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Sun,Apr 14,2013
Who pays closing costs in Georgia?
I am often asked by both buyers and sellers who is responsible for closing costs. There is a lot of misconception about this so I thought I would write this post to clear things up.
Firstly, it’s important to understand what closing costs are. Closing costs are any costs associtated with closing a real estate transaction. For the seller, the most significant of these costs would be the real estate commissions that the seller agreed to pay their listing broker. For the buyer, these costs include the lender fees associated with obtaining financing, attorney fees for getting the sale closed and recorded properly as well as pre-paid items (i.e. first year of insurance premiums and prorated taxes and homeowner association dues). For a more detailed explanation of what these closing costs are, you can read my other blog post about the costs themselves by clicking here
Technically speaking, the buyer’s closing costs are just that; the Buyer’s responsibility. However, since many buyers are cash poor at the time when buying their home and need all the cash they can scrape together to pay for their down payment and moving expenses, many buyers wish there were a way to finance those closing costs into their loan instead of having to write a check for all of that at closing in addition to their down payment, etc. There is no direct way to finance these costs. However, there is a very common work-around for that. A buyer can effectively finance their closing costs by paying a little more for the home and having the Seller contribute money to pay for their closing costs as part of the deal and this is done more often than not; especially on lower end transactions (under 200K).
Since this is done so often, many buyers and sellers have come to believe that it is simply customary for these costs to be paid by the Seller and an assumption is often made incorrectly by buyers that the seller will automatically pick up the tab for the closing costs and by sellers that they will definitely have to factor in paying closing costs for the Buyer.
When an offer is made on a home, the seller will evaluate the entire package including purchase price and closing contribution as well as any other concessions and focus on the bottom line net price. So, for example, an offer of $200,000 on a home that also asks for a $5,000 closing cost contribution is acutally going to net the seller (before commissions and other seller fees) only $195,000. Therefore, it would be more favorable for a Seller to accept an offer of $198,000 with no seller concessions / closing cost contribution than it would be to accept on that has a price of $200,000 and asks for a $5,000 contribution from the seller. In actuality, if a Seller agrees to a $200,000 price with a $5,000 closing cost contribution, then they also would have most certainly agreed to an offer of $195,000 that doesn’t have the additional concession request tied to it.
We tend to value homes based on sold comparables. When looking at sold prices of homes, it’s important to also look at how much closing cost contribution the seller made to get a real feel of what the “effective” sale price was. This is important for both Buyer and Seller. Since most transactions do involve an average of 2% of purchase price in closing cost contribution, a Seller who sets their price based on comps should most likely expect to end up having to contribute those closing costs for the buyer as well if the neighbors who sold the comparables also did.
In a nut shell, the closing costs are technically the Buyer’s responsibility; but every Seller should expect that the offers they receive will most likely have a closing cost contribution request by the Buyer and in many cases, the Buyer will really need that to happen as part of the deal in order for them to have the cash necessary to get the deal closed.
Read more»Mon,Feb 04,2013
2013 Homestead Exemption Information
FILING FOR HOMESTEAD EXEMPTION IN 2013
Homeowners may need to provide their Warranty Deed book and page, proof of residence, social security numbers, driver’s license and car tag info. In most counties, to be eligible for the current year, you must have owned and occupied the property as of January 1st. If the property is located within city limits, the homeowner may be required to file with the city as well.
