Southern California Real Estate by Phil McCollum

Before Buying a Property...

"Buyers Need Good Advice Related to their Finances, Current Market Conditions, and How to Avoid Giving Up Their Rights!"

Welcome, prospective home buyers. There's a lot to learn to be fully prepared as a home buyer, and this is the place to find everything you'll need.

The right-hand sidebar contains resources that I'm sure will be helpful. They cover a wide range of topics related to buying a home.

For the rest, I'll discuss numerous topic of interest to buyers and hopefully help you avoid problems when buying your next home.

Buyer Costs

Buyers are sometimes a little surprised by the cash required to purchase a home. And surprises like this are no fun, so let me clarify the situation.

When you make an offer, you will be expected to make an "Earnest Money Deposit." This means you'll need to write a check to demonstrate your good faith interest in purchasing the home. The amount of earnest money you put down varies, from as little as $1000 up to 3% of the purchase price. We can discuss the required amount before you write a check, but it's good to be prepared for this up-front expense.

Next, you'll need a home inspection. See the sidebar discussion of this topic. An inspection will cost you anywhere from around $200 on up, depending on the property. And even though you may pay for an inspection on a property that you don't end up buying, it's money well spent to protect yourself from unforeseen problems.

The largest expenses you'll encounter will come from you lender. To keep this simple, expect to pay "points" on your loan as well as an assortment of lender fees. A point is 1% of the loan amount.

Lenders can be very devious and sell you a loan with many hidden fees. Be careful. Some offer loans with "no points" and then add other fees or raise the interest rate to compensate.

Additional fees due at the close of escrow, and hence lumped as part of the "closing costs" are escrow fees and title insurance fees.

Escrow fees usually about 1% of the purchase price and title insurance is about 0.5%.

For a more detailed look at buyer's costs, refer to the following form:

Estimated Buyer Costs

Market Conditions

For most buyers, it is difficult to get a true assessment of market conditions. It's easy to listen to the news or read the newspaper and get reports on what is happening, but they are usually reported on a national basis, or a statewide basis. While that is useful to known, it does not say exactly what is happening in your city.

Well, you will now be able to assess market conditions on a citywide basis. And you can get this data for any city in Southern California.

This is an exclusive service I provide. By the way, it's free.

I've already assessed five cities (or groups of cities) and placed the data on my website. Visit my Market Data page to review the sales data.

To cover the higher end of the home price range I've selected Beach Cities (Redondo Beach, Hermosa Beach, Manhattan Beach) and Palos Verdes (Rolling Hills, Rolling Hills Estates, Rancho Palos Verdes, and Palos Verdes Estates); for high-moderate prices I've selected Torrance, and for the lower price end I've selected Carson. To get an overall assessment of the area, covering all price ranges, I used Long Beach.

As you'll see if you study the data, the market trends vary from city to city. All of been declining in price for the entire timeframe I've assessed, starting in January 2008, but the magnitude of decline has varied widely. And the results have some surprises in store for you.

As a bonus, I will prepare additional city data for you upon special request. Now you truly will be able to see what market conditions are for the city where you want to buy.

To take advantage of this service, give me a call and let me know what area you are interested in researching.

In addition to seeing the trends as they develop, you may want to delve into the economic forces driving these market trends.

How a Knowledgeable Real Estate Agent Can Help You

An agent has more responsibilities than sending you emails to inform you of available homes and driving you around to see the ones that are of interest to you.

More importantly, the agent needs to represent you in a manner that protects your interests and helps you buy a home at a good price and avoid problems along the way.

As a starting point to accomplish that goal, I've prepared this website to provide the information you will need. I hope you will take the time to study what I've provided and better prepare yourself to get a great deal on your next home while avoiding the hassles and legal pitfalls that are always nearby.

How to Prepare Yourself Before You Buy

Before you do anything else, you need to decide what you need, i.e. the features that your new home must have. This establishes your minimum requirement. Soon, you'll need to decide what you want, which will help you know it when you find it.

