The Condo/HOA Document Review Contingency:A bonus contingency when buying a condo or townhouse

Even in the white-hot sellers’ market of the last several spring seasons – where buyers were waiving contingencies left and right and giving away their first-born child – there is one contingency that buyers never waived.  The condominium/home owners’ association document review contingency. This is a critical contingency, not applicable to single family homes, and invaluable to any buyer looking to purchase a condominium or townhouse subject to an Association.  In this blog, I’ll walk through the timing and mechanics of the contingency itself and will explore the aspects of the Association document package on which a buyer should focus.

Contingency Timing and Mechanics

Under the Northern Virginia residential sales contract for the purchase of a condo or townhouse, a buyer has the right to receive from a seller the Association documents that govern the property.  This package is typically delivered via email/link but can sometimes still be transmitted in hard copy.  Once a seller delivers the package, a buyer has three days (that starts the day after delivery) in which to review the documents and decide whether they want to go forward with the purchase or void the contract on their basis.  If the former, the buyer may simply let the deadline lapse. If the former, the buyer needs to deliver to the seller’s agent a notice to void within the deadline. 

What’s notable is that the buyer doesn’t need to provide explanation as to the reason for the voiding of the contract but can simply do so on the basis of anything whatsoever in the documents.  This is a fantastic get-out-of jail-free card for buyers that may be having some remorse about going under contract.  Also, remember, you have to receive the documents with at least three days prior to closing in order to have to actually go to closing to purchase the property.  The seller can’t just run the clock and expect you to purchase the property without the benefit of the contingency.  Smart sellers will get buyers this package as soon as the parties go under contract – that way, they knock out the 3-day contingency on the front-end of the transaction.

Keep in mind, it’s your job as a buyer to review the document package.  This can be no easy task when you realize you may have to plow through literally hundreds of pages, often of very dry material, to get the information you want.  While tempting to rely on your realtor to review and interpret the documents, it’s your job as a buyer to get familiar with the rules, regulations and ways of the condominium or townhouse complex that you’re buying into.  Also, it’s not advisable to rely on the interpretation of a realtor even if they’re willing to delve into the documents (and most aren’t) – this is not a realtor’s primary area of expertise, for the most part. 

When it comes to the timing of your review, my advice is this:  Read through the documents as soon as you receive them, if possible.  That way, you have time to direct any questions to the property manager or Association point of contact.  It can often take them a bit of time to digest your questions and respond.  Don’t wait until the back end of your three days to get to the bottom of anything, especially when it comes to budget and rules interpretation questions.

What to Focus on in the Association Documents

Resale Certificate

The most important document in my opinion is the Resale Certificate.  This document summarizes the monthly fees, whether the current owner is up to date on fee payments, if there are any upcoming assessments and if the unit is in violation of applicable Association rules.  Where there is such a violation, the seller is obligated to fix the issue and request a re-inspection by the Association prior to closing.  A buyer cannot be forced to purchase the property with this violation still in play.  Be sure to have your realtor close the loop on this and provide written evidence prior to closing that the property is no longer in violation of Association rules.

Covenants, Conditions and Restrictions (CCRs) or Rules & Regulations

Most condominiums and townhouse Associations will have either CCRs or Rules and Regulations applicable to the property.  It’s in this document that you’ll find the treasure trove of obligations, limitations and standards that will apply to you as a homeowner.  Here are a couple of areas of specific potential focus:

• If you want to remodel, add a bathroom, etc. – you’ll want to pay close attention to the requirements of the Association in this regard, including whether any such work by a homeowner is subject to the approval of an “architecture review board or committee”.  This group often comprises other homeowners. You’ll also be interested in any limitations when it comes to when work can be completed (i.e., some buildings have strict restrictions against work in the early morning or late afternoon, and on weekends).

• If you want to rent out the property – you’ll want to focus on the rental policies, to the extent there are any included.  Most homeowners will welcome restrictions on the ability to rent a property on a short-term basis (i.e., for less than a 6-month term) but will balk at restrictions that require minimum lease terms of longer than a year. Prohibitions against renting via VRBO or Airbnb are generally a positive if you want to ensure continuity in a building or complex.

Board Meeting Minutes

A seller is required to provide a buyer with the most recent six months of Association Board meeting minutes.  If those are not included – and often they are provided without the most recent minutes – you’ll want to reach out to the property management company or Association contact to obtain the most current minutes.  The minutes provide tremendous insight into the extent of engagement of the homeowners, any upcoming major projects/expenses and about the general dynamic within the Association.  If you are a buyer limited on funds and concerned about condo/HOA fee increases and/or any special assessments, you’ll want to read through the Board meeting minutes from the last 6 months if not the last several years.  It’s in these minutes that you’ll discover upcoming expenses and plans for any fee increases and special assessments.

Association Budget and Audits

You’ll also want to look at the Association budget in the past several years (to the extent available) to see how the property manages its costs and what “reserves” the Association has for planned capital expenditures.  This document offers great insight into what a property prioritizes – i.e., heavy investment in infrastructure v. cost of human resources. Well-managed properties will also have done periodic third-party audits of their budget and plans.  Keep an eye out for these as well.

With nearly 50% of my buyers purchasing condos or townhouses in the last year or so, I have developed plenty of expertise in this arena.  Please be in touch if you’d like to discuss the process in more detail.

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The Walk-Through – The Final Look

In writing these blogs, I’ve tried to cover each and every corner of a real estate transaction. The longer I do this work (almost 7 years!), the more I realize there are so many nuances that are often overlooked or ignored leading up to the biggest purchase of a person’s life. One of those is the final walk-through prior to closing.

When showing property to buyer clients at the outset, they often ask me this: “If I buy this home, is the seller going to repair all the nail holes and screw holes and touch up the paint?…Will the house be professionally cleaned?…Since the owner has a cat, will they clean the vents before leaving?” These questions are asked enough that it got me thinking that there’s often little discussion about the required condition of a property at the time of a sale, the process by which a buyer can verify that condition and the expectations a buyer may/should have, under the applicable contract, with regard to that condition. 

