Acceleration Clause When Submitting A Home Offer

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With the uptick in multiple offers, some home buyers are finding themselves out bid. Recently areas around Milwaukee have seen homes being sold for above asking price and some buyers are frustrated to learn that their offer has been declined due to a higher offer or a cash buyer.

Next time, consider using an “acceleration clause” which would automatically increase the offer up to a specified limit, thereby, in theory, eliminating the back and forth between other offers, as the “offer” would accelerate up to its highest limit, if there were any competing offers.

Most agents I’ve found don’t know how to present it from a listing or buying perspective. Be careful to ask the agent if they know what an acceleration clause stands for and please have them explain. If they don’t know, then it may be in your best interest to consider using someone else. We have found that brokers are using this tool more and more frequently, around the Milwaukee area.

As a real estate broker, I am interested in the actual mechanics of how agents go about “proving” they have a higher offer, in order to invoke the acceleration clause. Are the offers actually submitted to the buyer’s broker, or is it done by word of mouth? And if it is by word of mouth, how do you know the listing agent isn’t just saying there is a competing bid, in order to get a better price for their client? A carefully drafted clause can take care of these concerns. Additionally, if the seller receives any other bona-fide offer, then you will want a copy.

Yet, another practical concern still exists. Setting the mechanics aside, assume an acceleration clause exceeds the listing price. The question becomes, will an appraisal support the increased amount? If an acceleration clause is being considered, the broker and buyer must consider what is the “maximum” value the market will support for this home, and not go beyond it.

There is one situation where an acceleration clause can be viewed as especially helpful. That is where a cash buyer intends to flip the house. Presumably, an investor knows its price point and margins. When there are numerous contractors looking at the same limited inventory, an acceleration clause might prove effective in this circumstance, in order to obtain the property. In this clause, the net price should minus any monetary contributions by seller (such as closing cost).

In summary, it is necessary for BUYERS and BUYER’S agents to be aware this clause is being used in a tight market. If a buyer really wants a house, it might be useful to include such a clause in the offer, however, it should only be used in light of what is an appropriate market valuation.


Shopping For A Hazard Insurance Company

Wisconsin Home Insurance CompanyHazard Insurance in Milwaukee

Hazard Insurance can be a great thing to have for many homeowners, as it does protect homeowners against damages that may be caused by fires, severe storms, earthquakes or other natural disasters that could hit home.

Mother nature is unpredictable, and it is wise to expect the unexpected a lot of times, especially when it boils down to a person’s investment. You can never be too prepared!


Wisconsin Hazard Insurance Overview

To attain a Hazard Insurance for a property, the property owner is usually required to pay for at least a year’s worth of premiums during the time of closing. However, this may depend on the specific details of the policy.


What Hazard Insurance Covers

Hazard insurance is commonly purchased as a supplement of basic homeowners insurance, covers the structure of the home as well as its values if a covered disaster happens. Many hazard insurance policies also protects a homeowner’s personal liability in case someone is injured due to an accident on your property.


Requirements For Hazard Insurance

Most lenders in general will not only require you to obtain hazard insurance but may also require for you to pay the first premium at the time of closing. Many lenders may require the first year’s premium at closing, out of which the first month’s premium is paid and the rest is deposited in an escrow account. For each consecutive month, the hazard insurance premium is paid from the escrow account.


Hazard Insurance vs. Mortgage Insurance

Hazard insurance is not the same as mortgage insurance. Hazard insurance pays for property damage, medical expense claims for accidents on the property, repairs to the structure and any additional living expenses if you should take a loss by a covered event. A mortgage insurance plan protects the lender. It is designed to take care of the mortgage should you default on the payments.


How Much Hazard Insurance You Should Have

The amount of hazard insurance coverage you pay for typically depends on the value of your house and valuables. Your lender will require at least enough to fully rebuild the home in the event it is destroyed. You’ll want to add coverage to include personal items, such as clothing, televisions and other things that contribute to your daily life. Your insurance agent can help you determine the replacement value of your belongings and how much personal liability coverage you need in addition to the replacement cost of the structure.


Where You Can Get Hazard Insurance

Your lender might recommend an agent; however, you can get your policy from the insurance company of your choice, as long as the policy’s minimum coverages meet or exceed the lender’s requirement.

Keep in mind that as long as your policy specifically states what type of disasters/events it covers, you should be protected from any damages and/or losses, should they ever occur.


Understanding The Home Inspection Process

Milwaukee Home Inspection ProcessWhat You Need To Know About The Home Inspection Process in Milwaukee

Congratulations on finding a house in Milwaukee!

