Termite Inspection or WDO or WDI (Wood Destroying Organisms, Insects) Inspection

WDO/WDI or “termite inspection” as is commonly called is required by the lenders only in the states where such inspection is customary or required by the law. Florida is such a state. Lenders, including FHA and VA do not automatically require WDO inspection. Only if the appraiser sees evidence of termites then a WDO inspection is ordered.  The buyer’s lender notifies the buyer and the agent if such inspection is required.

Even if WDO inspection is not required by the lender then the buyer should be advised that WDO inspection is advisable in the states that have issues with humidity and or are close to the cost.

Personally I provide a list of licensed pest control contractors but let the buyer choose and schedule their own WDO inspections.

Some clients panic when they hear that there is evidence of termites in the house they are buying. My job is to explain what   the options are – treat the house, repair damage or if the expenses to treat or repair the house are above the agreed limit in the contract choose to cancel the contract.

Check the deadlines for reporting any damage and repair estimates to the seller

The sales contracts for each state are different but usually there is a time frame to do the inspection and send a written report to the seller.

Inspection and repair clause is usually part of all standard real estate contracts. What you should know is:

1. What is the deadline to perform an inspection
2. What is the deadline to report any defects to the warranted items
3. What are the warranted items
4. Does the contract include a self-executing clause like: “Unless Buyer timely reports such defects, Buyer shall be deemed to have waived Sellers warranties as to defects not reported.
5. If self-executing clause is not included, the home inspection contingencies should be removed in writing, which could be done by adding an addendum or drawing a line through the contact provision, initialing it and  writing “condition accepted as satisfactory”

What are warranted items – the warranted items are usually listed in a standard contract. Those are the items that the seller is saying are in working condition.

What if defects of the warranted items are found? Within the time frame specified in the contact send the listing agent the list of defects found and the inspection report addressing these items.

In some contract there is a limit of the amount that the seller is willing to pay to cure defects in warranted items. If the amount needed is more than the buyer can choose to accept it or walk away also the seller can choose to accept it or walk away.  If there is no limit then buyer and seller need to reach an agreement what needs to be repaired or maybe the seller will choose to give buyer credit at closing instead of repairing the items.

Q&A

Should the buyers or seller agent be present at the inspection?

The sellers’ agent should not be present at the inspection. The inspection is for the buyers benefit.  The buyer’s agent can choose to attend or not. My thinking is that the buyer should be the only one attending the inspection. If the buyer could not be present then the home inspector should send them a home inspection report.

Who should schedule the inspection report?

The buyer’s agent should make sure that home inspection is scheduled but should not be the one scheduling it unless the buyer ask for it. I usually give my buyer a list of qualified and licensed home inspectors.  I make sure that the inspection is scheduled within the time allowed and make sure that there will be access to the property at that time. Most home inspectors I work with have electronic keys.

Is home inspection necessary for new homes?

Because the builders have couple of home orientations and inspections and they offer warranty, many buyers choose not have home inspection performed on a new home. This should be the buyer’s decision.

 What is a contingency in a contract? If a contract is an agreement between two parties then the contingencies could be called conditions to this agreement.

Here are some typical contingencies:

1. Financing – This contingency is usually in every standard contract. It allows the buyers to back out of the contract and get their deposit back if they are not approved for a loan. It is a good idea to specify what kind of loan and at what interest rate.
2. Home Inspection – If the buyers are not happy with the inspection report and the repairs are above any limit (if any) mentioned in the contract, they can walk away from the sale.
3. Appraisal – This is also standard contingency. Unless this is a cash sale and even if it is not, the buyer can cancel the contract if the home does not appraise.
4. Sale of the home of the buyer – More popular in buyers market, this condition allows the buyer to cancel the sale if they cannot sell their current home. Note that this works with private sellers, few banks will agree to a contingency like this.
5. Repairs to be made – If after the home inspection some repairs are needed, a contingency could be added in the contract to make sure these repairs are completed before closing.
6. Short Sale Contingency – Virtually unknown until the last two years, this contingency is used in many contracts today. It makes the contract contingent upon lender approving the short sale.

The above contingencies are common but any condition can be a contingency – from removing the dead cat in the yard to getting spouse or attorney approval.

Contingencies either have to be removed in writing in order for the closing to occur or they have to be self-executing. (contains language that removes the contingency automatically)

While contingencies are great protection, including too many especially when multiple offer situations exist, is not advisable.

In the real estate contract there is a time frame for the buyer to apply for a mortgage.  In general applying for a mortgage should be the first task you do after the contract is ratified. By this time hopefully you should have been pre-qualified and you should know which lender you are going to use.

