Getting Your Home Under Contract

 Getting Your Home Under Contract….

“The Valley of Flowers”

It’s exciting for you, and for Stuart and Sally, when we find the property of your dreams, and you decide to go to the next step in the transaction process, by having us write a Buy/Sell Agreement. But what happens next?

What follows is a guide to a typical real estate transaction once Stuart and Sally submit and negotiate a Buy/Sell Agreement and the Seller accepts:

• Since you, as the Buyer, are making a major investment, it’s vital that you are fully versed in exactly what you are purchasing and any potential problems, hindrances or restrictions. Stuart and Sally will carefully, and thoroughly, go over each item within the Buy/Sell Agreement prior to your signing the document. We will also fully explain any counter offer from the Seller.

Once you have a fully executed Buy/Sell Agreement, it is prudent to engage a lawyer to examine your documents. Within the Buy/Sell Agreement are any number of Contingencies and Provisions. Each one has a specific Release Date. Stuart and Sally will negotiate, within the contract, ample time for you to satisfy each provision within the contract. We will also help keep the process on track, supplying you with names of qualified specialists to help satisfy a provision.

Should there be a problem with the time frame, we are usually able to amend the Buy/Sell Agreement and secure an extension of time. However, it is best to always remember that in Real Estate Contracts, Time is of the Essence.

• As the Buyer, it is your responsibility to provide Earnest Money. The amount varies due to Selling Price and Market.

Your check for Earnest Money is usually made out to the Title Company that is designated by the Seller. Montana law stipulates that you can not have a valid contract unless earnest money is involved. You will usually be paid interest on your money while it sits in an escrow account prior to closing or to the date when contingencies are released. Your earnest money will be refunded to you should you fall out of contract due to contingencies or fault of the Seller.

• The Seller of the property is responsible for providing and paying for the Title Insurance. If you, as Buyer, are financing the property, you will be required by your lender to provide the lender Title Insurance. You will receive a Preliminary Title Commitment and generally have 10 working days to examine, and accept, the provisions of the insurance. Stuart and Sally recommend that you have your lawyer go over the Title Insurance.

• Financing of the transaction is the Buyer’s responsibility, including the Appraisal of the property; in Montana, the typical appraisal fees vary between $400 and $700.

The Buy/Sell Agreement will contain release dates for the financing. As buyer, you must perform all tasks within these dates or risk falling out of contract. If you do require financing, then you will need to work with a lender of your choice.

It is prudent to obtain a letter from a lender stating you are qualified to purchase a property within a specific price range before you begin viewing properties with Stuart and Sally. Having pre-approval strengthens your Buy/Sell offer for negotiations. Stuart and Sally are happy to provide you with the names of local lenders. Terms vary from lender to lender and it is wise to obtain quotes from more than one source.

Lenders require an appraisal prior to financing, and they order the appraisal to insure its accuracy. Appraisals in the Gallatin Valley can take 3 to 4 weeks. Stuart and Sally will help arrange a time for a reputable appraiser to view the property. Should the house not appraise for the contract amount, Stuart and Sally will help negotiate a change in the price.

• It is the Buyer’s responsibility to seek Home and Property Inspections. The cost of these inspections range from $500 to $750 for a high-end home; this is determined by the age of the home, square footage, and location. Inspection for the potential presence of radon gas, which we urge you to do, generally costs an additional $100.

It is vital that you engage a qualified Home Inspector. Stuart and Sally will provide you with names of reputable local inspectors, schedule the inspection, and will be present during the inspection (which can take between 4 to 7 hours). After the inspection, Stuart and Sally will go over the results with you and after this, present an Inspection Notice to the Seller and negotiate any repairs or provisions required from the Seller due to the Inspection Report. This may involve a price reduction or a requirement for repairs or mitigation.

• The Water and Mineral Rights on the sale property may require both legal advice and, potentially, specialists in such matters; these issues are also the Buyer’s Responsibility. Water and Mineral Rights in Montana can seem like a daunting labyrinth of legal records and laws. It is the responsibility of the Buyer to determine how important the role of Water and Mineral Rights are in the negotiations for a property and then to accurately determine what rights convey. Stuart and Sally will include in the Buy/Sell Agreement that all rights appurtenant to the property will convey with the property, however it will be up to you to determine what these rights include. The property may have a stream running through it, but that doesn’t mean – and this is all too often the case! – the owner of the property has any right whatsoever to take any water out of the stream.

Also, wells and pond construction are regulated by the DNRC and the State of Montana, and, in many cases, Homeowner Associations. You need to know what your options are in regards to water before you purchase the property.

Flood plains are another consideration in purchasing a property in the Gallatin Valley. There are 100 year and 500-year flood plain maps available. If you can see or hear water, you must be aware of your risk for flooding. Engaging a qualified Hydrologist can help determine the best site for a new home or the risk potential of the property.

• Many properties in the Bozeman and Gallatin Valley area are connected to active Homeowner Associations. Stuart and Sally will provide you with any and all known Covenants for the Homeowners Association associated with your property. You will need to consult with your attorney to determine any restrictions and regulations that affect your intended use of the property.

• The Buyer generally takes possession of the property when the Deed is recorded. This is the day of closing if it is early in the morning, or the following day when the signing is in the afternoon. Stuart and Sally will arrange a final walk-through of the property prior to Closing to insure that everything is in tip-top condition and you are closing on what you have agreed to purchase.