Timing of the walk-through

Under the Northern Virginia residential sales contract, a buyer is permitted to do a walk-through of the property they’re purchasing up to seven days prior to closing. This is where a buyer may assess the condition of the property and ensure that it is in “substantially similar condition” to what it was either at the time of the buyer’s home inspection or the date on which the offer was issued. While it may be tempting to do a walk-through at the very beginning of that seven-day window, I always advise clients to wait until, at the earliest, the night before closing, or even the morning of closing, to walk through the property and verify its condition. A lot can happen in between a walk-through and closing – think trees falling, pipes bursting, toilets leaking – so it’s best not to complete a walk-through too far in advance. It’s equally important to only do the final walk-through of a property after the seller is fully moved out so a buyer can assess the house without any distraction or obstruction from furnishings and wall-hangings.

Condition of the property at the walk-through

The standard in the contract for the condition of a property is that the home be (1) “broom clean”, (2) “free and clear of trash and debris” and (3) in substantially similar condition to its previous state as mentioned above. 

Let’s first talk about broom clean. It’s enough that the home be lightly cleaned, devoid of dirt and grime and dust free. The seller is not required to have their home professionally cleaned for the sale. In my experience, only about 30% or so of sellers will pony up the money to convey a home in a professionally clean condition to a buyer. While unfortunate and even sometimes frustrating, sellers often do the bare minimum. So don’t expect your “new” home to be clean as a whistle. Just clean enough will have to do.

When it comes to “free and clear of trash and debris”, sellers may take license.  Whether that’s because one man’s trash is another’s treasure or they simply run out of time to properly dispose of their stuff, it doesn’t really matter.  Sellers are not permitted to leave their personal belongings and trash at the property for a buyer to dispose of (unless agreed to by the parties, preferably in writing).  Unfortunately, this happens all too often. The items left by sellers are wide-ranging – furniture of all shapes and sizes, fluorescent light bulbs (require special disposal), cans of paint (of colors no longer on the walls), now inoperative gardening equipment and County/City trash bins filled to the brim.  This latter item is generally acceptable depending on the timing of a seller’s move-out and local garbage pick-up.  But all other items need to be cleared out by a seller prior to closing as they are not the responsibility of a buyer. It is a realtor’s responsibility to navigate this issue for a buyer such that all items are removed prior to a buyer taking possession on the day of closing. This can sometimes involve uncomfortable and contentious conversations between realtors – that just comes with the territory!

When it comes to the property needing to be in “substantially similar condition” at the time of the walk-through, it’s important that a buyer’s agent know the property well from the home inspection and/or from the time of the offer issuance (listing pictures are invaluable in that instance). With that familiarity, they will be able to better assess whether there is deviation in the condition.  A light bulb being out or hole in the wall from the removal of a large wall-hanging doesn’t rise to the level of being objectionable. What does are issues like a leaking faucet that didn’t exist previously, evidence of water intrusion, broken light fixtures, grass that is a foot tall when it was previously cut tight.

What to do if there are problems

Here is where timing comes back into play. If the walk-through takes place the day before closing, there is usually enough time to resolve whatever issues arise unless major like water intrusion. For example, if we discover at the walk-through, as I have, a leaking toilet that wasn’t leaking at the time of the home inspection, I’ll request that the seller have a contractor resolve the issue prior to closing the following day.  As part of that request, I’ll ensure that I receive a copy of the paid contractor invoice both as evidence of work completion and payment in full.  In some cases, if an issue is discovered, a buyer may be willing to receive a “credit” from the seller to address the concern directly. That credit may be in the form of a direct check from the seller to the buyer or as a “walk-through item” debit from the seller’s proceeds on the settlement statement. 

Those steps to resolving a walk-through issue may not be possible if the walk-through itself is the morning of the closing. There just isn’t enough time to do anything other than request the seller to provide a credit into escrow with the title company.  However, this can be problematic as any actual credits to the buyer from the seller on the settlement statement may need to be approved by the buyer’s lender’s underwriter – in which case, there may be delays to settlement. Not an ideal scenario when all parties are ready to close and specific funds have been wired based on that date of closing. Plus the seller has to consent in writing to a change to the closing date.

If you want to talk more about the final walk-through process and/or your real estate needs in general, please be in touch!

The Appraisal Contingency – A Safeguard to Borrow Only What a Property Is Worth

For the last several years – in what was a white-hot seller favorable Northern Virginia market – it was common practice for buyers to waive the appraisal contingency. With the market shifting and rebalancing between buyers and sellers, appraisal contingencies are back! With that comes questions about what it actually is, what it means and how a buyer can leverage it to their advantage. In this blog, I’ll walk you through what buyers should know when it comes to this all-important contingency. To do so, I’m going to break it down into two parts:

The Appraisal

If you’re getting a loan to purchase a property, your lender will require an appraisal on the property.  Lenders want to make sure that they’re not offering financing on an agreed sales price that is higher than what the property is actually worth.  Your financing and down payment is predicated on the lower of the purchase price or the appraised value. That opinion of value is determined by an objective third party, an appraiser. Once you’re under contract, your loan officer will request that an appraisal be completed.  This involves the following by an appraiser:

• A visit to the property.  This is an in-person walk-through of the property by the appraiser which includes taking measurements and photos.
• A review of the tax record, including the tax assessed value, interior/exterior square footage and sales history.
• A deep dive into comparable like-kind sales of the last 6 months (and not beyond) in the immediate neighborhood of the property. If the property is in a condo or townhouse complex, the appraiser will look there first. Only comparables that have closed and updated in the MLS can be used in the appraisal report (I.e., not properties that are under contract).
• A consideration of market conditions, the location (at a micro and macro level) and any particularities of the property (e.g., backing onto public land, walkable to public transport).

Sometimes, the listing agent of a property will try to provide the most up-to-date information to the appraiser to inform their analysis but, in general, the appraiser’s review is done with complete independence.  That review will typically take at least a week, from the date an appraiser receives the request for an appraisal to their issuance of the report to the lender. It should be noted that many lenders will say that they need at least 21 days to complete an appraisal.  That it is “industry standard” to require that much time.  This is not entirely true.  What can take that extra one to two weeks is the lender’s own internal appraisal and validation review process. 