But before you get past what you need, you should consult with a lender and determine what you can afford. This is a very important step and it requires that you divulge certain private information such as tax returns and/or paycheck statements to verify your job and income, allow your credit report to be run, as well as identifying any cash you have available for the down payment and other buying costs.

You need to find a lender with whom you can be open and provide written evidence to support your qualifications. A lender who asks you about your job or income and does not collect any evidence is not helping you much. You cannot get formally approved by the lender until all of your financial information has been reviewed. Note that in the past, so called "liar loans" were written where it was possible to circumvent the normal data gathering and review process, but having been burned by high default rates and with property values no longer appreciating, lenders are unwilling to take those risks these days.

Once all your documents have been thoroughly reviewed by the lender, you can receive a "pre-approval" letter. This can be useful when submitting your offer as it shows the seller that you are a strong buyer.

A pre-approval letter is supposed to mean that you have been approved for a certain purchase price stated in the letter "subject to appraisal." This means that the formal approval is only dependent on the property being appraised at the desired value.

A pre-qualification letter means something else. In truth, it may mean nothing at all. A pre-qualification letter is supposed to mean that on the basis of whatever information you provided to the lender, you are qualified to receive the specified loan amount. Don't be fooled: this is not a guarantee, and not any sort of commitment. Once the lender has reviewed your documentation, they may refuse to lend you the money or reduce the amount they are willing to lend. Don't settle for this treatment. You really want to feel confident that your lender will support you and you must work with them and provide written documentation to make it happen.

Understand the Buying Process

From the point where you make an offer to purchase a home, there are several steps that must transpire before the deal can be completed.

Right up front, there may be a negotiation on the price. Your offer may be rejected, or the seller may choose to write a counter off.

As the counter offer is essentially a rejection of your original offer, and an alternate proposal for your consideration, you can either accept the counter offer, write another counter offer, or walk away from the property.

After your offer is accepted, you will immediately need be begin your assessment of the property condition. The seller will provide disclosures and you will have the opportunity to have the home professionally inspected or take other actions to assess the condition.

The inspection report may reveal major and/or minor flaws with the property. Minor flaws are of no real concern. However, major problems may require a request for repairs be submitted. This is essentially another negotiation between buyer and seller. Keep in mind that the seller is not obligated to make any repairs. The issue could be agreed by a monetary compensation, or it could be a reason to cancel the deal.

Assuming the deal is moving forward, the lender will require an appraisal of the property value. This needs to be taken care of right away as this will determine whether the required financing can be obtained.

The seller will provide disclosure statements that reveal everything the seller knows about the property that may be a concern to the buyer. This does not assure that every problem is identified, and that is why the buyer must be diligence and perform independent inspection and investigations as to the property condition.

If the property is a short sale, meaning the full loan amount owed by the seller cannot be paid back from the proceeds of the sale, the lien holder (bank) will need to determine whether to accept the offer.

Unfortunately, the lien holder may take time to reach their decision, or may not accept the offer and instead make an alternate proposal.

Assuming all issues are resolved and the deal is moving forward, the escrow company will prepare paperwork that needs to be reviewed and signed by the buyer.

Once all the details are agreed upon, and the deal is moving toward a close, there is a final walk-through of the property, simply to allow the buyer to confirm that the condition of the property is as expected. Problems at this stage may delay the close of escrow but will not prevent the sale from closing.

Finally, the buyer will sign all the loan documents and deliver the balance of funds to the escrow. Once all funds are received by escrow, the funds can be disbursed, and the sale recorded.

Early Notification of Listings

Would you like to be informed about hot properties as soon as they hit the market? Being on top of things may allow you to beat other buyers to the punch and find a great deal before anyone else has seen the property.

It's a simple matter to set this up for you, and have notices sent directly to your email. You can even control the frequency of the emails. The first step is to determine your desired location and then specify your minimum requirements in terms of number of bedrooms, bathrooms, size of home, and any other particulars that you feel are essential.

The criteria you define are used to filter the search results to find only properties that match ALL the conditions you set. That's why I suggest that you only identify your minimum requirements. That way, you won't inadvertently rule out some good choices that don't perfectly match your constraints.

