are going to repaint the doors, I would suggest sanding them down to bare wood before you repaint -- putting another coat on at this point is probably asking for trouble. I would also replace the hinges. The old-style drawer slides you mention have always been a problem. I'm not sure those things worked right even when they were brand new! I would start by removing each drawer, then checking to be sure that the wheel, track and other components are well secured. They were often held in place by a staple or a single screw, so they work loose and drop out of alignment quite easily. Install more screws as needed to keep them in place. Over time, the plastic front wheels wear out as well, which also messes with the alignment and operation. You can order new wheels and also complete replacement slides from Rockler Woodworking and Hardware at www.rockler.com [1]. Finally, make sure you clean everything thoroughly with a degreaser. Q: I am installing an electric oven/microwave combo into my new cherry cabinet. The oven instructions suggest to slide it in and screw in the mount brackets. My question is: The oven weighs 230 pounds and I do not see the "face" of the cabinet supporting the entire oven, (no bottom support). Now, the oven manufacturer also recommends at least four inches from the bottom of the oven to the bottom of cabinet -- thus not being able to put a shelf in for support. What do you recommend? A: Typically, what the oven manufacturer is referring to is clearance between the bottom of the oven door and anything below it, such as the top of a drawer. However, the oven manufacturers understand that the oven needs a lot more support than just the cabinet face frame, and there will be a specific set of instructions packaged with the oven that shows where the supports should go. What I have seen over the years is either a plywood bottom in the cabinet that the oven slides directly onto, or a plywood panel with "two-by" lumber pieces on top that are installed in a particular spot so that they support the oven's feet. In addition, the oven is typically screwed to the face or inside edge of the face frame (or both) to provide additional resistance against tipping when the oven door is opened. With cherry or any hardwood, be sure you predrill the cabinets. |
| Sizing up purchase deposits By Dian Hymer In most states, it's customary, or required by law, for the buyers to include a good faith deposit when they make an offer to purchase a home. The deposit should not be given directly to the seller, but held by a trustworthy third party that maintains a trust account specifically for home purchase deposits, such as an escrow company. The deposit can be in the form of a check made out to the third-party company or it can be wired into the appropriate account. The size of the deposit you make is usually determined by market conditions and local custom, except for specific types of sales, such as probate sales or sales of homes in a housing development where a minimum deposit is required. HOUSE HUNTING TIP: Your deposit will become part of your downpayment if the sale goes through. Depending on how your contract is written, your deposit should be refundable if you are unable to satisfy a contingency, after exercising due diligence to do so. Your contract should include contingencies for inspections, satisfactory condition of title to the property, your ability to line up financing, and the lender's approval of an appraisal of the property. For example, if your inspections reveal defects that can't be satisfactorily negotiated with the seller, your deposit should be returnable if your contract provides for this. However, the deposit won't be released by the holder to either the buyers or sellers without a release signed by both parties indicating how to disperse the funds. Be sure to check with a knowledgeable real estate attorney to determine who is entitled to the deposit if you back out for a reason that's not provided for in the contract. Real estate agents who aren't also attorneys cannot advise you on this issue. If you end up in a dispute, the deposit holder won't release the money to either party until the dispute is resolved. How large a good faith, or earnest money, deposit you make will depend on several factors. In any case, your deposit should indicate your intent to abide by the terms of the contract and close the sale. There is usually no set amount required by law. In California, where home purchase contracts can include a liquidated damages clause, deposits are often 3 percent of the purchase price. This clause puts a limit on damages that could be awarded to the sellers if the buyers don't close the sale. If buyers and sellers agree to include this clause in the contract, state law limits the amount that can be awarded to the seller to 3 percent of the purchase price. In many areas of California, deposits tend to be 3 percent of the offer price, even if the contract doesn't include a liquidated damages clause. Like most elements of a purchase contract, the amount of the deposit is negotiable. So, if you offer a $10,000 deposit on a $500,000 house, the seller might counter your offer and ask for a deposit of $15,000, which is 3 percent of the purchase price. The deposit can be made in two steps. You could offer $5,000 as an initial deposit, and increase that amount to a total of $15,000 upon removal of contingencies. In a hot seller's market, you might want to offer the full amount up front, or make a larger deposit than you would if you weren't potentially competing, to show your sincerity to the seller. THE CLOSING: If you're buying a short-sale listing that might take two or three months for lender approval, you might want to keep the deposit to a lower amount so that you don't tie up more money than necessary for a long time period. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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