• Cobb County – deadline is April 1, 2013 770-528-8600
• http://www.cobbtax.org/Forms/HtmlFrame.aspx?mode=content/Exemptions.htm&LMparent=189
• Cherokee County – deadline is April 1, 2013 678-493-6120
• http://www.cherokeega.com/departments/department.cfm?displaySection=Homestead%20Exemptions.txt&de partmentid=30
• Clayton County – deadline is April 1, 2013 770-477-3311
• http://www.claytoncountyga.gov/departments/tax-assessor/residential-property.aspx
• DeKalb County – deadline is April 1, 2013 404-298-4000
• http://web.co.dekalb.ga.us/taxcommissioner/homesteadgen.html#applications
• Douglas County – deadline is April 1, 2013 770-920-7272
• http://www.douglastaxcommissioner.com/
• Fulton County – deadline is April 1, 2013 404-612-6440
• http://www.qpublic.net/ga/fulton/basic_homestead.html
• Forsyth County – deadline is April 1, 2013 770-781-2106
• http://www.qpublic.net/ga/forsyth/homestead.html
• Fayette County – deadline is April 1, 2013 770-461-3652
• http://www.fayettecountyga.gov/tax_commissioner/index.htm
• Gwinnett County – deadline is April 1, 2013 770-822-8800
• http://gwinnetttaxcommissioner.manatron.com/Tabs/Property/HomesteadExemption.aspx
• Henry County – deadline is April 1, 2013 770-288-8180
• http://www.co.henry.ga.us/taxcommissioner/PropertyTaxExemptions.shtml
• Paulding County – deadline is April 1, 2013 770-443-7606
• http://www.paulding.gov/index.aspx?NID=210
Homestead Exemption
Generally, a homeowner is entitled to a homestead exemption on their home and land underneath provided the home was owned by the homeowner and was their legal residence as of January 1 of the taxable year. (O.C.G.A. § 48-5-40)
Application for Homestead Exemption
To be granted a homestead exemption, a person must actually occupy the home, and the home is considered their legal residence for all purposes. Persons that are away from their home because of health reasons will not be denied homestead exemption. A family member or friend can notify the tax receiver or tax commissioner and the homestead exemption will be granted. (O.C.G.A. §48-5-40)
Failure to apply by the deadline will result in loss of the exemption for that year. (O.C.G.A. § 48-5-45)
Exemptions Offered by the State and Counties
The State of Georgia offers homestead exemptions to all qualifying homeowners. In some counties they have increased the amounts of their homestead exemptions by local legislation above the amounts offered by the State. As a general rule the exemptions offered by the county are more beneficial to the homeowner. https://etax.dor.ga.gov/ptd/adm/taxguide/exempt/homestead.aspx
Read more»Mon,Feb 04,2013
A breakdown of closing costs in Georgia
I am often asked for an expectation of closing costs. Closing costs will vary slightly depending on which attorney is conducting the closing and what loan product, if any is being used to obtain financing. Furthermore, taxes and homeowner association dues will be settled up on a prorated basis based on the exact closing date. This can be a credit or debit for either buyer or seller side depending on what time of year it is and whether the seller has paid their current year bill in advance or not.
Nonetheless, the following should be useful in estimating what your costs will likely be:
Items on every sale (even Cash sales)
Transfer Tax – This is a tax charged by the state for the transfer of the deed. It uses a convoluded formula that charges a different rate for the first $1,000 than it does for the rest. My guess is this law and rate was established in pre civil war times when it was realistic to have homes sell for under $1,000. However, to keep things simple it is safe to consider this fee to simply be $1 per $1,000 of purchase price (i.e. $500 on a $500,000 sale). It is rather interesting that the state tax web site indicates that this fee shall be paid by the seller of the property unless otherwise agreed to in the contract (See the GA Tax Guide); yet the standard GA state contract states that the buyer shall pay this fee. Since I typically utilize the GAR contract, the buyer does typically pay this fee.
Closing Attorney Fees – Range from $300 – $500 depending on attorney
Title Insurance – There are 2 kinds of title insurance: Lender’s title insurance is required to be paid when there is financing involved. This insurance protects the lender’s interest in the property. There is also Owner’s title insurance which protects the owner’s equity in the property. In Georgia, owner’s title insurance is optional but it is highly recommended that the buyer obtain it. The fees for these fluctuate and may vary between attorneys who essentially act as resellers for these policies. However, a ballpark figure to use is approximately $250 per $100,000 in home price for both lender’s and owner’s policies combined. In a cash transaction, there is 100% equity; so there will not be any lender’s title insurance but the owner’s policy will be higher due to the increased equity that is being insured on behalf of the owner. This fee is paid one time and will remain on the property for as long as you own it even if you subsequently refinance.