You also need to establish a price range. I recommend you include properties up to 10% higher than you are willing to pay. Some (not all) properties are overpriced and sellers may be willing to drop their price within your acceptable range.

And let me add this: please consult with a lender to determine what price home you can afford. The lender will take into account your income and debts, credit rating, and down payment to make the assessment. You must arrange financing before you shop for a home in order to be fully prepared.

To get signed up the receive early notification of listings, visit this page:

VIP Buyers Club

Pre-Qualify Yourself

A lender uses certain formulas to assess your finances and determine how much they are willing to lend you. This pre-qualification process is easy to do and I can do it for you or you can even do it yourself.

The first part of the formula is an assessment of the housing cost as a percentage of your gross income. Housing costs include the principal and interest on the loan, as well as property taxes, insurance, any required private mortgage insurance, and home owner association fees. The typically accepted ratio is around 31%. This is referred to as your "front-end" ratio.

The second part of the formula is your "back-end" ratio. This is the ratio of your total debts including your proposed housing expense compared to your gross income. Debts include car payments, credit cards, and any revolving credit accounts. The acceptable back-end ratio is around 43%. If your payments are higher than either one of these ratios, a conservative lender will reject the loan application.

It's probably worth noting here that some lenders are willing to accept more risk than others. They may accept higher front-end and back-end ratios, but typically if they do they will charge a higher interest rate to compensate for the added risk of default. And some lenders who are more risk adverse may require your ratios to be lower than the guideline provided here.

I have included some tool to help you perform these calculations. Refer to the right-hand sidebar under the heading Financial Calculators.

Getting Out of the Offer

It may seem a bit silly to talk about how to get out of an offer, when your goal is to buy a home and my goal is to help you buy a home, but it makes complete sense if you look at the big picture.

Neither you nor I want you to buy a home that has problems you are unwilling to accept or when you no longer feel comfortable with your offer.

Let me describe a couple scenarios. The starting point of this discussion is that you have made an offer and it has been accepted. You are now performing your investigations. As part of that process, you discover from your home inspection report that the inspector has uncovered some major structural problems. The seller is unwilling to make repairs or cut the price. You need a way out of this deal. It's easy enough to arrange, as long as the proper steps are taken.

Here's a second possibility: the lender has appraised the property and on the basis of a low appraised value is unwilling to lend you the money you need. That could be a big problem. You can try re-negotiating the price with the seller, but if he won't budge then you need a way to walk away from the deal with no penalties. Again, it's easy as long as your rights have been protected when the offer was written.

As you can see, there are some very real circumstances where you'll want to feel confident that you can get out of the deal if things don't move forward smoothly.

Disclosure Regarding Agency Relationships

Here's a question you need to understand, and get the right answer to: When is Your Agent Not Your Agent?

Before I answer this question, let me provide the background information. In the following discussion, I'll use the terms agent and broker interchangeably, although in reality the agent either is a broker or works for a broker.

When a home is listed for sale, the agent offering the property is referred to as the listing agent. This agent works for the home seller.

When a buyer is found for the property, the agent who writes up the purchase offer is the buyers agent. This agent works for the buyer, except...sometimes he works for the seller.

It that confusing?

Here's the deal. When the listing agent also represents the buyer, that is called a dual agency. And what it means is that the agent is primarily representing the seller, and secondarily representing the buyer.

In other works, the buyer is NOT getting full representation, and may in fact get NO representation. For example, if all negotiations are performed to favor the seller, the buyer is not getting much help from the agent.

Is this legal?

Yes, this is most certainly legal, and happens frequently, but the state of California has decided that home sellers and buyers, especially buyers, need to be informed about the situation.

Thus, the Disclosure Regarding Agency Relationships form. It's a one-page form and it's worth reading to make sure you understand the situation yourself.

The bottom line is that a buyer is almost always better off having a different agent than the seller.

A typical scenario would be the buyers visit an open house and like the home. They are told by the listing agent that they need to get their offer in right away. In a state of panic and confusion, the buyers have the listing agent write up an offer on the spot, forgetting any agent who has been supporting them, and throwing away their chance for independent representation in the process. Most never learn the truth, having never bothered to read the Disclosure Regarding Agency Relationships form, or having never heard of it.