Having a short appraisal contingency timeframe (e.g., 10 or 14 days) can be an important aspect of an offer, especially when a buyer is offering below list price. Hence, I recommend strongly working with lenders that can complete the appraisal process in that shortened timeframe. Depending on the lender, they may offer a rush fee to expedite receipt of the completed report inside 10-14 days.

The Contingency

The definition of contingency is “a contingent event or condition; such as an event that may but is not certain to occur.”  In this case, the event that is not certain is that the appraised value of the property will be equal to or greater to the sales price agreed to by the parties and set for in the sales contract.  If this event does occur, then the appraisal contingency is satisfied and the buyer simply issues a signed notice to the seller stating that the contingency is removed.  Often buyers ask me whether the seller “gets to know the price” at which the property appraised.  The short answer is no.  A seller and their agent have no right to see the buyer’s appraisal report. Plus, it may actually be upsetting to the seller if they find they agreed to a sales price below the appraised value.

If an appraisal comes in with an appraised value below the agreed sales price, the buyer may not remove the contingency (unless they are willing to cover with their own funds the delta between the appraised value and the agreed sales price).  The buyer will instead request that the seller agree to a sales price at the appraised value.  It’s possible that the seller refuses such a request – though in this market that would be short-sighted – and holds the line on the previously agreed contract price.  In that case, the buyer has the right to void the contract and receive back in full their earnest money deposit.  The buyer cannot be forced to purchase a property for more than what the appraisal has deemed it worth.  Since financing is based on the lower of the purchase price or appraised value, you can also discuss with your loan officer restructuring a home loan solution based on the lower appraised value (i.e., lower your down payment, take a higher than market rate for a large credit towards closing costs, etc.).

As you can see, this contingency is a very useful protection for buyers, protecting them from being forced to pay more than what a home is worth.  And its waiver by buyers over the last several years was a huge boon to sellers — who saw their home prices rise unchecked by appraisals, thanks to bidding wars.

Please reach out if you have questions about this contingency and would like further information.

Escalations – Climbing the Price Ladder in Competitive Situations

By now, we’ve all heard how crazy the Northern Virginia market is for buyers.  This is nothing new but the narrative continues to be that it is crazier by the spring season.  Buyers face intense competition in a market where low inventory has been, and continues to be, a huge problem.  So long as buyer demand exceeds housing stock supply, properties that are right-priced, well-located and in good condition will attract multiple offers. How can a buyer succeed when there is more than one offer?

Waiving contingencies helps.  So does a strong down payment and earnest money deposit.  A short closing is usually persuasive. At the end of the day, though, price remains king!  Yet buyers struggle with how to gauge the maximum price to offer, unsure where that cut-off may be.  That’s where escalations come in. Here, I’ll walk you through the ins and outs of escalations, from what they are to how to harness their power to maximum effect.

What is an escalation?

In a competitive situation, a buyer will need to offer a sales price higher than list price to prevail against other buyers.  One of the ways buyers can do that is by including an “Escalation Addendum” with their offer documents.  In Virginia, this is a simple one-page document that sets forth the highest sales price to which a buyer is willing to go and details the increments they would escalate to get to that ceiling price.  The escalation addendum is a part of the contract but will only be used if a seller uses it to push one buyer or another to a price above the stated offer sales price.

How much should I escalate?

There are different schools of thought in answer to this question.  Some realtors suggest going to a number above and beyond any comparable or reasonable threshold.  Their goal is simply to win.  I’ve heard the statement, “Go big or go home(less!)”.  So long as a buyer’s escalation increment goes above the next highest buyer, that buyer will prevail if the seller’s agent follows the escalation addendum exactly.  Realtors in that same school of thought will likely advise their buyer to include escalation increments that are larger, to the tune of anywhere from $5,000 to $25,000.

I take a more surgical approach to escalations.  Looking at comparables, assessing average escalations for the property’s neighborhood and considering the likely extent of competition for that property, I will give my buyers a suggested escalation price ceiling range and range of escalation increments.  I strive for my clients not to overpay, or to feel that they have overpaid.  Of course, I try to strike a balance between that goal and the objective to win.  Generally, I will advise a client to take a more modest approach to the escalation increment – if to win, you just need to beat out the next highest buyer to the tune of $2,000, why include an escalation increment of $25,000?  In that instance, you would have paid $23,000 more than you might need to.  By the same token, some sellers like to see buyers “go big” and will reward a buyer for those larger escalations.

How does the appraisal work with an escalation?

It’s all good and well for a buyer to say they’re going to escalate to some much higher final sales price.  But if the buyer keeps the appraisal contingency, they’re essentially adding a massive caveat to their escalation – that is, they’re telling the seller they’ll pay X higher price only if the appraised value comes in at or above that escalated sales price. Otherwise the buyer retains the right to re-negotiate the price or void the contract without penalty.

In competitive situations, where there are multiple offers with price escalations, a seller will likely choose the highest price offer only in combination with a waiver of the appraisal contingency at that escalated sales price.  In so doing, they guarantee themselves a sale at the escalated sales price without risk of re-negotiation or a contract being voided due to an under-appraisal.  Waiving the appraisal contingency with these large escalations is risky.  And most definitely not for the faint of heart. My job is to help my buyer clients assess the probability of an under-appraisal by examining closely recent comparables and the state of the market. 

What’s the proof that I needed to escalate?

Buyers always ask me – “How will we have proof that there was actually another offer that escalated us?”  There’s good news here!  The Escalation Addendum includes clear language that if the Addendum is used, the seller must provide a complete copy of the competing offer that escalated the buyer to whatever is the final escalated sales price.  This is a critical obligation as it not only gives the winning buyer necessary comfort but also gives insight into why the buyer beat out their competition.  Remember, a seller must provide a complete copy.  Not the first page of the Residential Sales Contract.  Not a copy of the competing Escalation Addendum.  Sometimes, realtors will try to play fast and loose with this obligation.  Don’t let them!

Remember though, it’s always possible that a seller’s agent will decide not to invoke the escalation addendums included in the competing offers.  Instead, the listing agent may circle back to all buyers’ agents with a request for a “best and final” offer from each buyer.  That’s the worst-case scenario for buyers that want the cover and protection that an Escalation Addendum provides.  My advice for navigating those situations will have to wait for a different blog!