Real Estate Commissions – Typically paid entirely by the seller. This fee is negotiated between the seller and their listing agent in their listing agreement for the property though they are most commonly 6% of the purchase price.
Title Search – Approximately $150. Required for financed transactions. Optional on cash transactions but will be required if owner’s title insurance is obtained.
Hazzard Insurance – this will be required when a loan is involved and highly recommended even for a cash buyer. The fee will vary a great deal depending on the type of property (investment homes may be higher than owner occupied, etc.), the size and location of the property. Typically, I have seen an average of approximately $800/year for this but the buyer would have to contact their insurance provider to get a quote for a particular property.
Items only charged when financing is involved
Loan Origination Fee and other lender fees - this is a form of “commission” that the lender charges to facilitate the loan. Some loan products do not have this fee and others do. A good faith estimate from the lender should indicate what lender fees including origination fee will be charged. Other lender fees that sometimes show up are application fees, processing fees, etc.
Appraisal – Required when financing is involved and optional on cash purchases. Typically around $400. Most lenders require this fee to be paid up front at the time of loan application though it is still considered a closing cost.
Flood Certification – Fee to verify if the home is in a flood zone. Averages $100. Only required when financing is involved.
Completely Optional Expenses
Home Inspection – Approximately $400 average fee – Paid at time of inspection directly to the inspector.
Survey – Approximately $450
Termite Inspection / Bond – Inspection is typically Free or $75 Max. Bond will vary but typically between $400 – 1,000.
Home Warranty – typically approximately $400
It is important to note that in addition to the above fees, the Seller will be required to pay any back taxes or homeowner association dues. Some attorneys and lenders will charge both buyer and seller some small junk fees like mail out fees, etc. but these are typically only $10 – $25 each. It is unfortunately not possible to know exactly what all of these fees will be in advance of seeing the settlement statement but if both buyer and seller budget for an additional $100 padding they should be fairly on target.
Prepaid / Prorations
In addition to the above fees, buyer and seller will settle up current year property taxes and homeowner association dues. If the seller has paid the current year amount in full then the buyer will be debited an amount to reimburse the seller for the portion of the year that the new buyer will own the property. If the seller has not paid yet, then the seller gives a credit to the buyer for their portion of the year of ownership and the buyer will then be responsible for the full bill when it becomes due.
If a loan is involved, it is common for the lender to require the buyer to pay additional money to start off an escrow account to ensure that by the end of the year, there will be enough in the escrow account to cover property taxes. There is a complicated formula that indicates how much can and should be collected based on the closing date.
Read more»
Sun,Feb 03,2013
Does the home seller pay the closing costs in Georgia?
Image courtesy of Arvind Balaraman / FeeDigitalPhotos.net
There is a bit of a misunderstanding among people about whether the buyer or the seller is respoinsible for certain closing costs. Most (but not all) of the closing costs are officially the buyer’s responsibility in Georgia. However, a large percentage of transactions close with the seller paying most or all of these costs. This is because many buyers are cash strapped at the time of purchase; having to save as much cash as they can to cover their down payment, moving costs, and post-closing furniture purchases. Therefore, it is very common for a buyer to make an offer on a home at a certain price but to include that as part of the deal, the seller must pay a certain amount towards the buyer’s closing costs. So, even though the seller is technically paying these costs, it is important to understand that essentially what has happened is that the buyer has paid more for the home to have the sale cover their closing costs. The seller negotiates based on their net; so a seller willing to sell a home for $500,000 and pay $10,000 towards the buyer’s closing costs as part of the deal would certainly have also agreed to sell for $490,000 if the buyer picked up the tab for their own closing costs. Therefore, in that case, the buyer effectively paid $10,000 more for the home in order to get $10,000 of their closing costs covered. In a sense, this is an indirect way of financing the closing costs instead of paying them in cash at closing. The additional $10,000 loan amount will have a minimal impact on their moonthly payment and many buyers would rather have that additional cash flow in exchange for a slightly higher monthly payment. It is also important to note that most loan products have limitations on the amount of seller paid costs are allowed and that is typically limited to 3% of the purchase price though it can vary. Also, the home must appraise for the full purchase price; so bumping up the price to add a great deal of seller paid closing costs can increase the likelihood of having appraisal issues.