I hope you'll take a few moments to read it. You will find the form on the right-hand sidebar under the heading of Real Estate Forms.

Home Price Investigation

As your real estate agent I can provide you with all the information you need regarding the price of homes in your area. Even so, some people like to play around on the internet and check things out for themselves. If that describes you, then you'll enjoy these sites:

www.zillow.com

www.trulia.com

For even more sites, visit my Search page and explore.

Also, I have placed Neighborhood Sales data on the my site for selected areas. If you are a resident of California Heights, Bixby Knolls, Bixby Highlands, Chateau Thierry, Los Cerritos, or Virginia Country Club in Long Beach, these data will be of great interest to you.

If you are a resident of Torrance, I've placed sales data for Torrance on the site as well. Due to the size of Torrance, I've provided data divided up by area: North, South, East, and West. Central Torrance has been included as part of the East group.

For more Long Beach, Lakewood, Signal Hill, I can prepare a customized list just for you. Simply fill out the form below and let me know the specific area of interest. If you have any questions, please give me a call. Actually, it's easy enough for me to prepare the data for any area you want, so go ahead and make a specific request.

Search for Properties

I want you to be able to quickly and easily search for available properties. My Search page includes two local MLS databases, as well as the most popular real estate sites.

These popular sites will enable you to search for properties but also provide a wealth of information related to real estate. I've listed the real estate sites in order of popularity.

Mortgage Rates

Latest Mortgage Rates Current Last Week 30 Year Fixed 15 Year Fixed 5/1 ARM

Get this widget See local rates

Local Schools

For anyone with school-age children, the neighborhood you select for your next home will be influenced by the quality of local schools. You can perform your own investigations using these awesome resources.

www.greatschools.net

www.schoolmatters.com

www.schoolfinder.ca.gov

Interest Rates

Keeping track of interest rates is always a good idea when you are thinking of buying. Here are a couple sources of detailed information.

www.bankrate.com

www.interest.com

In addition, you can visit your direct lenders (Bank of America, etc) or their websites, and see what rates are available.

When you're checking things out, be aware of the Annual Percentage Rate (APR) since that gives the cost of the loan (fees plus interest rate) in terms of an overall interest rate.

Find a Lender

Finding a lender, otherwise known as a mortgage broker, that you feel comfortable working with is important. Whoever you work with should be willing to take the time to explain the process and answer all your questions.

When you work with a mortgage broker it means that the person can get loans from multiple sources. This is advantageous as it provides more flexibility in getting a specific type of loan that may be just what you need. It may also be possible to develop a more personal relationship with a mortgage broker than an employee of a direct lender.

If you have good credit and you want a conventional loan, you may do better by using a direct lender, such as Bank of America. You will potentially save some fees, although you must always ask questions and read your disclosure statements carefully to be sure what fees are being assessed. If you want to go this route, plan on shopping around to get the best rates.

For a list of lenders that I recommend, refer to my Lenders page. Here is the link:

Recommended Lenders

Free Annual Credit Report

To help every American keep track of the contents of their credit history, you are entitled to a free credit report from each of the three major credit bureaus (Experian, TransUnion, Equifax) every year.

https://www.annualcreditreport.com/cra/index.jsp

You can get them all at once or spread them out over the year, as you see fit.

Title Insurance

The home buying process is, by its very nature, a complex transaction which involves the exchange of a valuable asset in return for money. The buyer needs confirmation that the seller actually owns the property and has the right to sell it. That's where title insurance comes into play.

Title insurance is...insurance. In the case of title insurance you pay a one-time fee to protect your investment in real estate.

Title insurance is an important part of the real estate transaction since it insures you that all liens placed against the prior owners of the property, or documents that will restrict your use of the property, have been fully disclosed to you.

If you buy a home from someone who does not legally own the home, they have no right to sell it to you. If this fact is not discovered prior to the sale, and if the rightful owner is located, you could lose your home as well as all the money you've spent to purchase it.