Please be in touch if you’d like to discuss escalations in greater detail.

It’s Closing Time

The Nuts and Bolts of “Closing” on a Purchase or Sale

Whether you’re buying or selling, you’ve probably heard that the finish line is the “closing”.  I’ve always thought the term rather non-descript.  Even unclear.  Is it that the deal between a buyer and seller is done, so the chapter is “closed”?  That the parties have agreed to transact with one another until they close the door on one another.  Once a property is sold, are we closing the lid on the deal?  In this blog, I’ll discuss the steps that lead to a “closing” of a purchase or sale and what exactly is involved in the closing (aka settlement).

Contingencies all satisfied, now what?

Assuming there are contingencies as part of your purchase/sale – i.e., inspection, appraisal, finance contingencies – and those have all been satisfied, you’re now in the part of the transaction that is fairly straightforward.  In order to close, there are a few things that have to happen.  They are:

• If you’re a buyer, you’ll need to receive what’s called an initial “Closing Disclosure” from your lender at least 3 business days prior to your scheduled closing. The 3-business day period – required under the TILA-RESPA Integrated Disclosure (TRID) rule – is measured in days, not hours, and does not include federal holidays. Note that some lenders consider Saturdays a business day. The “CD” as it’s known is a government-designed document that accomplishes several things: (a) it details the costs a buyer will pay at closing and over the life of a loan, (b) it highlights certain loan terms, (c) it provides contact information for the parties involved in your transaction, and (d) it compares the final costs and a buyer’s pre-paid expenses with a buyer’s loan estimate. A lender will ask a borrower to review and acknowledge the initial CD via their web-based portal. This is a formality, rather than making the document binding, to ensure that borrowers have full disclosures about the rate terms and the cash needed to close.  The initial CD is a working document.  Hence, it’s possible that it will change over the course of the remaining days prior to closing, though not significantly.

• If you’re a seller, you’ll also receive a CD if the buyer is financing their purchase.  There is no 3-business day advance requirement as there is for a buyer.  The CD for a seller’s purposes is relatively simple – it details the deed-related costs, realtor commission costs, transfer taxes and any other fees to be charged at closing (e.g., HOA/condo fees owed).  As a seller, you’ll typically receive the CD from the title company assigned to your transaction, a day or two before the scheduled closing.  This is your opportunity to make sure you are comfortable with the costs and credits that will dictate the amount of money you receive for your sale after the closing.

• As a buyer, you’ll want to receive notification from your lender prior to closing that you are “cleared to close”.  This tells you that your loan is fully approved/underwritten and that your lender is prepared to fund your purchase right after closing.  If you’ve not received this notice a day or two before closing, you’ll definitely want to circle back with your loan officer.

T-1 (or 2) Before Closing

In the day or two before a scheduled closing, there’s not much if anything for a seller to do.  Other than confirm a date/time to sign closing documents.  For a buyer, they’ll want to confirm with their lender and/or the title company the amount they need to wire to the title company handling the closing on their behalf.  That confirmation sometimes comes in the form of the settlement statement – essentially a restatement of the CD but showing both the buyer and seller’s credits and debits in the transaction.

Note that as a buyer, it’s important that all purchase funds be liquidated well before closing.  Last minute scrambles are never fun!  One client of mine cashed out stock a day before closing only to learn that their bank wouldn’t release those funds for 2-3 business days.  That’s a problem when those same funds need to be wired to the title company the next day for a closing.  To avoid any such scramble, plan ahead where funds are coming from and be sure they’re available for wire transmission at least one business day, if not more, before closing. Keep in mind that funds should be transferred via a wire transfer (ACH transfers won’t be accepted).

It’s Closing Time

Sellers have it easy these days.  Thanks to Covid-19 and/or an overdue evolution in the way sellers can transfer their property, they can now (generally) sign their closing documents electronically.  This typically involves an e-notary and the title company facilitating an electronic closing in the comfort of a seller’s home, phone or office at time of their convenience.  A seller can sign closing documents prior to the date on which the closing is scheduled.  Those documents include the deed transferring title from a seller to a buyer, an owner’s affidavit (i.e., a seller confirms all contractors are paid, no liens on the property), and several tax disclosures. 

A seller’s side of the closing can take as little as 15 minutes.  If a seller signs their documents early, the title company will simply hold them in “escrow” until the buyer is done signing. The big thing to note is that it’s highly unlikely that a seller and buyer will meet in person these days.  Some may lament the absence of a buyer and seller meeting “at the closing table”.  Others will say it’s best to keep the exchange of a property anonymous and impersonal.  I can go either away on this.  There are certainly efficiencies in the separate document signing exercise.  By the same token, I do miss seeing buyers and sellers exchange information with one another, in a sort of passing of the baton exercise.

When it comes to the actual closing, buyers don’t have it as easy as sellers.  Lenders still require they apply “wet ink” signatures to loan documents.  As a result, buyers are still expected to meet with a title agent on the day of the scheduled closing (not before or after) to apply their John Hancock to a healthy stack of hard copy documents.  The most important documents are the Deed of Trust (which will be recorded in the land records of the jurisdiction in which the property is located) and the Promissory Note (kept by the lender on file). The Note is a legally binding agreement that commits you to repayment of the loan after closing.

In most cases, buyers will have received electronic copies of these documents from the title company or lender the night before.  Ideally, a buyer should read those documents before heading into the actual closing – that way, they’re armed with questions and knowledge.  The closing itself will take as little or much time as a buyer requires.  An hour is about the average. I’ve seen them run as long as three hours (that buyer had a lot of questions!) and as short as 20 minutes (perhaps not enough questions were asked there!).

A side bar here.  If you’re unable to be physically present at your closing, you may close via an attorney-in-fact.  Rather than explore that here, please see my separate blog on this very topic.

Closing is done? Last steps…

Once the buyer is done signing, the assigned settlement agent/title company will bring both the seller and buyer side documents together, verify they have everything and then notify the buyer’s lender of closing completion.  A lender must provide loan funds to the title company the same day of closing.  However, it’s important to note that, in Virginia, a title company will only release those funds to a seller after the deed has been recorded in the land records of a given jurisdiction.  A deed is typically recorded electronically these days, making the process quite a bit faster.  That said, the courthouses often close their e-recording in the mid-afternoon.  For this reason, I suggest my clients sign documents in the morning of their closing day.