In part 2 of this post, I will outline what those costs are. You can read that post by clicking this link:
Georgia Closing Cost Break Down
Wed,Jan 30,2013
Here We Go Again – Housing Bubble #2 Is Underway
- Image Courtesy of Njaj / FreeDigitalPhotos.net
They say history has a tendency to repeat itself. I believe that to be true in the housing market as well. For the past several years, I have watched homes sell in my market (Atlanta Metro Area) for prices that I have always considered way under valued. Atlanta has been on the hot list of cities with the most foreclosures and the most loss of value percentage-wise. However, the interesting thing is, Atlanta always was a bargain compared to other cities of similar size. With few exceptions for certain urban neighborhoods, home prices have always remained affordable and when other areas like NY, California and Florida were experiencing tripple digit increases in price each year in an unsustainable house of cards, metro Atlanta homes were only appreciating at a very sustainable rate of 4-5% per yer when the market was healthy. Even in the peak of the market, a middle class family could purchase a decent 4 bedroom home (2400 SF or so) in a respectable suburban neighborhood with good schools, good access to highways and reasonable proximity to the city (15 miles away or so) for under 200K. I was always shocked when I watch the TV shows on HGTV and other networks showing a 2 bedroom 1 bath bungalow in California going for 800K and I asked myself, how can normal people afford to live there? Somehow, I always took comfort in knowing that in my city, the cost of living housing-wise was very reasonable and there was a good quality of life for a middle class family.
Mon,Oct 29,2012
Avoid Deed Recording Scams
Lately, several of my clients have contacted me shortly after closing indicating that they received some kind of letter from what sounded like a government agency, etc. The was urging them to pay a fee to receive a certified copy of the deed to their property. Do not fall victim to this scam. The closing attorney who conducted your closing will get your deed recorded with the county and send you a copy of the recorded deed for free (this is included in the attorney fees that you already paid at closing). Once it is recoded, it is permanently on file at the county courthouse so that even if you loose that piece of paper, it can always very easily be looked up in the courthouse records to show that you are the rightful owner of the property. These companies are simply purchasing mailing lists of people who recently closed on a home and trying to scare them into paying a ridiculous fee to obtain what they will obtain for free automatically.
Wed,May 11,2011
How I aged 49 years in the past 40 Years – A logical look at median home price reporting
Not a day goes by without seeing news articles about the Atlanta Real Estate Market and the United States housing market that references median home price. Just today, there was an article on CNN touting that home prices had fallen by 4.6% in Q1 2011. There is a big problem with this logic. Most often, if you read past the headline, you will notice that the author is referring to median home prices falling and trying to pass that off as an indication that home prices have fallen. In reality, these are 2 very different things.
A Little Math Review – essential to understanding this (skip this section if you are fluent in medians and averages)
If you recall back to your early school days in math class, you once learned about Averages, Medians, and Means. The median is merely the number in the middle of a set of numbers if they are put in order (it’s not to be confused with average). So, in the set of numbers (10,20,500,10000,2000000), the median of these numbers would be 500 (the number in the middle of the 5 numbers – 2 numbers are higher and 2 are lower). The average would be calculated by adding the numbers and diving by the number of numbers; so in this example, the average would be 402,106 – very different from the median.
Here’s why it is wrong:
So now that we have reviewed that math, I would like to ask: What relevance does median home price have on the price of tea in China? When I hear that the median home price is down by 4.6%; which is what the above referenced CNN article was touting, all that tells me is that more cheaper homes have sold than high end ones. Well, duh! Unless you have been living under a rock, you would know that the real estate market of today is heavily driven by first time buyers and the inventory is filled with foreclosures. There are many more foreclosures of entry level houses than there are high end houses (at least up to today that has been the case); perhaps because the wealthy folks are better positioned to weather the economic storm that we are in. So, with more entry level buyers and the better deals in the lower end homes, it is rather obvious that more lower end homes have sold recently than high end homes; so if we take all the sales that took place, put the sale prices in order and find the exact physical middle number of the set today, we will get a much lower number than if we did the same thing in days when there were more higher numbers in the set; but does that really prove prices have fallen this quarter? Absolutely not.
