Archive for the 'Closing' Category
Radon, Radon Everywhere
Radon is a naturally occurring gas, and is part of the normal mix of elements that make up the air we breathe. However, the concentration varies greatly throughout the country, within individual towns, and even within neighborhoods. If the concentration is too high, then radon can be a health hazard.
We always recommend that our buyers test for radon as part of their home inspection. If elevated levels are found, then our buyers have an opportunity to make sure they have addressed it to their satisfaction before proceeding with the purchase. Some become uncomfortable with the home and choose to walk away. Others require that the sellers install a radon mitigation system to lower the concentration to more acceptable levels.
Mitigation systems are very effective at reducing radon levels. Because radon is produced underground, and is heavier than most other components of air, it tends to enter through the foundation and pool in the lowest levels of a home. Mitigation systems are simple ventilation tubes (usually PVC piping) that blow air from under the home’s foundation to the outside of the structure. They are easy to install and relatively inexpensive compared to other mechanical systems in a home.
The EPA has a website devoted to radon and real estate that should be required reading for all home buyers and sellers. They also have more general pages that talk about the health risks of radon in addition to their overall radon portal. The EPA defines a concentration of 4.0 pCi/L as the point at which a mitigation system should be installed. As a point of comparison, the average indoor concentration level is 1.3 pCi/L and the average outdoor concentration is 0.4 pCi/L.
In September of 2009 the World Health Organization completed the International Radon Project, a comprehensive study of residential radon health risks. They recommended that countries adopt tighter standards regarding acceptable radon concentrations in residential environments. Their target action level is equivalent (they use different units to measure) to 2.7 pCi/L, and they suggest that the highest action level a country adopt is 8.0 pCi/L.
The EPA’s action level is comfortably within the suggested range, and in their reaction to the report they did not give any indications that they would change the standards in the United States. A different article pointed out that the EPA actually recommends that home owners “consider fixing their home” when concentration levels are 2.0 pCi/L, even though the accepted action level is 4.0 pCi/L.
Radon is an environmental issue that impacts everyone involved in residential real estate, whether or not they are actively pursuing a transaction.
Home Owners: Consider testing your property to make sure that radon concentrations are at safe levels in your home. We tested our home a couple of years ago. It’s a two day process for the continuous monitoring test (we recommend this over a canister test) and currently costs about $250 when done alone (versus as part of a home inspection).
Sellers: Be prepared for buyers to conduct a radon test during their home inspection period. Since elevated radon levels are considered a “Material Fact” in the state of Connecticut, you will be required to disclose the results to all potential buyers (even if the buyer that discovered the radon walks away from the deal). The practical implications are that sellers with high radon must have a mitigation system installed in order for their home to be marketable.
Buyers: Read up on radon so that you understand the potential risks and the effectiveness of mitigation systems. Conduct a radon test during the home inspection process, and insist that elevated levels are addressed by the seller either in the form of an installed mitigation system or a credit to cover the cost. Remember, you will be required to disclose the radon test results when you sell the house, so keep the paperwork.
All of us are exposed to radon on a daily basis, inside our homes and out – there is no way to eliminate it from our environment. The key is to understand the potential risks and to make sure that our homes contain safe concentration levels.
Getting Sellers to Pay Your Closing Costs
In more than half of the buyer transactions I represented last year, my buyer clients decided to ask the sellers to pay a portion or all of their closing costs.
We’ve talked about Financing Closing Costs before. Some buyers ask sellers to cover these costs for them, as the buyer is trying to maximize their downpayment or conserve the amount of cash they will have left over after the transaction.
Deciding to ask a seller to cover closing costs is a personal decision based on a buyer’s specific cash situation. What we need to realize though is that certain situations lend themselves to a seller covering closing costs, while others do not.
Let’s look at an example, from the seller’s perspective. Suppose a seller just listed their house today at $300,000. Their house shows very well, is in a desirable location, and has attracted a fair amount of interest in just the first day. You, as a buyer, fall in love with this house and decide to put in an offer. You need any seller to cover at least $5,000 in closing costs for you so that you have some cash left in your savings account after the closing. You make a full price offer on the house, but ask for the $5,000 back to go towards your closing costs. From the seller’s perspective, you are really offering them $295,000 for their house. They care about the net amount they’re getting. Another buyer comes along that offers them $298,000 and doesn’t ask for closing cost money. All other things being equal with the offers, the seller will most likely accept the other offer for $298,000.