Still with me?  If so, here’s one last thing to keep in mind.  If a closing is on the last day of the month or in the afternoon on a Friday, expect delays when it comes to deed recordation and funds disbursement. On the last day of the month, the deed might not get recorded until the first day of the month.  On a Friday, the deed might not get recorded until the following Monday.  Title companies are juggling a lot on those days and sometimes get backed up.  If that happens, don’t worry.  The title company will get it done within no more than 48 hours – they have to (barring unforeseen circumstances (e.g., power outage, court closure, weather)).  There’s a law that requires that!

If you have any questions about the lead up to the closing, the closing process itself or the post-closing elements, please be in touch.  I’m always happy to answer questions and talk through how best to navigate the process!

How to Navigate the Home Inspection Process + Maximize a Buyer’s Return

The white hot-market this past spring in Northern Virginia was pay dirt for sellers.  It was a different story for buyers.  To compete and “win”, they had to waive every which contingency.  Most importantly, buyers often found themselves waiving the all-important home inspection contingency.  Flying blind into a new home is far from ideal.  Thankfully, the housing market here in Northern Virginia has re-balanced a bit – at least for now – and buyers are now generally able to maintain their home inspection rights.  

Here, I explore how best to navigate the home inspection process and maximize the return on a buyer’s home inspection.

Who should you choose to inspect your future home?

Any good realtor will have a stable of home inspectors with whom they work regularly. The inspectors I recommend either have a contractor background/skillset or are highly trained in best practices in Virginia home inspections.  Over time I’ve winnowed my top inspectors to two that I know to be assiduous, detail-oriented, patient and to generate home inspection reports in a timely manner (which can be important if under a tight deadline, often typical in a competitive market like this). The inspectors with whom I work don’t shy away from problems.  That’s what you want when getting under the hood of your future home!

What should a buyer do during the home inspection?

Home inspections usually take 2-4 hours, depending on square footage and condition.  That’s time you’ll want to spend at the house, being an active participant in the home inspection. During that time, I always recommend my clients follow along with the inspector, learning about the operation of the home while also seeing how the inspector identifies repair concerns.  Knowing the location of the main water shut-off valve, how to change the HVAC filter and where the exterior hose bib shut-offs, to name a few, can be just as important as learning that there’s a leak in the sink.  Being an engaged participant also benefits buyers when reviewing the home inspection report that is the basis for repair or credit requests to a seller. 

How to prioritize home inspection repair items

Buyer clients usually ask me how to tell if a home inspection is “good”. It’s one of the few instances where I say you should judge a book by its length.  An inspection report of 30-50 pages is generally “good”, unless there are items listed that are significant (e.g., structural foundation issues).  I consider a report of that length equivalent to a B+ give or take. At the same time, remember that a home inspector is only as good as what his/her nose, eyes and ears can detect at the time of the inspection itself.  There will be issues an inspector will miss. A buyer should always go into the home inspection with that understanding and expectation.

To repair or get a seller credit, that is the question

Once a buyer has the report in hand, they find themselves at a decision-making crossroads.  To either void the contract on the report’s basis OR ask for seller paid repairs or a credit.  There are pros and cons to each of those latter options.  

If a seller is taking on repairs, they are both paying for them as well as handling all of the logistics of contractor selection, oversight and work completion.  There may be value of that to a buyer – i.e., less hassle, allows for a move-in with repairs completed.  A seller’s commitment to repair completion also binds them to whatever contingencies relate to a given repair.  This can be useful.  The downside of seller repairs is, of course, that sellers tend to be cost-conscious when facing repair costs and may be incentivized to select the lowest-cost contractor.  The old adage “you get what you pay for” is often true.  Hence you may want to avoid the situation where the repairs are completed, but to a minimal extent and to a poor standard. 

When it comes to a seller credit for repairs, the upside is a buyer can offset closing costs with that credit and reduce the cash they need to bring “to the closing table.”  This can be helpful for those buyers that are low on funds and comfortable deferring their completion of repairs to a later date.  That’s not always possible, though, if the nature of the repairs is such that an immediate repair is merited.  The con of a seller credit is the risk of underestimating the cost of repairs.  In that instance, a buyer finds themselves with a credit that is insufficient to cover the actual cost of repairs.  This is a real risk.  Especially when you consider that it’s generally not possible for a buyer to bring in contractors to provide specific estimates – that would, in turn, be the basis for a requested credit amount.

How to verify repair completion

In Virginia, sellers are required to provide a buyer with copies of paid contractor invoices for work completed.  Those invoices should be given before a buyer’s walk-through.  This not only allows a buyer to verify completion of the agreed-upon work but can also serve as a guide for checking through repairs during the walk-through.  They also detail the exact work completed that buyers will double-check during the walk-through.  In all honesty, some contractor repairs cannot easily be verified by a realtor and/or buyer.  Realtors typically don’t have the equipment to get up into an attic or to verify that electrical work has been completed as promised.  Ultimately a buyer needs to trust in the professionalism of the licensed contractors that complete the work and provide invoices to that effect.

I hope these tips are useful to you as you embark on your home purchase adventure.  Please be in touch if you’d like to discuss the home inspection process in more detail.

Price, Condition, Presentation & Timing = Key Ingredients for Seller Success

It’s (still) a seller’s market here in Northern Virginia.  Buyers are clamoring for the few properties that come on the market each weekend.  It’s standard practice right now for buyers to drop every contingency to beat out their buyer competitors.  No home inspection.  No appraisal contingency.  No finance contingency.  Prices are escalating wildly, upward of 6-8% on average above the list price. 

But all of this doesn’t mean that a seller can simply mail it in when thinking about putting their house on the market.  The same fundamentals apply – even in a seller’s market – when considering selling a home.  Price matters.  Condition is imperative.  Presentation differentiates.  Timing is important. In this blog, I’ll explore in more depth each of these areas.