Follow the same logic and I have aged 49 years in the past 40 years:
To point out the idiocy of drawing a conclusion about home prices based on median price, I will use an analogy of median age in the United States. In 1970 when I was born, the median age in the U.S. was 28. In the 2010 Census, it was 36.5; If you follow the exact same logic the reporters use on home prices using median figures and apply it to my age, it would stand to reason that since the median age in the U.S. increased by almost 9 years, that I too have aged an additional 9 years; making me 49 years old even though I was born in 1970 and this article is being written in 2011.
How to really tell what the market is doing:
It seems much more logical to assess the health of the housing market by looking at transaction volume (number of closes sales) and perhaps the ratio of closed sales to active inventory (the absorption rate). In the Atlanta market, both of these are UP (yes, you heard right). 2% more homes were sold in the Atlanta market in Q1 2011 than were sold in Q1 2010. The inventory levels are also lower (less homes on the market). So, the market’s health is definitely improved this year over last. I would also like to add that even though 2% doesn’t sound like a significant increase, in 1Q 2010 we had the first time home buyer tax credit in place and in 2011 we have no such incentive. So, I think it is very significant that 2% more homes were sold without the credit this year than were sold with the credit last year. Yet, other than my lonely blog, I don’t see very many main stream news channels reporting this. Instead, they choose to continue to put a negative spin on things by focusing on median home price; which really doesn’t tell us anything worthwhile other than perhaps that people are buying less elaborate homes as a trend and McMansions have perhaps fallen out of fashion; at least temporarily.
Read more»Wed,Mar 23,2011
Do Home Buyers Have Psychic Powers?
It happened again to me today: I had a buyer client that was somewhat interested in a home that had been on the market for 2 years. They were taking some time to think about it and, sure enough the home went under contract while they were deciding. If this happened once, I would call it coincidence, twice and it’s bad luck; but similar things have happened to me so many times that I have begun to wonder if some kind of supernatural forces are at play in the home shopping game. Call me crazy; but it almost seems as though when a buyer goes into a home and likes it, they leave behind an energy that tells other potentially interested buyers that there is someone else that likes this home. People generally want what other people want too because if another person likes it too, it is a vote of approval on the decision and validation for the buyer that they are making the right choice rather than going against the grain and liking something that nobody else wanted. This “energy” causes the next person who looks at the home to like the home more because they are now aware on a subconscious level that it is ok to like it. Does anyone else have more logical explanation as to why events like this continue to happen so frequently and how my listings seem to get the most traffic and interest the minute I get the first offer on them – even before the public is made aware that negotiations are taking place?
Mon,Mar 21,2011
The Pros and Cons of Homeowner Association Rental Restrictions
Homeowner associations are essentially very local governing entities that have jurisdiction of a single subdivision or community of homes. Often, homeowner associations have a set of bylaws or covenants and restrictions that are supposed to be designed with the goal of preserving property values and aesthetics of the neighborhood. During the real estate boom of the previous decade, many homeowner associations in the Atlanta area and I’m sure other areas as well had adopted restrictions that would prohibit homeowners from renting their units out or limit the number of rental units allowed as a percentage of homes in the entire subdivision. The thinking was that having a large number of rental units can devalue the neighborhood as tenants who do not have an ownership interest in a property are not likely to take as good care of a property as the actually owner occupant homeowner would. In theory and at that time, this was logical thinking and, generally speaking, it was beneficial to the community to have such a restriction.
