Why a "Pending Sale" Doesn’t Mean That Dream Home is Off the Market Just Yet
If you’re on the hunt for a new house, you’ve likely been scoping out all sorts of listings online. Out of all the thousands of listings that you come across, you may have stumbled upon one that you can really see yourself living in.
The problem? The listing says “pending sale,” which means an offer has been accepted by the seller, but the scheduled closing date still hasn’t arrived and the sale is not yet finalized. Once a contract has begun, a home is considered to be in pending status.
But that doesn’t mean the sale is a done deal – there’s still a chance that the home might still be available for many reasons. Perhaps financing might fall through or a home inspection reveals issues that the buyer isn’t willing to deal with. The home isn’t completely off the market just yet, and it might not necessarily be too late for you to get your hands on that property.
Most real estate contracts include contingencies that essentially make the deal dependent on the fulfillment and removal of them. Common contingencies include mortgage approvals, home inspections, appraisals, or sale of the buyer’s property.
A deal that’s pending is one in which all contingencies have been removed, at which point the buyer is committed to the deal. But at the end of the day, “pending sale” does not mean “sold” just yet since it’s still pending the final closing.
With a sale contingent on these clauses, buyers are essentially telling sellers that they have full intention of closing, but they want to be certain that the home is free of major issues and that they are able to get approved for financing. Should any one of these contingencies not be met, buyers reserve the right to walk away.
Even if all contingencies have been met and removed, a buyer can still exit the deal. Sometimes buyers may suddenly be involved in an urgent situation that requires them to bail out of the deal, or sometimes they may simply have a change of heart. If you fall in love with a particular home that’s pending a final sale, there may still be a chance for you to swoop in, though it’s still wise to be realistic and not get your hopes up too high.
The Property May Still Be “Active” Despite Being in the Middle of a Deal
Some agents may list a home that still has contingencies to be met as “active” and still available for showings. This informs buyers that the seller is still open to entertaining other offers while waiting for escrow to close just in case the deal that’s currently on the table falls through. While the seller can’t enter into a contract with another buyer during this time period, the sale isn’t yet complete.
That means buyers can still submit a “backup offer” in case the current offer doesn’t go through. Not only is this advantageous for the buyer, the seller can also benefit by going directly to the backup. If not, the seller will essentially have to go back to square one.
Express Your Interest in the Home
There’s nothing wrong with showing the seller that you’re very interested in the home and are willing to submit an offer while the initial offer is still in the works. You want to be right there waiting if that happens. In addition to drafting up a backup offer, consider sending the seller a handwritten letter detailing your appreciation of the home and why it would make the perfect place for you and your family. There have been plenty of deals that gave favored buyers who extended such gestures.
Consider Offering a Much More Attractive Offer
If you do decide to submit a backup offer, you should think about making it an extremely attractive one in terms of the offer price. Only if you are financially capable and comfortable, you might want to consider offering over the asking price. If you can’t justify the extra money, consider offering to pay for all of the seller’s closing costs, or agreeing to whatever closing date the seller wants. Whatever you can do to sweeten your offer, the better.
The Bottom Line
While you don’t necessarily want to get your hopes up that a pending sale with fall through, you also don’t have to give up on that home just yet. Keep your options open, and take measures to keep your foot in the door and be at the front of the line if the sale does not close. Anything can happen, and if it does, you’ll be prepared to step in and snag that home.
Sell or Rent Out Your Home? How to Decide
Whatever your reason may be for wanting to relocate, selling is typically on the agenda. However, you might not necessarily have to give up title to the property in favor of another home. While selling is certainly a popular and viable option, you may also want to consider the possibility of retaining ownership of the home and renting it out instead.
Of course, such a decision is a big one and should be done only after careful consideration of your financial situation and your willingness to become a landlord.
Here are some considerations to make.
Can You Afford to Keep the Home?
Of course, the first consideration you need to make is whether or not your finances can support carrying two homes, even if the one you’re moving out of will be collecting rent to pay the mortgage and other costs associated with home ownership.
Perhaps you won’t even need to carry a mortgage on the initial property if you’ve managed to build up enough equity to pay off whatever outstanding balance remained on the mortgage. If not, you’ll need to have a detailed chat with you mortgage specialist to see if holding two mortgages is even possible.
What Kind of Rent Can You Expect?
If you can afford to keep two homes, the next thing you should consider is whether or not the home will make a sound investment. Identify what the conditions of the local market are where the home is located. Will it be easy to rent out? If so, how much can you expect to rent it out for? Your real estate professional will be able to access a list of comparable properties in the area and the price that they have been rented for over the past six months to help you come up with this number.
Will that monthly rental cover all your expenses, including the mortgage, property taxes, insurance, HOA fees, and utilities? Will you be making a profit, break even, or be in the red each month? Make sure it’s a sound investment before you decide to keep the place rather than let it go.
