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Buying a home, researching....

Buying a home, researching....

Old May 1st 2011, 8:28 pm
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Default Buying a home, researching....

Hello All,

I have just started researching into buying a home (a townhouse) so my knowledge is little limited to say that least.Over the weekend, we spent some time going at the open houses (we have been over the past 2-3 weekends) and sat down with a real estate agent. I am comparing the process and the costs involved in buying/selling a home here vs. Australia. I was shocked in terms of the expenses involved here.

The real estate agent provided us a break down

1. Bank Charges - Processing/Underwriting fees, Doc Prep fees, Appraisal Fee, Funding fees, Other fees = $2,500
2. Escrow and Title Charges. Escrow fee $750, Owners Title Insurance $1,400, Lenders Title Insurance $600, Doc Prep/Recording Notary/Other $750. Total = $3,500
3. Annual Insurance Premium $750. Home Warranty Program $400, Wood-Destroying/Pest Inspection $350, Other Fees (Buffer) $1000. Total = $2,500
4. HOA - depends.

Grand Total = $8,500

The way I understand this is #1 and #2 are the 'real' out of pocket expenses. Annual Insurance Premium, Home Warranty are ongoing expenses. Pest Inspection - usually paid by seller but will have to paid by buyer especially in case of foreclosure properties. So in reality the administrative expenses are # 1 and # 2 = $6000

I was little shocked to hear though that come time to sell the property the agent commission is 6%?? And potentially another 2-4% out of pocket. So while buying I pay $6000 and selling I have to pay 6-8%? Long story short, the day I buy a property, I lose 10% and 10% not of appreciation but 10% of valuation. Does that sound right?

Californian (Bay Area) are freaking expensive. For a 500k property that equates to $50k out of pocket. That's painful to even think of....

As I said, I am still researching and learning but it has not started too well

Any advice / information / material would be appreciated.

Thanks in advance.
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Old May 1st 2011, 9:15 pm
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Default Re: Buying a home, researching....

When we bought our house we negotiated a 'seller's concession' which meant that the seller brought $25k to the table when completing. Of course in our case the sellers were keen to sell so were happy to agree that - in fact I think they offered it, depends on the property market where you live.
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Old May 1st 2011, 9:33 pm
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Default Re: Buying a home, researching....

Originally Posted by NatashaB View Post
When we bought our house we negotiated a 'seller's concession' which meant that the seller brought $25k to the table when completing. Of course in our case the sellers were keen to sell so were happy to agree that - in fact I think they offered it, depends on the property market where you live.
I don't understand. Isn't that same as negotiating the purchase price down by 25k?

Currently most of the properties are either foreclosures or short sales as you know.

Any input from you on the costs involved?
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Old May 1st 2011, 9:42 pm
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Default Re: Buying a home, researching....

Originally Posted by E3only View Post
Hello All,

I have just started researching into buying a home (a townhouse) so my knowledge is little limited to say that least.Over the weekend, we spent some time going at the open houses (we have been over the past 2-3 weekends) and sat down with a real estate agent. I am comparing the process and the costs involved in buying/selling a home here vs. Australia. I was shocked in terms of the expenses involved here.

The real estate agent provided us a break down

1. Bank Charges - Processing/Underwriting fees, Doc Prep fees, Appraisal Fee, Funding fees, Other fees = $2,500
2. Escrow and Title Charges. Escrow fee $750, Owners Title Insurance $1,400, Lenders Title Insurance $600, Doc Prep/Recording Notary/Other $750. Total = $3,500
3. Annual Insurance Premium $750. Home Warranty Program $400, Wood-Destroying/Pest Inspection $350, Other Fees (Buffer) $1000. Total = $2,500
4. HOA - depends.

Grand Total = $8,500

The way I understand this is #1 and #2 are the 'real' out of pocket expenses. Annual Insurance Premium, Home Warranty are ongoing expenses. Pest Inspection - usually paid by seller but will have to paid by buyer especially in case of foreclosure properties. So in reality the administrative expenses are # 1 and # 2 = $6000

I was little shocked to hear though that come time to sell the property the agent commission is 6%?? And potentially another 2-4% out of pocket. So while buying I pay $6000 and selling I have to pay 6-8%? Long story short, the day I buy a property, I lose 10% and 10% not of appreciation but 10% of valuation. Does that sound right?

Californian (Bay Area) are freaking expensive. For a 500k property that equates to $50k out of pocket. That's painful to even think of....

As I said, I am still researching and learning but it has not started too well

Any advice / information / material would be appreciated.