Price Matters

As a seller in this market, it’s tempting to get swept into the idea that your property is worth a maximum price.  That impression may be rooted in what sellers hear from neighbors, read in the press or their impressions from third party valuation sites.  Zillow and Redfin often include inflated estimated values as those sites are not aware of the condition of a property, recent updates, changes to layout, etc.

What should inform pricing is comparable sales in the last 6 months.  That begs the question, however, of whether a seller should price based on properties that have closed.  Or, those that a seller knows will close after they put their house on the market. In my opinion, it’s best to base your list price on the sales that are on record.  Those are the ones that a buyer can see and, therefore, recognize as the justification for a seller’s price.  If a seller bases their price on an anticipatory closing (at a higher price than previous sales in the neighborhood), the marketplace may look at that seller’s price as an overreach.  Or as one that smacks of greed.

My general approach to pricing is to position a seller’s price within the realm of reasonable relative to recent sales.  And, in so doing, aim to attract multiple offers.  Let the buyer marketplace ultimately dictate the price, using an even-handed price as the starting point.  As they say, you can never price too low…but you can price too high.  All of my recent sales have closed 6-10% above the list price.  Equally important is that buyers of my recent listings have universally waived the contingencies, making the transactions seamless and guaranteed.

Condition is imperative

Just because houses are flying off the shelf like hot cakes doesn’t mean you can avoid putting in the time, money and sweat equity to get your property ready for the market.  What does that mean in practice?  Here are a few areas on which to focus when getting your home prepared:

• Paint – be sure to touch up or re-paint high traffic areas.  Those are typically stairwells, corridors, insides of closets and the areas around front doors (inside and outside).  Another key high impact paint area is the front door – one of the few areas of a home where you can recapture 100% of your investment.  And it’s not an expensive one.

• Lighting – give your home a close hard look to determine if your lighting is outdated.  You know those lights that look like part of the female upper anatomy.  They need to go!  Replace them with low profile, LED lights or drum lights.  Ceiling fans that are in that same theme or the ones with the discrete patterned globes.  Those need to go!  The “Hollywood” lights (think round bulbs in a single line) in a bathroom.  Yep, those need to go as well!  Lighting is a relatively affordable and high impact area for improvement.

• Tile – for bathrooms with tile on the floors and wall, it’s likely the grout has become discolored and stained.  Need to replace the tile?  No!  All that’s needed is some grout cleaner and caulk.  Be sure to also replace the caulk around the edges of your bathtubs, showers and sinks.

• Knobs and outlets – ever been in a home and noticed the beige outlets and white plate covers?  Or noticed that the door knobs are a hodge podge of brass, brushed nickel and bronze?  Uniformity is key when selling a home.  Ensuring that all outlets and covers are white is a relatively easy project.  Same thing with door knob replacement.  Keep it consistent. Both make a huge difference

Presentation differentiates

When a seller is interviewing realtors, they should consider what a realtor includes as part of the standard marketing package.  When I sell a home, I always include: (1) professional photography, (2) floor plans and (3) a 3-D video tour.  My goal with this three-prong approach is to ensure I put out in the marketplace the most comprehensive view of a property. It’s especially important in this digital age that a property make the best possible electronic impression.  It’s on the basis of pictures, floor plans and videography that a buyer will decide whether to visit a property.  You get the presentation wrong, a seller won’t get the price they want. 

Equally important is staging.  You’ve probably seen the data – it points to homes selling faster and higher when a property is professionally staged. For that reason, I always include staging as part of my service offering to sellers.  In a separate blog, I’ll show you the before and after examples of recent listings.  It’s almost mind-boggling how impactful coherent furnishings and wall-hangings can be.

Timing is important

One of the first questions sellers ask me is this – “When is the best time to sell?”  Year over year sales and accompanying data for the Northern Virginia market point to the spring months clearly being the answer.  The spring market isn’t just March through June.  In fact, it typically kicks into gear in mid-January and runs through the end of June.  It’s during this period of time that the majority of buyers are active.  In my experience, going on the market on the front-end of the season – i.e., January and February – can be to a seller’s advantage.  While other owners are busy waiting for flowers to bloom and to finish up their preparations for an April list date, sellers that go on the market in January/February face minimal seller competition and maximum buyer interest. 

All of this being said, the market here in Northern Virginia is a year-round market, with a fairly consistent flow of inventory release and sales.  There is plenty of evidence that a property that is well-priced and well-presented will do just fine in the later summer months or early fall months.  If there’s a time to avoid as a seller, it is November and December.  It’s hard for properties to compete with the big holidays over those months.  And the possibly bad weather! 

I hope you’ve found this analysis helpful.  Please be in touch to discuss in more detail my recommendations for ensuring the best outcomes when selling in Northern Virginia.

How to Choose Your Lender

Tips for Making the Right Choice

Early on in any buyer consultation, I always highlight the importance of talking to at least two loan officers before launching a purchase search.  Why?  Because only after that conversation will a buyer really know what they can (or should) afford and what makes the most sense in terms of a down payment and loan structure.  

Though I should really step into the picture after that upfront loan officer discussion, I find that buyers typically reach out to me first.  They almost always ask me for lender recommendations – which I happily make – as well as wonder how best to evaluate which loan officer/lender will work best for them.  This blog is born from the many conversations I’ve had with clients about what matters when selecting a loan officer.  

I hope these tips will prove helpful to you as you leap into the great beauty contest that is selecting your lender.

Competitive Rates  – At the end of the day, no matter how personable, responsive and skilled a loan officer might be, it’s the mortgage rate they offer you that matters most.  As one client once said when debating whether to jump lender ships upon learning that a lender I recommended would offer a better rate than the one with which they’d built a longstanding relationship – “I won’t remember the loan officer’s name in six months but I’ll remember that I’m paying more for our house than I could have.”  Harsh as that may be, it’s the truth.  So, all else being equal, the rate a lender offers you is paramount.

24/7 Availability – A loan officer who works banking hours is not the loan officer for you!  The majority of deals get done after hours and on the weekends.  It’s important that your loan officer be available at all times (even on vacation) in case you find your dream home and need a pre-approval letter to accompany your offer.  One of the reasons I encourage clients to shy away from big banks and credit unions is most of their staff and loan officers don’t work the hours necessary to get deals done here in Northern Virginia. And they’re often not available when needed most.