If your expenses will be adequately covered, keeping the home can be a great way to build your retirement fund. You likely won’t have to pay any taxes on the rental income if there are enough expenses associated with the investment property to offset it. Of course, you’d need to discuss this with an accountant to get the details on your specific situation.
How Much Will the Property Potentially Appreciate?
Take a look at the current market condition in the area and try to estimate where property values will go over the next few years. If you bought the house for a low price and the values in the area are steadily increasing, it might make sense to hold on to the property. Analyze comparable properties in the area to determine what the long-term value of homes in the neighborhood will look like in the near future.
Identify any trends in value, and whether they’re rising or declining. You obviously don’t have a crystal ball that will tell you exactly what will happen in the future, but making an educated analysis of the property values in the area with the help of a real estate professional can help you weigh the odds of which way the market is expected to go.
What About Tax Deductions?
Rental income can be depreciated for tax purposes. A simplified calculation to help you determine what your tax breaks would be is to divide the purchase price of the home and the cost of major improvements made to the property (not including land value) by 27.5 years, which is considered the “recovery period” according to the General Depreciation System (GDS). This will give you a rough idea of what your annual depreciation would be.
If you bought the home for $300,000, for instance, and the land that it sits on is worth $50,000, you can deduct $9,090 in depreciation every year [($300,000 – $50,000) ÷ 27.5). Other expenses associated with holding the property may also be deducted, including property taxes, HOA fees, and repairs, as well as costs associated with operating the rental property, like property management fees.
Is There a Chance That You’ll Be Moving Back?
Perhaps you’re going on an assignment for work that’s taking you elsewhere for a few years. But after that, it’s up to you whether to stick around or go back to where you were before. Whatever the case may be, determine whether or not your move is a permanent one, or if there is a possibility that you may relocate back to the area. If there’s a chance that you’ll be moving back, it might make more economical sense to rent out your home and reclaim it when you return considering the costs associated with selling.
Are You Up For the Challenge of Being a Landlord?
In a perfect world, being a landlord would involve nothing more than finding a tenant and collecting rent checks each month. Unfortunately, there’s a lot more involved with operating an investment property. Some tenants may be tough ones to deal with, and may cause damage to your property or be a nuisance to neighbors. Perhaps they won’t pay you on time or miss a rent check completely.
Repairs will need to be made on the property from time to time, and regular maintenance will be required. At the end of the day, managing an investment property takes time and effort. If you’re not up for the task (especially if you’ll be living out of town), you might want to consider a property management company to take care of the business for you. However, these services come at a cost. Run the numbers to ensure that paying these firms won’t eat up too much of your profits.
The Bottom Line
There is certainly an opportunity to include an investment property in your financial portfolio when it comes time to relocate if you can swing oy. But it’s a huge decision that could should only be made with careful consideration and with the advice and guidance of your real estate agent and financial advisor.
4 Ways Selling a Condo is Different From Selling a House
There are obvious differences between condos and single family homes. But in addition to the type of lifestyles each of them provide, the differences become even more apparent when it comes time to sell.
Listing and selling a home, no matter what type it is, can be a complex process that requires careful planning and negotiating. It’s important to take the exact type of home that’s being sold into consideration when selling, since condos and single family homes each come with their own individual features and challenges. Selling a condo versus a single family home can be quite different, which is why your sales strategy needs to be tailored to the exact type of property that you’re selling.
Here are 4 ways that selling and condo versus a single family home differ.
Homeowners Association (HOA)
If you’re selling a single family home, you don’t have to worry about dealing with a homeowners association (HOA). However, condos are governed by these entities, which means you’ll have to work with this group when marketing and selling your unit.
HOA’s typically take care of common areas of the building or complex, including pools, fitness areas, party rooms, landscaping, parking lots, and building exteriors. The monthly HOA fees that are paid by each owner in the complex go towards maintaining such areas. Buyers will need to take these fees into consideration when they buy to ensure they fit within their budgets. Such costs need to be balanced with the benefits that the HOA provides.
In addition, there are certain documents that an HOA needs to provide before a sale goes through. In California, homeowners associations must provide these disclosures to a prospective buyer within a reasonable amount of time before an agreement is solidified and title is transferred, which is associated with a cost.
The quality of the HOA also plays a critical role in how buyers perceive your condo. If the HOA doesn’t do a good job at maintaining the grounds or is heavily in debt, the buyer’s lender might not be willing to extend a mortgage on a potentially risky business deal.
Type of Buyer
How you market your property has a lot to do with who your target buyer is. Single family homes are typically geared more towards families or those who require lots of space.
