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Ask Realty Times - August 6, 2004
by Peter G. Miller
Question: We made an offer on a home in a hot real estate market. The sellers received more than 20 bids! How do owners select a winner in such circumstances? Answer: Approaches differ, but perhaps something like this: The offers are numbered and then issues of interest to the seller are entered into a spreadsheet -- say price, down payment, contingencies, required closing dates, financing, etc. The broker then selects the offers at the top of the rankings and shows them to the owner. At this point you can bet that many offers are above list price and without contingencies. Some may be all cash. However, the winning offer may not have the highest price. Instead, owners often look for an offer where the buyer offers great terms plus a clear ability to complete the transaction. Thus the determining factor may be a carefully-completed financial information sheet when offers are closely grouped together. Question: Which was a better financing choice during the past decade: ARMs or fixed-rate loans? Answer: Mortgages during the past 10 years have really had two phases: From 1994 through 2000 rates stayed in a range while in the period since mid-2001 they have largely swooned. The 11th District Cost of Funds Index has had the lowest rate during the period according to a chart from Chevy Chase Bank. However, you need to consider that the index alone does not determine the ARM rate, you also have to add a margin, or fixed amount above the index. If the index is 4.5 and the margin is 2.5, the rate would be 7 percent. If the index was 4.5 and the margin was 2.7, the rate would be 7.2 percent. To make the matter more complex, it's good to remember that mortgage lending has changed. It used to be that you only financed and refinanced after years with the same loan. Those days are finished. Today you change mortgages as better rates become available, a process made easy with mortgages that require no cash at closing in exchange for a somewhat above-market rate. While it's interesting to look at past rate trends, it's not wise to suggest that what happened in the past dictates what will happen in the future. Conditions change and there can be no assurance that rate patterns will continue. Question: We bought a new home several months ago. It has a number of warranties for the structure and appliances, but what about workmanship? How do we get the builder to fix various examples of poor finishing? Answer: The reason you can get warranties regarding structure and appliances is that such guarantees are easy to measure. Appliances either work or they don't, roofs sag or are straight, etc. But "workmanship" is terribly difficult to measure. What is a "flaw" in some eyes may be perfectly acceptable in others. As well, the timing in this matter is against you -- it would have been better to have these items resolved before closing or to have had funds set aside in an escrow account at settlement to assure that the work was completed. Question: My husband and I are considering adding on to an existing house (1980), but now we're wondering whether it might be better to sell this house and build a new one. How do we compare costs? Answer: On one side of the ledger we have one home addition. This includes not only the finished expansion but also upgrades to the electrical system and the heating and cooling system to account for the extra volume of space that has been enclosed. Did you pay for the new space with cash, a second trust or by refinancing the current mortgage? There are differing expenses in each case. On the other side of the ledger, if you move you get a new residence. But you also have the expense of moving, the cost of selling, the cost to buy and the expense of new financing. The result is that you might want to create a spreadsheet showing all the costs associated with each option. However, the fact that one choice is more expensive than the other does not necessarily mean you should go with the cheaper option. In real estate, you also need to consider your preferences and which choice you would enjoy more. Question: I am thinking of purchasing a home in Mesa or Gilbert, AZ. Do you know how I can get information on the school districts in that area so that I can compare them? Answer: For just about any jurisdiction in the country you can go online and search for the name of the community (city or county and state) and the term school board. Gilbert, for example, is at http://www.gilbert.k12.az.us, while information about Mesa can be found at http://www.mesa.k12.az.us. Question: I am trying to apply for a grant to purchase a home. We need $15,000 for the down payment. We have been financed for the rest, $125,000. Answer: A "grant" can be seen as the provision of money without a requirement to pay interest or principal. What you're looking for is a downpayment assistant program. There are various possibilities out there. For example, state programs to assist first-time buyers, those who buy in certain areas and those in certain professions, say teachers and police, may all have access to grants. However, grants can be difficult to obtain because funds are often limited. In such cases, the alternative may be to consider a loan with 100 percent financing. Such loans resolve the downpayment problem, however loans with nothing down mean bigger principal amounts and thus bigger monthly payments. As a place to start, sit down with local real estate brokers and loan officers to see what financing programs may be available to you. Ask about state programs, and also about the possibility of assistance from private groups.
This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought. | 