Plain English – I’m sure we’ve all encountered those fast talkers who know their own business so well they forget that others don’t.  Those types tend to skip across the foundational details, sometimes leaving us non-experts in the dust.  Lending is a complex business interwoven closely with economic factors like unemployment, federal government policy and the stock market.  A good loan officer is one who can explain the state of the lending market and various loan products in plain English, walking a buyer through the pros/cons of different options in an understandable fashion.  It’s so important that buyers understand the consequences of a certain loan choice (e.g., 30 yr fixed conventional v. ARM product).  It’s a loan officer’s job to help a buyer navigate to the right option and ensure the borrower understands what they’re choosing. 

The really great loan officer is the one who is solutions-oriented, able to contextualize the prospective loan into the buyer’s financial and tax picture. I always tell my clients that a loan officer is about more than the mortgage – they also serve as an adviser, helping clients make borrowing decisions that make the most sense from a financial and taxation standpoint.  Think of a financial planner, tax adviser and loan officer all bundled into one package of problem-solving excellence. 

Transparency – It’s important that a lender be open with a buyer’s realtor, especially when it comes to the appraisal valuation and status of a loan approval.  The best outcomes are from transactions where the loan officer is regularly updating a buyer’s realtor with the status of the deal – that’s because realtors are following the contract timelines and contingencies, working diligently to ensure they are satisfied.  Things go much more smoothly if a loan officer provides periodic, even proactive, updates to a buyer’s realtor.

Collaborative – I have a stable of loan officers with whom I work regularly and that I generally recommend to clients.  They are informal partners.  Collaborators if you will.  While it’s ultimately my client’s choice who they prefer to work with, I am always delighted when they select a loan officer with whom I’ve worked before and know to be open, transparent, responsive and creative.  I work hand in glove with loan officers at each key intersection of the transaction – i.e., appraisal and finance contingencies – and am always grateful when we bring a transaction to a close in a smooth and timely way.

Self-Funding – It’s important to understand the difference between a mortgage broker, a bank and a correspondent lender.  My vote is that a client go with the latter as correspondent lenders offer the best rates and most streamlined process to closing.  They fund their own loans at closing and sell them later on in the secondary market.  This allows them greater control upfront and the ability to offer the best pricing given multiple investors/outlets. Correspondent lenders have entire operations staff in-house, from processing to underwriting to closing.  This is very different from a mortgage broker who originates and places loans with multiple lenders and then adds their fees or margin on top of that loan/rate.  They do not have direct control over operations as they send the loan for underwriting through the lender.  A bank will set pricing but is generally plagued by bureaucratic-laden processes and an inability to satisfy the tight contingency and closing timeframes demanded by the Northern Virginia market.  If you want to dig deeper into this, check out this useful blog on the topic.

Timely Closings – In my 80+ transactions (as of this writing) over the last several years, 70% or so of which have been for buyers, I’ve never had a buyer fail to close on their purchase on time.  Why does that matter?  Because if a buyer doesn’t close on time, they’re in default under their purchase contract and risk losing their earnest money deposit.  That’s not something I ever want to see happen!  Hence, it’s critical that my clients work with loan officers that I know are guaranteed to help them cross the finish line on time.  In practice, that means getting a loan underwritten well before closing and issuing a closing disclosure well within the legally-mandated 3-day window prior to closing.  

I hope these tips will help guide you to the best possible loan officer/lender for you.  Please feel free to reach out if you’d like to discuss selecting the right lender.  I’m always happy to be a sounding board on this all-important decision!

Not all realtors are built the same

Tips for Finding the Right Realtor for You

Choosing a realtor is a lot like dating. There’s undoubtedly the right option out there for you but you may have to make your way through a lot of frogs to find your prince/princess. There is “someone for everyone” but getting there can be quite a journey. 

In this blog, I aim to help future home buyers and sellers leapfrog (pun intended!) over the sometimes messy and time-consuming process of selecting a realtor. As a realtor myself, I try to be the realtor I would want when considering the right realtor representation in one of the most important transactions in anyone’s life. 

Here are some of the key things that I think distinguish a great realtor from the rest of the pack and that you should look for in a realtor:

Responsiveness – If you reach out to a realtor with an inquiry of any kind and haven’t heard back from them within an hour or two, that’s not the realtor for you. This is a frenetic business, one where responsiveness can make the difference between you getting the deal you want or losing. You can’t let a realtor’s responsiveness failure get in your way. 

Follow-up – Dropping the ball in the Northern Virginia market is not an option. Neither is forgetfulness. A great realtor is one who listens to everything you as a client have said or asks and follows up on every single item. Call it crossing the Ts and dotting the Is (or whatever expression fits best) but your requests should be addressed timely and thoroughly.

Detail orientation – Let’s be honest here.  Realtors don’t typically have to draft contract documents from scratch.  They’re using boiler plate contracts issued by and through their area realtor associations (and sometimes their brokerage).  A realtor’s job is to fill in the contract blanks with correct information – e.g., price, legal description of the property, items that convey with the sale, party contact info, etc.  It’s not rocket science. Yet when mistakes get made in these legally binding documents, the consequences to a client can be significant.  You want to work with a realtor that pays attention to these important details so they don’t backfire on you!

Contract & process comprehension – I’m going to be a little self-serving here.  Most realtors do not have a legal background (like I do).  Yet they are working with legally binding documents that guide the buying/selling process and dictate the terms for the parties to follow. There is nuance and complexity to the language in the various contract documents that underpin a transaction.  You want to work with a realtor who truly understands what the contract terms mean.  What the implications are of not abiding by a contract term.  What the process for buying or selling includes, as rooted in the contract documents between the transaction parties.  Don’t let a realtor bluff you on this!

Neighborhood knowledge – No realtor can know every neighborhood like the back of their hand.  But most realtors do have a particular area of focus such that they’ll be intimately familiar with a neighborhood’s schools, parks, amenities and dynamic.  A really good neighborhood expert will even be able to speak to the unique characteristics of specific blocks and streets.  While I don’t think you need to work with a particular neighborhood expert to succeed, it can help.  And if the realtor isn’t deeply knowledgeable about an area you’re targeting – but otherwise checks your boxes – then encourage him/her to dig deep and fast to get familiar with a particular neighborhood.

