Real Estate Buying and Selling - How to Avoid the Miseries Chapter 2

Real Estate Buying and Selling - How to Avoid the Miseries Chapter 2

Please note that professional licensing and certification rules may vary from State to State, and my writing is grounded in California because it has been my primary residence.

The first chapter in this series alluded to some ways to improve your chances for selecting the right real estate buying or selling agent who will act professionally, honestly and ethically to serve your personal interests and goals.

This writing is about engaging additional professionals to provide property appraisal and financing services. Remember - your best person in one profession is not necessarily going to be the best in another profession; and engaging unconnected people is one way to reduce the potential for any buddy system rip off.

Real estate appraisal is a serious profession in which there are many certification levels; and requirements for attaining top levels demand great amounts of proven knowledge and experience. It is most likely that the financing provider will protect their interests by hiring an appraiser to evaluate the property, and bill you for the appraisal.

There is no reason to consider that the appraisal will be inaccurate, but a no cost way to double check is through your real estate agent who should have Multiple Listing Service membership with the ability to access "comps", i.e. recent sales values of comparable properties. Appraisal and comparable values are rarely far apart, but significant differences should be noted and questioned until satisfactorily reconciled.

One of the biggest spooks in real estate transactions comes with the financing - a field that involves many different people who probably will not put you first, and many ways that set up and ongoing payments can be hidden. Remember, if your loan is scheduled to go from a fixed to an adjustable interest rate, that monthly payments can be hugely affected.

Rule number one: know how much you can afford to pay each month for loan principal, loan interest, real estate taxes, home insurance and any other fees. Rule number two: stick with rule number one. Rule number three: get all numbers in writing and understand - really understand - them before signing any loan papers. For example, when a lender talks about "points", you need to know what they are talking about. My preference for lenders is those who have some history and an office in the community; it is a good idea to get numbers from more than one lender because there are wide differences in rates and costs.

Something borrowers may never know is a disclosed 1% loan brokerage fee is really 3 or 4% with the difference added to their loan and paid with interest over its 15 to 40 year term. For loans that start out with a low monthly payment, the wake up call penetrates when the loan goes from fixed to adjustable rate and a huge payment increase. Do not agree to a loan payment that doesn't completely cover monthly interest!

So how is a borrowing person protected? I call it ignorance insurance. Do not be ashamed to use it by asking questions, questioning answers and seeking independent outside help - like a friend in the business, a loan consultant, the real estate loan officer at your bank, etc. Do not be rushed into signing anything that is not clearly understood.

Most importantly, use your gift of discernment and simply drop completely out of the transaction when that inner voice tells you something is not right. There will always be another loan agent who wants your business. Property transactions may involve large amounts of money with serious long term consequences, so give them the attention they deserve and don't ever assume anything.

Some property sellers are asked to provide financing, and that can be a good investment for some people if they do it right. Some of the "rights" are to insist on significant down payment, avoid second place lien positions and have a place to sell the loan for cash to one of the many "cash flow" investors who buy loans and various types of settlements at a discount from face value. Property condition should be confirmed by a professional inspector with appropriate license and insurance.