• You will need to arrange to have a mover scheduled well before closing date as qualified movers are booked well in advance. Stuart and Sally will provide you with names of the most qualified movers. You will also need to arrange to have utilities and phone connected in your name.

• The Buyer’s responsibilities at Closing include any loan fees, as applicable. The proration of taxes and any special Assessments that are not the Seller’s Responsibility. Other responsibilities include insurance required by the Lender.

Closing Costs, which are generally split between Buyer and Seller, are generally under $300, or a $150 cost to the Buyer.

You will be provided with a closing statement prior to closing. The closing itself is a simple process of signing documents, which can take place in the Title Company’s office, or by registered mail with documents being notarized. You will be able, up until 10 or so days prior to closing, to determine which name or entity you wish to have the property titled under.

You will arrange with your lender or banker to have a certified check delivered to the Title company or the monies wired to the Title Company in the amount of the closing by the date of closing.

Congratulations! You are now a Gallatin Valley property owner.

1031 Exchange

When buying or selling a luxury Montana property, serious consideration should be given to whether you qualify for a 1031 Exchange, which is covered in Section 1031 of the Internal Revenue Code.

Simply put, a 1031 Exchange allows the owner of an investment property to sell that property and buy another “like-kind” property, thus deferring the payment of state and federal capital gains taxes. Taxes are only paid when a final property transaction occurs and the seller cashes out, which allows you, the investor, to build on your initial investment and increase its value without paying the taxes during on-going transactions. A number of properties qualify as long as they are investment properties and not your primary residence.

The IRS Section 1031 states: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.”

If you are interested in a 1031 Exchange, Stuart and Sally will search for the ideal property that legally qualifies for your exchange. We will write into the Buy-Sell contract that you are going to be engaging in a 1031 Exchange. There will be an additional form, specifically for 1031 Exchanges, which we will include in the contract and have you sign. At this point we will provide you with the names of local, qualified 1031 specialists to insure your exchange goes as smoothly and professionally as possible. Our affiliation with ERA Landmark – Bozeman’s Number One Real Estate Company – provides us with access to a full staff of experts well-versed in all the paperwork and legalities involved in 1031 Exchanges.

As your real estate specialists, Stuart and Sally will provide you with the security and sense of well-being that comes from knowing that we are closely monitoring every aspect of your transaction to make certain that no detail is overlooked. And, naturally, we are always vigilant when it comes to protecting both you and your confidentiality.

Let’s Connect!

Call us at: 406-556-5013
e-mail: contact@stuartandsally.com

Understand the Economic Stimulus Package

On February 13, 2008 , the economic stimulus package was signed into law by President Bush. This package includes many provisions which are important to the housing market, most notably increasing the loan limits for Fannie Mae and Freddie Mac (GSE) and the Federal Housing Administration (FHA). The National Association of Realtors ® (NAR) has shown great support for this package and predicts a jumpstart in the housing market which will help countless families and the U.S. economy as a whole. According to research conducted by the NAR, increasing the FHA loan limits could assist 138,000 Americans enter the housing market and will also give almost 200,000 homeowners the opportunity to refinance and ideally keep their current homes. Additionally, an economic impact study estimated that increasing the GSE’s loan limits could lead to as many as 500,000 refinanced loans and reduce foreclosures by 210,000. It is also anticipated that over 300,000 additional home sales could occur; there would be a reduction in housing inventory; and the prices for homes would increase and strengthen. The belief is that by increasing the loan limits for Fannie Mae and Freddie Mac, there will be improved liquidity in to the nation’s much stressed mortgage market. To use some numbers to put this in perspective, the FHA limit will increase to as much as $729,750 in high cost areas (to 125% of local median home prices) for loans approved on or before December 31, 2008 . The GSE limit will increase up to $729,750 for loans originated after July 1, 2007 to December 31, 2008 . Fannie Mae and Freddie Mac are currently topped out at $417,000. Please keep in mind these figures are estimates and not yet official figures. For those not familiar with FHA or GSE loans and their importance to the housing market, FHA loans- which are a part of the U.S. Department of Housing and Urban Development (HUD) – are insured loans, so lenders can generally offer better deals. They are often popular to first time homebuyers with a down payment as low as 3% of the purchase price, and most of the closing costs and fees can be included in the loan. Fannie Mae exists to expand affordable housing and operates in America ’s secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Freddie Mac purchases, securitizes and invests in home mortgages, and ultimately provides homeowners and renters with lower housing costs and better access to home financing. Of course, the economic stimulus package is really somewhat of a short-term answer to a bigger issue. Additionally, the loan limit increases will only be in effect for the current year. The FHA and GSE Reform Bills are currently in the works, but not yet passed into law. However, this package should meet its goal of giving the housing market a boost as well as jump-starting overall consumer spending. NAR’s President, Dick Gaylord, recently reiterated the fact that with more affordable financing options, lower housing prices, and historically low interest rates, buying a home now is more affordable than it has been in many years. Furthermore, homeownership is still the best way that most Americans can build their wealth, and is one of the best long-term investments a person can make. Robyn Erlenbush is owner of ERA Landmark Real Estate (with offices in Bozeman, Big Sky, Livingston and Clyde Park) and Intermountain Property Management. She can be reached at robyn@eralandmark.com. Visit us at http://www.eralandmark.com/ & http://www.StuartandSally.com/