Here is an explanation on how lenders work, how they are paid, and what are the risk and pitfall in advance so you are educated and you know the right questions to ask.

I will start with the basics. I will explain the difference between lender/mortgage banker and mortgage broker and how they are paid.

The main distinction between a lender or mortgage banker and a mortgage broker is that the mortgage broker only brokers the deal while the lender, mortgage banker lends its own money.

The role of the mortgage broker is to take the application, find the lender with the best rates, process the application and submit it to the underwriter of the bank/lender. A mortgage broker makes money by charging upfront fees – called points and by marking up the interest rate on your loan. When a mortgage broker shops around, lenders are giving him their wholesale rates. The broker can choose to pass along those wholesale rates to the client and make their money by charging origination points only or do both mark up the wholesale rate and charge upfront fees.

In the HUD-1 statement both fees will be disclosed, the back end fee will be in parenthesis and will be called YSP, yield spread premium.

There is a new breed of mortgage brokers called upfront mortgage brokers. They guarantee that the client will get a wholesale rate and they will only make money upfront.

The lenders lend their own money and most of the time after the loan is made will sell the loan to investors and to another lender. The way lender makes money is by changing origination fees, applications fees, administration fees, commitment fees ect.

A discount point is equal to 1 percent of the loan amount. You can reduce your interest rate by paying the lender discount point. Every discount point reduces the about ¼ percent.

Bait and switch tactic used by some mortgage brokers that you should be aware of. Quoting lower rates without disclosing that the clients will have to pay discount points, which will increase their closing costs. This is usually done initially when the client is enquiring on the phone. If you are shopping around for a mortgage make sure you ask about discount points.

Hillsborough county real estate market stats Jan -June 2009

January 748 homes sold, median price $133,238

June    1323 homes sold, median price $136,000

Median home price has increased with 2% for the last six months,  0.3% increase per month

Riverview real estate market stats Jan-June 2009

January median price $156,850

June   median price $138,000

Median home price has decreased with 12% for the last six months,  2% decrease per month

Brandon real estate market stats Jan-June 2009

January median price $145,435

June   median price $116,650

Median home price has decreased with 3% for the last six months,  0.5% decrease per month

Here are the top ten best priced townhomes in Brandon, FL – Tampa Bay

Click here for addresses, map, photos and more information.

1. $59,900, Buckhorn Creek, 3BR, 1.5BA – 1245 sq.ft., Bank Owned
2. $62,200, Kings Lake 4BR, 3BA – 1576 sq.ft, Bank Owned
3. $64,900, Villages of Bloomingdale, 3BR, 2.5BA – 1345 sq.ft., Short Sale
4. $64,900, Kings Lake, 4BR, 3BA – 1576 sq.ft., Short Sale
5. $65,000, Osprey Run, 3BR, 3BA – 1412 sq.ft., Bank Owned
6. $69,000, Providence Townhomes, 3BR, 2.5BA – 1364 sq.ft., Short Sale
7. $69,900, Villages of Bloomingdale, 3BR, 2.5BA – 1590 sq.ft., Short Sale
8. $69,900, Villages of Bloomingdale, 3BR, 2.5BA – 1387 sq.ft., Short Sale
9. $69,900, Kings Lake, 4BR, 3BA – 1576 sq.ft., Short Sale
10. $70,000, Lakewood Ridge, 3BR, 2.5BA, – 1447 sq.ft., Short Sale

What is title insurance and why is it necessary?

Title insurance protects against defects in the title and errors in surveys and public record, existing liens against the property, encroachment issues, title fraud and error.  Title insurance is necessary to protect against losses that might occur if there is a defect in the title.

Do I have to purchase title insurance?

No, but if you are financing the property your lender will require lenders insurance in order to protect their collateral.

If the seller is paying for owners title insurance why do I have to pay lenders title insurance?

The owner’s title insurance and the lenders title insurance have different coverage. The owner’s title insurance protects the owner’s interest and the coverage is usually the amount paid to purchase the property.

The lenders title insurance protects the lenders interest and is issued in an amount equal to the loan amount.

Do I need a lawyer if I am using title company?

If the client feels that they need a lawyer in order to understand what they are signing I advise them to get one.