Thanks in advance.
  • 1. Bank fees can be as little an $0 depending on the interest rate and what the lender is offering. On refinancing both 1 and 2 can be $0 for a 0.25% or less interest rate increase (no fee refinancing option).
  • 2.When I bought my $650,000 condo about 4 years ago, the total fees were about $3,500. The total fees can be based on who pays for certain fees based on local laws (transfer fee and title insurance).
  • 3. Normally the home warranty is for one year only, is not renewable, and is pushed by the real estate agent (gets a big cut of the premium). Normally this only covers appliances, heating, and cooling systems.
I don't think the 5%-6% real estate commission is that much different from anywhere else. The only real difference is that it is paid by the seller making it easier for a buyer to get into a home. In the end, the buyer and seller still ends up paying the same if it was split down the middle on both a buy and a sell.
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Old May 1st 2011, 10:16 pm
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Default Re: Buying a home, researching....

1 - Really depends on the bank/mortgage...some will have no fee if you go with them, some only if you back out etc. Can be negotiated too.

As a first time buyer, you don't have your 6% selling portion to worry about, so you're in a better position to negotiate buying price and splitting some of their fee for a lower sale price as it'll work well for both of you and not their realtor.

Depending on where you live, inspection costs can be negotiated between buyer/seller and how thorough it is really depends on location/age/type of place.

Less likely to get gazumped over here though as it doesn't seem to happen, as often at least.
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Old May 1st 2011, 10:25 pm
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Default Re: Buying a home, researching....

Thanks Michael.

I just need to research who has the best deal (in terms of upfront cost and fees) for financing I guess.

My issue with 5-6% is not much if Calfornia is different than others but more so that with upfront cost in buying + the 5-6% selling commission, I am in the hole 7-9% of the property value. of course I am looking to hold the property but at the same time, I am saying if something were to go wrong I am down 9% the day I buy the property.

I started the thread so see if what I understand is right and if anyone can give me further information / links etc.

Appreciate your post.
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Old May 1st 2011, 10:32 pm
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Default Re: Buying a home, researching....

Originally Posted by Bob View Post
1 - Really depends on the bank/mortgage...some will have no fee if you go with them, some only if you back out etc. Can be negotiated too.

As a first time buyer, you don't have your 6% selling portion to worry about, so you're in a better position to negotiate buying price and splitting some of their fee for a lower sale price as it'll work well for both of you and not their realtor.

Depending on where you live, inspection costs can be negotiated between buyer/seller and how thorough it is really depends on location/age/type of place.

Less likely to get gazumped over here though as it doesn't seem to happen, as often at least.
Thanks.

So for out of pocket in terms of bank costs, select finance provider that provides deals.

I do understand I don't have to worry about the selling commission as I am the buyer but I am just saying that when it comes time to sell, I will fork out 6-9%. With the prices are the way they are in CA, a 500k sale means close to 40-50k closing costs!!!!

I may be subcontiously comparing the fact that to sell my AUS property, it's 2.2% + 1500 lawyer fee. Damn, and there is no such thing as buyers and sellers agent. Only one agent there.

I just (perhaps wrongfunny) think the closing costs are a rip off here.
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Old May 1st 2011, 10:40 pm
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Default Re: Buying a home, researching....

Originally Posted by Michael View Post
I don't think the 5%-6% real estate commission is that much different from anywhere else. The only real difference is that it is paid by the seller making it easier for a buyer to get into a home. In the end, the buyer and seller still ends up paying the same if it was split down the middle on both a buy and a sell.
I don't think you pay an estate agent anything to buy in the UK (maybe I've forgotten).

6% is outrageous, especially somewhere like LA.
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Old May 1st 2011, 11:02 pm
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Default Re: Buying a home, researching....

Originally Posted by E3only View Post
Thanks Michael.

I just need to research who has the best deal (in terms of upfront cost and fees) for financing I guess.

My issue with 5-6% is not much if Calfornia is different than others but more so that with upfront cost in buying + the 5-6% selling commission, I am in the hole 7-9% of the property value. of course I am looking to hold the property but at the same time, I am saying if something were to go wrong I am down 9% the day I buy the property.

I started the thread so see if what I understand is right and if anyone can give me further information / links etc.

Appreciate your post.
But if the commission was split between the buyer and seller, you are still down the same amount and just everywhere there are similar fees so you are going to be down a similar amount. Housing is not like the stock market where you can normally trade whenever you want but is normally expected to be held a minimum of 5 years.

Many times if you want to move and use the same real estate agent for selling your home as well as buying your new home, the agent may give part or all of their commission from purchase of the new home to you. During my last time, I received 50% of her commission from my new home reducing my commission cost to about 4.5%. I've heard of people getting 100% bringing their total cost of selling to about 3%.

Also you can normally get a significantly reduced selling commission (as low as 4%) if you exclusively list the home (not MLS). However much like most of Europe, the only buyers that will be able to purchase your home is when they come directly to that real estate company.

