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February 27th, 2009 by Temple City Tribune
A frequently asked question is, “Do we have to use the services chosen by our real estate agent or by the bank?” and the answer is no. Although this has been a problem for a number of years, with most originating from the larger Franchise real estate offices, it now seems that banks have also been selecting various services. Most demanded service, other than choice of Escrow Company, is the choice of the Title Company to be used.
Sellers of bank owned properties are not exempt from the Real Estate Settlement Procedures Act (RESPA). If you, as a buyer, are in the process of purchasing a bank owned property or have recently purchased one and had no choice of services, the bank can be held liable to the buyer in the amount equal to three times all charges made for such title insurance. Not only can banks be held responsible but also can real estate offices that make this same requirement. Next question would be, “why do these companies require that we use their chosen title insurance company?” and the answer to that is additional profits.
Some, but not all, of the major Franchise offices affiliates have agreements with various title insurance companies, and can receive some form of compensation from them. It may not always be in the form of monies, but could be in free services. These companies must disclosure if there is some form of affiliation with these services, and that does not only include title insurance, but also can include escrow companies, inspection companies and warranty companies. As a buyer, you should have the right to select services, and if you have a preference then you should voice your concerns as to who is to be used.
When ordering a title insurance policy, there is something else to consider. It appears that investors are purchasing a number of properties. Without question, there has never been a better time to purchase a property than now, as the interest rates are so low, and experience has proven that real estate is cyclical and prices will rise. When purchasing a property, you are to receive a clear title insurance policy, but what if you are planning on reselling the property within a year of two? For ten-percent of the cost of the title policy you can purchase a “Binder Policy”, and that will save you a great deal of money when the property is resold.
As example, the property purchased cost $200,000 and the title policy would have cost the seller $750.00 (who pays for the policy is negotiable). You sell the property within two years for $300,000. A new policy could cost $1,100, but by having the Binder Policy the cost would be based on the difference between the two properties, and in this case the amount would be $100,000, and the policy for the new buyer would only be $500.00, a savings of over $650.00. Your real estate agent will be able to give you a more detailed explanation of the advantages of this policy.
Q) ARE PRICES EXPECTED TO CONTINUE TO DROP?
A) I’ve looked into my crystal ball and can’t find an answer. Most likely, there will be some areas of the state where prices will continue to drop. Yet, there are areas in California where prices have flattened out, and there are areas where prices have actually increased. Best suggestion is to have that visit with the real estate agent within the area that you are considering moving to. They can give you price comparables, and should be able to show sales figures for the previous months. For the first-time homebuyer, there can’t be a better time to buy, as interest rates are low, prices are low, sellers are negotiating and a first-time homebuyer may only need three-and –a half percent (3.5%) down to make that purchase.
Q) IS IT A GOOD TIME FOR AN INVESTOR TO BUY?
A) Investors are gamblers, and have you ever seen a gambler not be willing to take that chance? Based on what the investor is looking for, price, size of the home or condominium, location are just a few of the questions that need to be answered. In some areas, the investor may want to wait a while longer, but there are many secondary markets where it may be a good time to buy as those properties could make fairly good rentals until the market changes, and could possibly pay for themselves during that time period.
Q) WHAT MAKES THE BETTER PURCHASE? A BANK OWNED OR SHORT SALE PROPERTY?
A) Think about that for a minute or two. Banks have no real knowledge as to the condition of the property being sold. They base their asking price on what the appraisal says its value is and on a Brokers Price Opinion letter; what a local real estate agent thinks what the property will sell for. Condition is taken into consideration, but what about the unseen condition. That bank owned property is less likely to have been maintained, and although you may have gotten a good price, repairs may more than off set that savings. The same is true with those selling a property as a “Short Sale”. If they couldn’t afford keeping the property, just how well have they been maintaining it? Because it’s cheap does not mean that it is a good buy. If you are one of those that likes to make your own repairs, consider what you time is worth before making that decision.
One final thought. Makes no difference if you are making that purchase for yourself or as an investment, your mortgage payments should never exceed thirty-five percent of your income. Do not consider over-time as part of your income as that can disappear rather quickly, and don’t consider having that investment property rented all of the time, as that doesn’t always happen. Base your monthly mortgage payments on what you know what your income is.
Louis Perlin CRS, GRI is a Syndicated Writer, Author, Professional Real Estate Witness and Mediator. Lou can be reached at Marilyn Perlin Realtors, Inc. (760) 327-8401 or by E-mail: firstname.lastname@example.org