Condos, on the other hand, are typically more attractive to single buyers, professionals who are looking to be closer to city centers, or those who are looking for something more affordable and maintenance-free. Condos are also targets for many investors who are looking for affordable properties to rent out.
When marketing a condo, putting emphasis on the lifestyle is a must. A lot of buyers want a home that they don’t have to spend too much time maintaining that they simply can’t get with a single family home. Walking scores are also much better with condos, which are often located closer to all the amenities needed on a daily basis. In addition, features such as pools, fitness rooms, 24-hour concierge, and guest suites are also selling points that should be marketed and focused on.
Whatever type of property you’re selling, identify why buyers are looking at your place before you start marketing it. Knowing exactly who your pool of buyers are will help you and your real estate agent customize your marketing strategy accordingly.
Curb Appeal
If you own a condo, there’s little you can do to boost curb appeal other than sprucing up your front door with a new paint job (in the color approved by the HOA) and some decor. Other than that, there’s not much more to it. The curb appeal of a condo is only applicable to the entire building or complex.
If you own a freehold single family home, on the other hand, the ball is in your court in terms of curb appeal. In fact, real estate professionals will advise their seller clients to take steps to boost curb appeal, including mowing the lawn, pruning the bushes, planting some flowers, and updating the front door. The look of your home’s exterior can heavily influence what buyers will think of your home when they first pull up on the driveway.
Listing Price
Coming up with an accurate listing price is critical, but it can also be tough to come up with. Pricing too high can scare off buyers, while pricing too low can leave a ton of cash on the table. That’s why real estate professionals pull up a list of comparable properties in the area that recently sold in order to gauge how much your home can realistically sell for.
Trying to find homes that recently sold in the area that are very similar to the subject property can be a real challenge, especially if the home is very unique. Condos, on the other hand, can be much easier to price because of how alike (and often identical) other units in the building or complex tend to be.
It should be noted, however, that certain features can alter the value of a condo quite a bit. For instance, end units are considered more attractive because of their enhanced privacy, and units with better views also command higher prices. If you own a condo that has any attractive features such as these, make sure to focus on them and include them in your listing.
Your real estate professional will look at all factors to help you come up with the right listing price for your home, regardless of what type of property it is.
The Bottom Line
Whether you’re selling a condo or a single family home, having an experienced real estate agent in your corner just makes sense. These professionals will know exactly how to identify your target buyer, come up with an accurate listing price, and market your home. There are significant differences between these two types of properties, so understanding what they are can help you tailor your listing accordingly.
Things That Can Kill a Real Estate Deal (And How to Save it)
Sales activity is anything but lagging in the real estate market, but there are still plenty of deals that are either delayed or terminated completely because of some sort of snag in the process.
There are a number of hindrances that can ruin real estate deals that otherwise should have closed. Here are 5 things that can leave a deal dead in the water before escrow has had the chance to expire.
Imprecise Appraisals
One of the biggest hurdles to closing a real estate transaction is an appraisal that doesn’t accurately reflect the true market value of the home being purchased and financed. If an appraisal undervalues a property, this can risk home loan approval. Lenders will likely not extend the loan amount required if the value of the property appraised comes in short. In addition, an undervalued appraisal can even convince buyers that they’ve paid too much for the home and may head back to the negotiating table, which can delay the entire process.
The best way to ensure an appraisal comes out with an accurate value is for the appraiser to be given as much information about the subject property as possible. They also need plenty of data about recent comparable sales in the area, as well as current listings. Obviously, appraisers need to verify all information provided to ensure complete accuracy. The more information the appraiser obtains well in advance, the lower the odds of any delays as a result of an inaccurate appraisal.
Inability of the Buyer to Obtain Financing
If a buyer’s mortgage application is rejected, there will be no way for the property to be financed. This scenario happens quite often and is a sure-fire way to kill a real estate transaction. In fact, nearly half of all delays or terminations are the result of financial issues on the part of the buyer.
Buyers should ideally go into a real estate deal pre-approved for a mortgage. While that doesn’t necessarily guarantee that a mortgage will be approved, it’s certainly a step in the right direction. Buyers should also get their finances in order, avoid making any major purchases on credit, and hold off on changing jobs while financing is underway to minimize the chances of falling through on financing.
Zoning Issues
If a buyer is considering purchasing a property that’s zoned for one type of use with intentions of using it as another, there could be issues. For instance, a buyer might put in an offer on a property that was being used as a residence by the seller, yet after an agreement is signed by both buyer and seller, a title search might indicate that the property was once used as an office space and was never actually zoned as a residential property.
If the buyer wants to use the property as a main residence, proper approvals from the local jurisdiction will be required. A situation like this can easily stop a deal in its tracks. In over to avoid such a scenario, buyers might want to verify the zoning on a property’s certificate of occupancy prior to agreeing to buy it. Of course, if the seller was upfront about the situation in the first place, such a scenario wouldn’t occur.