That's not something to take lightly.

I have dedicated a separate page to the topic of title insurance and I recommend that you read through the material so you are comfortable in your understanding of why title insurance is essential.

Home Inspection

All buyers are highly encouraged to have the property professionally inspected during the contractual inspection period allowed in the purchase contract. The purpose is to discover if major problems are lurking out of sight. At the same time, you'll learn about more minor issues as well. In addition, the inspection report may give you strong leverage over the seller and enable you to negotiate additional concessions.

You may be tempted to save the money, but that would be a mistake. Unless you are a trained inspector/contractor you can't be assured of finding hidden problems.

The state of California has put together a Buyer's Inspection Advisory form to advise prospective buyers to perform an inspection for their own protection and I encourage you to read it. The form is provided below.

Finding a home inspector is easy. Here is an excellent resource from the American Society of Home Inspectors that will allow you to choose from many highly qualified candidates.

www.ashi.org

Another resource you might want to visit is California Real Estate Inspection Association.

www.creia.org

And you can try the National Society of Home Inspectors.

www.nshi.us

Legal Risk Management

Buying a home is a perhaps the largest purchase you will ever make. And although thousands of homes are sold nationwide every day, making it a somewhat common occurrence, may people forget that whenever high-value assets change hands there is some risk.

In fact, there is more risk than you might imagine. Buying or selling a home requires disclosure of information and if disclosure is incomplete, or contractual agreements are violated, legal disputes can arise and since the amount of money at stake is high this can pose a serious concern.

Legal problems are almost never anticipated and they can be quite expensive, even if you win the dispute. Most real estate brokers don't offer any risk protection and won't even talk about it. BRC Realty does talk about it and offers legal risk management protection for up to $50,000 in legal expenses. It's a great deal. You should definitely take advantage of it.

Because I feel that risk management is vital, I'm going to help you. By registering below you will be eligible to receive $150 credit toward a legal protection policy that will protect you for up to $50,000 in legal expense.

This is my gift to you. Register for this bonus today (see below).

Financial Calculators

Use these calculators to help determine costs for your next real estate transaction.

Mortgage Calculator Get custom loan quotes
— anonymously Get this widget

How Much Can You Spend For Housing?

Are You Better Off Renting?

How Much Can You Borrow?

Which Loan Is Better?

How Much Should You Put Down For A New House?

How Much Will Your Home Payments Be?

What Will Your Closing Costs Be?

How Advantageous Are Extra Payments?

How Much Can You Save In Taxes?

Mapping Software

Technology is a wonderful thing. These days you can visit a website and see multiple pictures of a home you may want to buy, and possibly take a video tour.

Now you can even get a aerial and street level views of many properties just by knowing the address and using powerful free software.

If you haven't explored the capabilities of modern mapping software, you may be in for a big surprise. You can check out your future neighborhood from the comfort of your home using the internet.

You can take a look at the area from 1000 feet above or zoom in to see individual properties.

Aerial views are near overhead and are useful for evaluating the street patterns and amount of development in the area. The new street-level views and birds-eye views are awesome and are the next best thing to driving down the street.

http://www.bing.com/maps

http://maps.google.com

http://maps.yahoo.com

For videos that show how to use the advanced features of the mapping software, visit this page:

How to Use Mapping Software for Real Estate

Featured Listings

My featured listings have been given their own page. You can take a look at the featured listings here:

Visit my Featured Listings

And My HomeSites

Special Bonus Offer

As a real estate buyer, you already have an advantageous situation where you can have an agent working for you and it costs you absolutely nothing.

If you work with me, and allow me to find you a home and represent you in the sale, I will offer a special incentive to you.

I’ll still be providing full service, and you will get a nice bonus in the process. Would that be helpful?

In order to claim your bonus, you need to be registered. Please enter your information in the form:

Additional Topics

To help home buyers get well informed about every aspect of the home buying process, I have much more information to provide.

Simply fill out the form to register for my special bonus offer and you'll also receive my monthly newsletter to keep you informed.