Fast forward to current times when the housing market is not what it used to be and while there are still pros and cons to such a restriction on rentals, it seems that now having such a restriction can do more harm than good to a neighborhood. Home values in the Atlanta area have fallen in most cases a minimum of 20% in value. Therefore, a large percentage of people who purchased their homes in Atlanta within the past 5-6 years are now upside down on their homes; meaning that they owe more to the bank(s) than their home is worth. Most people including myself firmly believe that this drop is temporary and things will eventually recover; so for those who can simply stay where they are, there isn’t much reason for alarm. However, if you are a person who has to move due to job relocation, divorce or other significant life change and you are upside down on your home loan, you have some tough choices to make – none of which are ideal. Your only options plain and simply are:
- Keep paying your mortgage, property taxes, insurance, utilities and maintenance costs on a vacant home that nobody is living in for several years until the market recovers and you can at least sell for enough to clear your loan. For most, this is not a viable option because they simply can’t afford to pay for this home and the new housing that they had to get in their new location.
- Stop paying their loan and simply allow the bank to foreclose on the property and take it back through repossession or sell for fair market value and hope that the lien holders will approve a short sale.
- Rent out the property for enough to cover their carrying costs and hold onto it until such a time as the market conditions are more favorable for selling.
If a homeowner association takes option 3 off the table, they only leave 2 remaining options. Hopefully for the neighborhood’s sake, option 1 is possible and the homeowner is willing and able to perpetually pay to keep the house and yard up to par with nobody living in it. Most of the time, this is either not the best choice for the homeowner or simply unaffordable. For those cases which will be the majority, the ONLY option that remains is to do a short sale and/or allow the home to go into foreclosure. Let me assure you, if the home goes into foreclosure, it will be maintained a lot worse than it would if it had a tenant in it. Also, there would be nobody paying any HOA dues for the property until the bank gets it sold as a foreclosure, and the sale price of the poorly maintained home will be significantly lower than the non foreclosure comps; thereby lowering the value of the neighborhood in a very real and concrete way.
So, when looked at with a dose of reality, it is easy to see that HOA restrictions on rentals force more people into option 2 (foreclosure) and thereby do much more damage than good in today’s market. Please feel free to share this information with your HOA board and I urge you to have them reconsider and revise the covenants before it is too late and the damage is done in your community. If you have a different perspective and wish to state your case in support of such restrictions in today’s market, please comment on this post and I would love to hear your side. However, I anticipate that the only arguments I will get are people who say that they would prefer people sell their homes for high enough prices than the neighborhood is currently worth and pay off their loans. Unfortunately, that is no more possible than selling your car for $10,000 above Kelly Blue Book Value.
Read more»Fri,Mar 18,2011
Do Pets Affect An Atlanta Home Sale?
It is common for money to be lost during an Atlanta home sale due to issues with pets. People looking for a nice new home for themselves and their family may not be pet people and can get very disturbed if they see an animal running around the home. When you are trying to get the most money possible out of your house, consider these potential pet problems and solutions.
Removing visible signs of pets
First impressions can be key when it comes to an Atlanta home sale. There is no need to make it known that you have pets in your house, unless otherwise stated by law. You should never lie about having a pet, but if the topic does not come up, there really is no need to mention it.
Here are a few things you can do to make it less obvious that you have a pet.
- Ensure all pet toys are put away.
- Seal up any dog doors.
- Do not leave out water bowls and feeding dishes.
- Remove visible photos from key locations, (refrigerator, mantle, hallway etc).
Displaying your house
No one is able to predict the way their pets will act around strangers so it is a good idea to get the pets out of the house during showing times. If someone were to be bitten or scratched, the Atlanta home sale would not go exactly as planned!
Puppy potty pads and litter boxes for cats
Out of sight means out of mind when it comes time for a buyer to view your Atlanta home.
Pet Stains and Carpets
Professionals are best when it comes to removal of these stains. Replacement of the floor covering may be needed if the stain cannot be removed.
Smells and Odors
Enzyme cleaners can help reduce the odor of pets, naturally and effectively. Avoid the use of air fresheners since they can cause a reaction in people that suffer from allergies. Neighbors come in handy when it comes to the smell test. It works well to ask a neighbor to test the smell of your house for any traces of pet odors before inviting people in for a showing.
Remember that pets can have a different effect on everyone. To make the most out of your showings you should make sure that your home is as appealing as possible to everyone. An Atlanta home sale is more likely to occur if your house appeals to both pet lovers and those that prefer a home without animals.
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