Once the seller accepts your offer “Time is of the Essence”. Depending on your purchase contract you now have only a few days from when you signed the purchase and sales agreement to have a home inspection.

Typically, your real estate agent made the offer contingent upon a satisfactory home inspection and obtaining mortgage financing. Communication with your real estate agent is key. Ask about your due diligence period and exactly what day this period expires.


What Is A Home Inspection?

A home inspection is performed by a home inspector, typically the job of the home inspector is to examine the conditions of the home, this process of inspection is often in connection with the sale of that property. Usually the home inspector who is conducting the inspection is trained and certified.

The inspector is required to do a visual inspection of the home along with checking to see if certain systems in the home is functioning properly. The inspector would then compile all information on the conditions of the home to place in a written report onto a home inspection software to deliver to the homebuyer and the real estate agent.

It is not the job of the home inspector to estimate market value or to let you know you got a good deal on the price of the home. This is done typically through an appraiser.

The buyer uses the knowledge gained from the home inspection to make informed decisions about their pending real estate purchase. The inspection needs to be completed within the time allowed. If there are any items found in the inspection that need to be addressed with further negotiation then all parties need to be notified as per the terms of the contract. This is why it is important to stay in constant communication with your real estate agent during this process so you don’t miss these deadlines.

Why Have A Home Inspection?

Buying a home is the single most expensive investment many of us will ever make.

A home inspection is designed to provide the home buyer with the information they need to make a more informed decision about the property.

The home inspection report should clearly identify any potential significant defects, and give the home buyer a realistic estimate of the costs of repairs so that they can be negotiated in an updated purchase contract. An inspection should also highlight any areas or features that need to be addressed in the near future which may be reaching the end of their useful lifespan. This will also help in determining if a home warranty may be a useful purchase.

What Do Home Inspections Cost?

The home buyer generally has to pay for the inspection up front, but there may be an agreement in the purchase contract for the seller to reimburse those fees at the time of closing.

Home inspection fees vary from state to state. An estimated cost of a home inspection is around $250-$400, depending on what services have been selected, where the house is located and the size of the home.

In addition to the general home inspection, there are many common services that home buyers also choose to have performed when having a home inspection. These additional services are not typically included in the general home inspection fee.

Optional Home Inspection Services:

  • Wood destroying pests such as termites
  • Mold Testing
  • Pools, spas, barns, or other external structures
  • Radon gas
  • Lead base paint (homes built before 1978)
  • Asbestos
  • Carbon monoxide
  • Docks and seawalls
  • Underground sprinkler systems
  • Septic
  • Well and Well Pump

The sellers may not be obligated to make every repair, so make sure you read the purchase and sales contract carefully to make sure the agreement does not state that the home may be sold in “as is” condition.

The Home Inspection Process:

A home inspection should include examination of all major systems, including the plumbing, heating, air conditioning, electrical, and appliance systems. Also, the home inspector will look at the structural components such as the roof, foundation, basement, exterior and interior walls, chimney, doors, and windows.

It is recommended that the home buyer be present at the time of the home inspection. A typical home inspection can take between 1 ½ hours to 3 hours, depending on the size and condition of the home.

Remember you are paying for the home inspection. Follow the home inspector around and ask questions about the condition of your home and how to maintain it. A good and knowledgeable home inspector will be happy to discuss all these things with you as they go through the home.

The attached link will help give you a better idea of what happens during a home inspection provided by the American Society of Home Inspector’s visual home inspection demonstration video. CLICK HERE FOR VIDEO


Buying In A Home Owners Association HOA

Milwaukee Home Owners AssociationsHOA Hurdles to be Aware of When Looking at New Properties

A Home Owner Association (HOA) can have a huge impact on your life when you buy a home in a PUD (Planned Unit Development) or Condominium Project.

According to Wikipedia:

“A homeowners’ association (abbrev. HOA) is an organization created by a real estate developer for the purpose of developing, managing and selling a development of homes.

It allows the developer to exit financial and legal responsibility of the community, typically by transferring ownership of the association to the homeowners after selling off a predetermined number of lots.

It allows the municipality to increase its tax base, but reduce the amount of services it would ordinarily have to provide to non-homeowner association developments.

Most homeowner associations are incorporated, and are subject to state statutes that govern non-profit corporations and homeowner associations.

State oversight of homeowner associations is minimal, and mainly takes the form of laws, which are inconsistent from state to state.”