Client first – Tough as it is for realtors to revolve their own lives around a client’s schedule, that is just the deal.  A good realtor will make themselves available according to a client’s needs – even if that means working early mornings/late nights and weekends.  They have to put a client first not only when it comes to schedule but also when it comes to workflow.  Realtors generally work with more than one client at a time but should make you feel like you’re they’re only client. 

Perseverance – In a competitive market, like here in Northern Virginia, there is no room for disappointment and defeat.  Your realtor needs to be dogged on your behalf no matter what the obstacle.  That means helping you navigate through multiple offer situations – potentially multiple times – until you get to the finish line.  It can be discouraging for a realtor to invest so much time without compensation – the good ones realize that the effort is not about the money.  It’s about helping a client find the best possible home at the desired price.

Choosing the right realtor for your real estate transaction is critical to ensuring your buying/selling objectives are met.  In writing this, I hope these tips prove useful to you in your selection process.  That they help you to be able to separate the wheat from the chaff.  Happy realtor shopping!

The Mighty Power of Attorney

An Essential Tool for Overseas Home Buyers and Sellers

One of the first things my overseas clients ask me when considering buying or seller is this: “We’re not going to be able to get back to Northern Virginia to sign closing documents – what do we do?”  While it’s important that they’re thinking ahead, they don’t need to worry!  Thanks to a legal instrument called a “Power of Attorney” or “POA”, home buyers and sellers not physically present at the time of closing may execute their purchase or sale documents through a third-party signatory via a POA. 

The POA has been a critical tool in 2020, especially, due to travel restrictions spurred by Covid-19.  But even before that, the majority of my overseas clients would use this instrument in order to avoid having to travel across the miles to the get to the closing table.  In the last several years, I’ve had no fewer than 30 closings where it’s been the “attorney-in-fact” designated by the POA who signs a client’s closing documents.  Though I miss being able to see my clients’ faces and expressions of excitement when they’re handed or handing off keys, I’m also relieved that this option exists to enable their closing in absentia.

Here, I’m going to walk through the nuts and bolts of the POA from its preparation through to the role an attorney-in-fact plays in a closing.

How do I get a Power of Attorney?

Once a client is under contract, I’ll alert the title company and client’s lender (if buying) to the need for a POA.  Many clients instinctively – and logically – would prefer that their realtor, a friend or a family member sign closing documents on their behalf.  Though it would be convenient, realtors are not permitted to serve as a client’s “attorney-in-fact” (a fancy word for a surrogate or proxy).  They’re too involved in the transaction.  Similarly, a representative from the title company is also too close to the transaction to serve in that role.

Friends and family seem appropriate on the surface.  However, it is often asking a lot of them to travel some distance themselves to get to a closing here in Northern Virginia, typically in the morning hours. Also, they’re not always prepared for the hand gymnastics involved!  Imagine signing “XYZ Name, as Attorney-In-Fact for XYZ Buyer Name” 50+ places in a document.  It can be draining. More than that though – it can be risky to rely on a friend or family member.  Their schedules can change.  They may not be able to travel the way they planned.  A pandemic may hit (witness 2020!).

Rather than risk not closing as a result (and losing your earnest money deposit if the closing can’t be pushed back), it’s safer to designate an actual attorney to serve as your attorney-in-fact.  Most title companies have a relationship with an attorney who is experienced in this area. The cost for this service will range between $100-$300.  In my opinion, that’s money well-spent for peace of mind and the accountability that will come with an attorney signing closing documents on your behalf. 

Once I have the POA, what do I do?

The title company typically emails the forms of POA to my clients after it obtains approval from my client’s lender.  My client then needs to sign and notarize the POA and return an original signed/notarized POA document to the title company.  This sounds easy enough, right?  Not necessarily when you’re in a Covid-19 world.  And not necessarily when you’re living in more far flung places in the world.  In the best-case scenario, a client will bring printed out copies of their POAs to a US Embassy or other location with a notary, get the original(s) notarized and return the signed/notarized documents to the title company via overnight/express mail.

In the current Covid-19 scenario, with lockdowns and other movement limitations, it may not be possible to get to a physical notary public in front of whom to sign a hard copy of the POA.  This is where technology and ingenuity come into play!  Thanks to web-based platforms like NotaryCam and others, it may be possible (subject to lender approval) for a client to “e-notarize” their POAs in lieu of an in-person notarization.  All a client has to do is log-in at a scheduled time and an e-notary will oversee their electronic signatures of the POAs. If a lender won’t allow e-notarization, a possible work-around is a Zoom session with a title company notary public staff member who watches via Zoom as a client signs the POAs.  Once the signed original POAs are returned to the title company, that notary public can then notarize the original document.  Again, this is subject to lender approval.  

A side note here is that for clients living in locales without reliable overnight/express mail, it’s important to focus on the POA process early in the transaction.  They need to ensure the original POA is in the hands of the title company well before their closing date.  Just because FedEx says they overnight mail doesn’t make it so.  Build in a cushion of extra days.  Because of this issue, I always raise the POA concern at the outset of a transaction.  And I make sure – or I encourage my client to make sure – that the lender has a clear process and established guidelines for how a client may get their POA finalized well before the closing date.

What does the Attorney-in-Fact do?

On a client’s closing date, their attorney-in-fact, as designated by their POAs, is teed up and ready to sign a client’s closing documents.  Those documents include lender disclosure forms as well as certain loan and tax documents.  Their role is not a substantive one though the function they serve is critical.  They are literally a hand and a pen – there to satisfy the lender “wet ink” requirement when it comes to closing documents.  They’ll sign in their capacity as a client’s “Attorney-in-Fact” and then transmit the package of signed documents to the title company. 

Given the non-substantive role they play, it’s important that my clients review the closing document package in advance of their closing date.  That way they know what their attorney-in-fact is actually signing.  In an ideal world, a client would receive that package days in advance.  That’s not what happens in practice.  Generally, a client will receive the package of loan documents the day or night before their closing. 

If you’re thinking of buying or selling from overseas and would like to learn more about the process, please be in touch!