Step 1 – Decide if the property is worth your time. You need to ask the listing agent the following questions:

1. Would the seller be able to prove hardship? Listing agents who are experts in working with short sales have the sellers write a hardship letter and ask them to fill out a financial worksheet. If the seller doesn’t have financial hardship the lender will not consider doing short sale.
2. Who do you present my offer to? The answer to this question should be: the seller. The reason to ask this question is to find out how knowledgeable is the listing agent. You will be relying on her to do all of the negotiation with the bank.
3. What do you do with offers that are received after a contract is ratified? Acceptable answer will be keep them as back up but present only the ratified contract to the bank for approval. You don’t want the buyer to be involved in a bidding war and end up with nothing after a long wait.
4. Has BPO (broker price opinion) been done on the property – hopefully the answer will be yes but even if it is no. It only means that the process will take longer.

BPO by the way is usually performed by a real estate broker and is similar to appraisal. BPO is ordered by the investor or servicer of the loan.

Step 2 – Decide on the correct price to offer. According to Freddie Mac and Fannie Mae, they are looking for 88% net of the BPO price. However this depends on who the end investor is?

Let’s take for example a house that has just been given a BPO of $170,000. The house is listed at $170,000. There are two other liens on the property. Knowing that the investors are looking to get 88% net of the BPO I can figure out what price will be acceptable to them. Let’s say that the expenses are $15,000 (commission and closing costs) plus $5000 payoff to the junior liens. This makes my net $150,000, which will be acceptable for the investors (Freddie Mac or other). Although this calculation will be different for different investors it is good to keep it as a guideline.

So, can you make an offer that is less than $170,000? You can but there is less of a chance that it will be approved by the lender.

Here are the top ten best priced properties in Brandon, FL – Tampa Bay

Click here for addresses, map, photos and more information.

1. $70,000, Providence Lakes, 3BR,2BA, 2CG – 1471 sq.ft., Short Sale
2. $89,900, Kingsway Gardens, 3BR, 2BA, 1 Carport – 1363 sq.ft., Short Sale
3. $92,900, Four Winds Estate, 4BR, 2BA – 1400 sq.ft., Bank Owned
4. $97,500, Bloomingdale, 4BR, 2.5BA, 2CG – 1744 sq.ft. Approved Short Sale
5. $99,900, Lakemont Hills, 3BR, 2BA, 2CG – 1690 sq.ft. Short Sale
6. $105,000,Bloomingdale, 3BR, 2BA, Pool - 1700 sq.ft. ,Short Sale
7. $129,900, Brandontree, 5BR, 3BR, 2CG – 2333 sq.ft., Approved Short Sale
8. $135,000, Brandontree, 5BR,3BA, Pool – 2007 sq.ft.,Short Sale
9. $150,000, Timber Pond, 4BR, 2BA, 2CG, Pool – 2210 sq.ft., Short Sale
10. $150,000, Timber Pond, 4BR, 2.5BA, 2CG – 2399 sq.ft., Short Sale

BPO is an opinion of value provided by a real estate broker/agent. Banks use BPOs instead of a full appraisal because it costs less. They use it when they have to do loan modifications or approve a short sale.  BPO is very similar to a property appraisal. It takes into consideration the market direction, saturation, comparable sales and the condition of the property.

 In some of the short sale listings you might see “BPO in”. This means that the bank has already ordered and received an opinion of value for the property. BPO is ordered by the bank when there is a contract they are evaluating.

Why do I care about the BPO? If I know that the BPO is already in, it means that the seller has been approved to do a short sale and now the bank is looking for the best offer they can get. Also I know that  the banks are looking to get a net profit, which is a percentage of the BPO. I know what that percentage is for Fannie Mae and Freddie Mac owned loans and for some other lenders.

When I work with buyers considering making an offer on a short sale, I do a short version of the BPO. I start by pulling the active, pending and sold listings for the last 3-4 months from my MLS and tax record, comparables that are the same or similar style, similar square footage, built around the same time – five year older or newer, within a mile radius unless the area is rural.

I ignore the lowest and the highest sale for the area and I look at the median sale. This gives me an idea what the BPO will be.

I also look at the list to sold ratio especially for short sales. If the ratio is 100%, this tells me that the buyers paid full price. I also look at the terms of the sale. If I see that most of the sales are cash and my buyers are financing the property, then I would have to compensate for that. I present all the facts to my buyers and let them decide on a price.

Because my buyers have to wait on average 90-120 days to buy a short sale, I want to look at the pending sales and apply the list/sales ratio, this will tell me what those pending sales might have sold for, but more importantly it will show me where the market is heading and what the rate of decline or increase might be. I need to calculate that in my offer as well.

Listing agents who are skilled in short sales usually price the short sales at what they think the lender will approve. But in some cases the listing is underpriced dramatically in order to get a bidding war started. They know the lender will not approve it but they think if they conduct the offer acceptance as an auction they will get a higher price and will attract more buyers from the beginning.