The Pros and Cons of HOA’s:

A Home Owner Association may have the power to determine the color of your home, the number of pets you have and the type of grass you have to plant. They also may have the power to levy assessments, dues and fines. Or, they may be as simple as collecting a few dollars per year to make sure the grass is cut in the common areas.

It is also found that communities with an HOA have higher property values and a greater sense of pride of ownership.

HOAs are set up by CC&Rs (Covenants, Conditions & Restrictions) which are recorded and become part of your deed.

The CC&Rs dictate how the HOA operates and what rules the owners, tenants and guests must obey.

You should take the time to review the CC&R for any prospective purchase. Most purchase contracts have a due diligence period to allow time for review of these documents.

For instance, if you operate an Amway business from your home, it is possible the CC&Rs prohibit this type of activity. Or, if you have two dogs and three cats, the CC&Rs may limit you to one pet. There could also be restrictions on whether or not you can rent your property.

The CC&Rs are only a portion of the HOA. Bylaws are another component of HOA’s that reflect the intention of the association and Rules and Regulations which are a more detailed list of do’s and don’ts.

Each HOA may have a managing Board of Directors and/or a third-party property management company.

One issue to be sure you check on is potential assessments.

An HOA may levy assessments when there is some major repair in order replenish the HOA’s reserve account.

For instance, recently a Condo Association had a foundation problem and was assessing the members over $10,000 per unit. Another PUD had a pool that required routine maintenance and certification.

Within a master planned community there are individual subdivisions. These subdivisions are commonly set up as PUDs with an additional HOA.

Until the subdivision is complete, the builder is generally in charge of the HOA.

When complete, the management of the PUD is typically turned over to the homeowners at a special membership meeting.



Buying Foreclosures And Short Sales

Buying-ForeclosuresImportant Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction

When purchasing a foreclosure, short sale or new construction home in Milwaukee it is important to understand they each have their own unique factors that can affect financing.

If the guidelines and potential pitfalls are not properly understood, you could face delays in closing or, worst case scenario, a denied loan.

Having an open line of communication with your mortgage professional will help you successfully navigate through the purchase process.


Short Sales & Foreclosures

Currently, short sales and foreclosures are everywhere. They often represent great value when looking to buy a new home.

However, they also present a unique set of problems that home buyers need to be aware of and plan for.

1.) Property Condition

Typically, when homeowners are facing foreclosure or looking to short sell their house, it means they lack the financial means to pay the mortgage or maintain the property.

A property in poor health can cause many financing issues for traditional financing. FHA loans have specific rules requiring that the property is move-in-ready condition, unless you’re using a 203(k) Rehab Loan.

2.) Timing Challenges

Foreclosures can take longer to get an executed purchase contract due to the seller is a bank and the paperwork must go through appropriate channels for approval. For the same reason, it is important your lender has loan documents ready a few days early for closing to ensure everything is approved and closes by the agreed to deadline.

Short sales typically come with awkward timeframes for purchase contract approval and loan closing. Each bank is different, but approval can take anywhere between a week to 120 days. As a general rule, the larger the bank the longer it takes to get short sale approval.

The lack of a set time frame for short sale approval makes the timing of loan submission, rate locks and closing very challenging. You have your approval conditions cleared to close on time, just to find out that new appraisals, income, employment and asset verifications need to be updated by an underwriter to cover the most recent 30 days.

Worst case, purchase contracts and legal documents may have to be re-submitted to a bank for an updated approval.

Either way, be prepared for a lot of redundant paperwork when purchasing a short sale property.

New Construction

Home buyers looking to purchase new construction using FHA financing will have more hoops to jump through than those purchasing through conventional (Fannie Mae / Freddie Mac) financing.

If you want to use FHA financing to purchase new construction then you need to be aware of a number of issues that can trip you up.

First, you MUST have a certificate of occupancy (C.O.) certifying that the property is complete and move-in-ready. If you do not have this then you typically CANNOT go FHA. You’ll need a renovation loan, but a FHA 203K WILL NOT work.

You’ll need to employ the Fannie Mae Home Style for a property without a C.O.

In addition to the C.O. you’ll need some combination of the following documents as dictated by your lender and your unique situation:

  • Builder’s Certification
  • One Year Builder Warranty (10 YR Warranty may be required)
  • Termite Inspection (when applicable)
  • Septic Inspection (when applicable)
  • Well Test (when applicable)
  • Construction Permits

There are a number of factors which go into exactly what combination of documentation will be required to satisfy your lender and FHA, so it is best to work with an experienced loan officer when purchasing new construction with FHA Financing.