But you really like that house. What if you were to offer the seller $305,000 for the house and ask for the $5,000 back? The seller may take that, right? In this situation they are netting $300,000 rather than the $298,000 from the other offer. But the seller still may not necessarily accept your offer, even though it is for more money. Your offer is still contingent on the house appraising. If there is some risk that the house may not appraise to $305,000, the seller would be taking an unnecessary risk and therefore should still accept the $298,000 offer.
Well then, when does asking for closing cost money not weaken your offer? Most often when you’re looking at a house that’s been on the market for awhile, and it’s overpriced enough (or has something else “wrong” with it; location, amenities, etc.) that it is unattractive to other buyers. In that situation a buyer will have some advantage over a seller and is more likely to get them to pay a portion or all of their closing costs.
As a buyer, if you’re looking for a seller to cover some or all of your closings costs, realize that this concession on the seller’s behalf will weaken your offer in a competitive situation. It’s not to say that in all cases you won’t be able to get a seller to cover your closing costs if their house shows well and has only been on the market one day (I did actually represent a buyer last year that was able to get closing costs covered in this situation), but realize in a Spring market with many buyers, you may have a weaker position. And if you need to ask for closing costs, try to find some other way to sweeten the offer for the seller; give them the closing date they want, put down a larger first or second deposit, have your inspections done within 7 days rather than 14 days, or get them your mortgage commitment letter in a shorter than normal timeframe.
Will You Take Advantage of the $8,000 First Time Buyer Credit?
I’ve been working with a lot of first time buyers this year. Many of them have been motivated by the $8,000 first time buyer tax credit that the government is offering. A good number of them have already closed on a property and are set to receive their refund next year when they submit their Federal Income Taxes.
Some of my buyers are still looking though. They are waiting for the right house. Or they found a house and it’s fallen through for inspection reasons, so they’re back out there again. As an aside, this is more common than you’d think; I have 4 buyers looking right now that are in this inspection situation.
Anyway, in order to take advantage of the $8,000 tax credit being offered this year, a first time buyer needs to close on that property on or before November 30, 2009. That gives us approximately 3 months remaining to find a property and close before this opportunity goes away.
Some buyers are asking me if I think there will be a similar program next year. I honestly don’t know. Last year there was a buyer incentive program, but it changed for 2009. I don’t know what next year will bring and if Congress will decide we still need this type of housing stimulus option.
Buyers are also asking me if they should buy this year, simply because of the $8,000 credit. I honestly don’t know that one either. Each person is different, so that needs to be assessed individually.
But what do we need to do if you do want to buy this year and be able to take advantage of the credit? Er, get moving! Closing on a property typically takes anywhere from 30-60 days. That takes into account how long it takes to get a mortgage processed, in addition to giving most sellers enough time to move on to their next place. Working backwards from November 30, that means you should have an accepted contract no later than October 1, 2009.
I would actually recommend trying to have something in place before October 1 though, for a few reasons.
First, mortgages have been taking longer to process recently due to stricter underwriting guidelines, particularly FHA loans, as well as an increased volume. I believe this is only going to get worse in the next few months as a slew of buyers try to jam in a purchase before November 30 and lenders continue to deal with more underwriting guidelines and leaner staff levels.
Second, home inspection issues could cause a delay or the deal to blow up, so you may need to start over.
Third, closing attorneys have limited capacity and good closing attorneys are going to find themselves slammed in November. People normally like to try and close at the end of the month (or the Friday closest to the end of the month) and this tax credit situation is going to only make it worse for November.
If you want to take advantage of the credit, I would recommend trying to close in the middle of November, or sooner, if at all possible. That way if you have problems with your mortgage, there is some wiggle room for you to still get the transaction closed before the end of the month. This would most likely not be possible if you’re scheduling a November 27 or 30 closing and there are issues. And how annoying would it be if you’ve planned to get everything done so you can take advantage of the credit and then you miss the deadline at the very end? Uh, very. So budget enough time if you can.
Happy property hunting!