Then of course there is the "for sale by owner" which can cost as little as a few hundred dollars for a kit and no commission. You can even get a MLS listing for a little more but you then may have to pay a buyers real estate commission if the buyer uses a real estate agent.

Last edited by Michael; May 1st 2011 at 11:09 pm.
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Old May 1st 2011, 11:09 pm
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Default Re: Buying a home, researching....

Originally Posted by Sally Redux View Post
I don't think you pay an estate agent anything to buy in the UK (maybe I've forgotten).

6% is outrageous, especially somewhere like LA.
Correct. My BIL is in LA and I am in the Bay Area. If you consider the avg home prices here, 6% is ridiculous.
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Old May 1st 2011, 11:14 pm
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Default Re: Buying a home, researching....

Originally Posted by Sally Redux View Post
I don't think you pay an estate agent anything to buy in the UK
The seller pays 1-3% IIRC. The buyer pays the house price and the solicitor fees (£300-400?).

Bit confused lately as Labour installed HIPs and Con-Dems took them away. Or something.
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Old May 1st 2011, 11:14 pm
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Default Re: Buying a home, researching....

Originally Posted by Michael View Post
But if the commission was split between the buyer and seller, you are still down the same amount and just everywhere there are similar fees so you are going to be down a similar amount. Housing is not like the stock market where you can normally trade whenever you want but is normally expected to be held a minimum of 5 years.

Many times if you want to move and use the same real estate agent for selling your home as well as buying your new home, the agent may give part or all of their commission from purchase of the new home to you. During my last time, I received 50% of her commission from my new home reducing my commission cost to about 4.5%. I've heard of people getting 100%.

Also you can normally get a significantly reduced selling commission (as low as 4%) if you exclusively list the home (not MLS). However much like most of Europe, the only buyers that will be able to purchase your home is when they come directly to that real estate company.

Then of course there is the "for sale by owner" which can cost as little as a few hundred dollars for a kit and no commission. You can even get a MLS listing for a little more but you then may have to pay a buyers real estate commission if the buyer uses a real estate agent.
1.Oh yes, as said in my previous post. Not looking to trade but merely pointing out that the house needs to appreciate >10% for you to have made a gain. From that perspective, as a buyer I am taking into consideration the selling fees when it's time for me to sale

2. Interesting, thanks.

3. Yes, I understand that however that would involve significant research on my part to ensure I get the right price. No pain no gain of course.
The buyers agent will work for the buyer.

I just thing this whole thing is a scam. Call me cynical. If there are two agents - buyer and sellers, you would think the buyer would protect my interest and the seller would want the highest price. The fact is, both the agents want highest price so there is so much collusion going on....
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Old May 1st 2011, 11:16 pm
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Default Re: Buying a home, researching....

Originally Posted by GeoffM View Post
The seller pays 1-3% IIRC. The buyer pays the house price and the solicitor fees (£300-400?).

Bit confused lately as Labour installed HIPs and Con-Dems took them away. Or something.
Pretty similar in AUS. Buyer pays solicitor fee (1500 roughly for avg price house) + takes on the mortgage. Seller pays 2% + 0.2% GST = 2.2%

No concept of buyer agent. There is only on agent and then the solicitors on both sides.
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Old May 1st 2011, 11:48 pm
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Default Re: Buying a home, researching....

Originally Posted by E3only View Post
Thanks.

So for out of pocket in terms of bank costs, select finance provider that provides deals.
The real problem tends to be in not having a decent, varied credit history, which can limit who will offer you a mortgage so you might have less room to dance, but if you've enough down, you're in a better position.

The selling cost is also part of way most people suggestion renting for a couple years before buying, certainly till a Greencard is sorted because selling up on a rush can cost a fortune, when you really need to be owning for years to recoup the costs.
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Old May 2nd 2011, 12:03 am
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Default Re: Buying a home, researching....

Originally Posted by Bob View Post
The real problem tends to be in not having a decent, varied credit history, which can limit who will offer you a mortgage so you might have less room to dance, but if you've enough down, you're in a better position.

The selling cost is also part of way most people suggestion renting for a couple years before buying, certainly till a Greencard is sorted because selling up on a rush can cost a fortune, when you really need to be owning for years to recoup the costs.
Fair enough. I have access to finance through where I work. They have employee discounts. I understand you point in terms of Green card / certainty and not having to sell anything in rush.

I still am 6 months away from being very serious about this. I have to liquidate my AUS property (after I figure out the tax implications), keep building my credit, sort out my pre approval and get some certainty around my visa situation given I am on E-3.....

The prices are such great right now and the interest rate is on the move (up)...of course I want to keep a level head. I rather pay 50 bps more in interest rate and wait for all of the above vs. taking stupid decision and huge mortgage.
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