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July 26, 2009
Ridiculous First-Time Buyer ?s
My wife and I moved to Brooklyn 1.5 years ago, and we are now considering a condo purchase. We have been casually looking around and checking out open-houses, and have recently found something perfect for us. We want to make an offer, but want to make sure that we are doing everything smart.
So far our only prep has been to get a mortgage pre-approval letter, but what should our next step be? I know that the Brooklyn standard is to forego a buyer-broker and stick with the seller's, but when should we get ourselves an attorney? Should we begin by casually stating our interest with the seller's broker, or should we draft a written offer with all of the details (seller's concession, financing contingency etc.)?
Furthermore, is 5-6% a good estimate for seller's concession/closing costs? What else am I forgetting? Am I being ridiculously concerned over nothing?
Comments
First-time buyers questions are not ridiculous. Rather, smart to ask, I would say.
Anyway, I've bought and sold lots of properties over the years and things have generally gone like so:
First, decide what you think is a fair offer for the property you have found that you like. I have never had a buyer's broker. Just make the offer to the seller's broker, but do your homework and study comps so you don't over pay. In this atmosphere, I would bid under ask with room enough to meet in the middle should there be a counter-offer from the seller, but not so low as to have your offer dismissed.
You may go back-and-forth for awhile, but if/when your offer is accepted, you need to retain a real estate attorney. The contract will go to your attorney. Your attorney should do "due diligence" before you sign. A good real estate attorney will know what to look for in the offering plan and what contingencies to add to protect you should anything go wrong. When you are all satisfied it is time to sign the contract, you do so and add a check for 10% of the purchase price, which goes into escrow.
While your lawyer is busy with the contract and checking out the building's financials and the offering plan, you should be getting a more firm commitment from a lender, though a mortgage contingency is standard in most contracts (if you can't get a mortgage, the contract is void and you get your 10% back). I would say getting a firm commitment from a lender before signing a contract is more crucial now than it used to be, so whether you work with a bank directly or with a mortgage broker, make sure you have financing lined up.
Closing costs to buy a condo are higher than when buying a co-op because you own the four walls and a title search and title insurance are necessary. I don't know how much these are running these days, but the attorney's fees alone will probably run maybe $3000 or more (I am not a real estate attorney, so I can't say, exactly). Hope you get other comments from recent buyers of condos with more specific info about closing costs. Anyway, there could be "points" on the mortgage to buy you a better rate, for instance. Condo developers used to get BUYERS to pick up some or all of their closing costs, pushing them sky high. Now you may be able to get the developer/seller to pick up some of YOUR closing costs. About that you should first talk to the seller's broker and see if there are any offers. If none are forthcoming, ask you attorney to broach the subject with the seller's attorney.
Good luck to you!
Posted by: dylanfan at July 26, 2009 12:40 PM
Great advice above. Couple more general suggestions -
Go to open houses for anything even remotely resembling what you want. It's research.
Asks friends and family about lawyers. Get a name or two in advance so you're hitting the ground running when time comes.
Don't bid until the last scheduled open house. Use the opportunity to go back and reconfirm your interest.
Don't get emotional. Odds are very likely that you'll lose a property or two through the process. Contract negotiations can be frustrating.
All things considered, a good time to be a buyer. Lots of pricing flexibility to be had. Good luck!
Posted by: Johnny at July 27, 2009 12:51 PM
Thanks for the incredibly helpful tips! The only follow up question that you've left me is about earnest money. Is it really standard to put 10% of the purchase price down as earnest money? We are hoping to find 90% financing, so that would be equivalent to our entire down payment! (Yeah, I know that getting approved for 90% financing and actually getting it are two very different things, but we've seen a number of preferred lenders who are up to it. We'll try and take them up on it.) Obviously we can handle that amount of deposit, but it seems enormous.
Posted by: pdsande at July 27, 2009 1:52 PM
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