Buyer Demands
Once a purchase agreement is signed by both buyer and seller, the deal isn’t done yet. There are a number of other issues that may come up that will require further negotiating. For instance, it’s not uncommon for home inspections to turn up minor issues that the buyer may want the seller to either fix or pay for before the buyer takes possession. In some cases, the buyers may have legitimate requests, but in others, the demands can be nit-picky.
Buyers and sellers alike should understand that it’s typical for requests to be made, but there’s no reason why both parties can’t come to an agreement on how they should be settled. If all parties involved come into a transaction with an open mind and a realistic attitude, such issues shouldn’t have to trash a real estate transaction.
Delays with the Lender
Even if the buyer is highly qualified for a mortgage and an appraisal comes in accurately, there could still be delays with the lender. Deals can fall through if the bank isn’t able to approve the mortgage on time. These days, it can take a lot longer for a mortgage to go through compared to yesteryear, considering all of the more stringent underwriting standards and additional pieces of information that are required. With more home loan contingencies in place nowadays, buyers would be forced to back out of a deal if their banks are unable to approve financing within the specified time frame.
Buyers can help avoid this situation by ensuring that every detailed piece of information and document is submitted to the lender right away. In addition, the expiry date of the financing contingency can be extended in order to give buyers more time to secure a home loan.
The Bottom Line
Anything can happen from the time of offer acceptance to closing of escrow that can put a halt on the deal altogether. While there are obviously certain things that you have no control over, there is still plenty that you can do on your part to boost the odds of a successful transaction. Work closely with your real estate agent to obtain the necessary advice needed to make all the right moves throughout this process.
How Do Contractors’ Warranties Work to Protect Homeowners From Poor Quality Work?
Renovating your home is no easy feat. The process can often be complex and present a number of obstacles along the way. That’s why enlisting the services of an experienced and reputable contractor to take care of the job for you is an absolute must.
If all goes well, the job should go smoothly, and you’ll be very pleased with the final result. But what if major issues occur after your contractor and all the trades have packed up their tools and moved on to their next client? And what if these problems occur long after the job was completed? How long is your contractor responsible for rectifying any work that wasn’t performed up to par?
That’s where the warranty comes into play.
Why a Warranty is So Important
The whole reason for the existence of a warranty is to protect you – the homeowner – as well as the contractor who performed the work. While these professionals should assume responsibility for fixing any problems related to the work performed, they also don’t want to be a target forever.
Before you sign a contract with your contractor, make sure there is a warranty included. Read the details about what’s covered and how long the warranty is in effect before it expires.
The warranty basically outlines the issues that the contractor is responsible for after the job has been completed, as well as the solutions that should be employed to rectify them. It should also specific how long the warranty will last and how any issues should be dealt with.
What Does the Law in California Say?
In California, there is a one-year implied limited warranty for new construction and renovations, which means it doesn’t have to be outlined in the contract, but instead is understood that it already exists under the law. If a problem arises after work has been completed, you will need to file a complaint within one year.
Before that, you’re required to first notify the contractor in writing about any issues that have come up following completion of the work. If the contractor responds in an appropriate amount of time and makes the necessary repairs, there is no need to go any further.
However, if the contractor doesn’t respond or is unwilling to make the necessary repairs, a complaint can be filed in court. You may choose to file a complaint with the Contractor’s State License Board instead, which will look into the issue and hopefully resolve it.
Under California law, contractors need to include a warranty in the contract that provides a guarantee that all materials that are used for the renovation project are not defective. Not only that, they must also guarantee that their work is in compliance with building codes. If a material is damaged because of shoddy installation, the contractor could be on the hook to cover any costs associated with making the necessary repairs for four years after the project is completed.
Contractors are also obligated to resolve any problems related to structural issues, which are covered under a mandatory 10-year warranty according to California law.
Written Warranties From Your Contractor
California homeowners are fortunate to be protected under legally required warranties. However, any written warranties that contractors offer override the implied warranty under California law. This is an important concept to grasp. Not only that, by signing a contract with the contractor’s own warranty, you are essentially waiving your rights to the implied warranty under the law. Once both you and your contractor sign the contract, this warranty will be legally enforced.
The contractor’s warranty will include the time period that is covered, how different products and materials will be assessed, and the process that should be taken if an issue comes up.
The Bottom Line
If you choose the contractor’s warranty over the implied warranty under the law, make sure to negotiate for a long time period. In addition, inquire about any materials or products that come with their own extended warranty that’s backed by insurance providers for added protection. Last but not least, thoroughly check out the contractor’s track record and make sure the work they’ve previously performed is up to snuff so that the odds of needing to activate a warranty are significantly reduced.
