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The questions and answers below are general in nature. For specific legal questions you need to consult your attorney. QUESTION #1 I am paying the bank attorney's fee at the closing of my new home. Is there any reason for me to also hire an attorney for myself? QUESTION #2 How much will a bank lend me to buy a home? QUESTION #3 We've had the title on our soon-to-be new home searched and it shows a clear title. Now we wonder if we really need title insurance. Do we? QUESTION #4 When I listed my property I told the agent that in times of heavy rainfall and during heavy snow melts our basement sometimes leaks. We are now negotiating a contract with a prospective buyer, and I asked the agent if he told the buyer about the leaking. The agent said he did disclose this information. Didn't that agent hurt our chances to sell the home? QUESTION #5 We placed an offer on a house and, in an effort to start with a strong negotiating position, we made it lower than the offer we eventually would have made. The agent to whom we gave the offer said if the owner did not accept it, he would ask the owner to make a "counter offer." Instead, the sellers rejected our offer and accepted another. Don't we have the right to improve our offer before they sell to someone else? QUESTION #6 We are about to place an offer on a house through a real estate broker. He told us our offer should be accompanied by a deposit. What happens to that money? ANSWER #1: In transactions of this kind, it is customary for the seller and the bank each to have an attorney representing their respective interests. However, it is important to realize that an attorney representing these parties (regardless of who pays their fee) is not your attorney. Back to Top ANSWER #2: This column doesn't allow room for a complete explanation of the loan process, but we will provide some basic guidelines. First, a bank (or other lending institution) will not lend you more money than your home is worth on the current market, which it determines with an appraisal. If it did, the loan amount exceeding your home value would be unsecured. In fact, it is unusual to obtain a loan for 100 percent of the home's appraised value. The second consideration is your ability to pay back the loan. Lenders want you to be able to handle the monthly payments. They do not want to foreclose, as most (if not all) of their profits are lost in foreclosure expenses. Guidelines vary, but you generally qualify for a home loan that results in monthly payments of 28 percent or less of your gross monthly income, with those payments including principal, interest, taxes and insurance. This payment, added to other long-term debts (credit cards, school loans, car payments), should be less than 36 percent of your monthly gross. Some federally insured programs allow this percent to be as high as 41%. Lenders will work with you to determine your ability to purchase, as will real estate professionals. Back to Top ANSWER #3: Only you can make the final decision on title insurance, that is, unless your lender requires you to purchases the insurance as a condition of the mortgage loan, and most lenders do so. If the choice is, in fact, up to you, consider the following possibilities that can cause problems even after the best diligent efforts of the abstractor and attorneys involved: A recorded deed in the chain of title is a forgery. A married person represented themselves as single. A deed was executed by a minor or a legally incompetent person. A document was misfiled. An undisclosed heir appears, etc, etc. Abstractors and attorneys might be liable for mistakes due to their own negligence, but they are not liable for these types of problems. You are best protected if you are insured against financial damage if one of these problems arises. If you can lose the property and your investment without financial hardship, maybe you don't need title insurance. Our guess is most everyone is best advised to purchase the coverage. Back to Top ANSWER #4: While you feel the agent might have hurt the opportunity to sell your home, his disclosure was appropriate. First, and probably foremost, is the fact that the law requires that all sellers disclose to buyers material defects in the property they are offering for sale. And this is not just a disclosure that must be made if asked, but must be advanced by the seller before contract. My belief is that a leaking basement most likely would be considered by the courts as a material defect, as would a faulty roof, an underground oil storage tank, major plumbing problems, a well that dries up each summer, etc. On the other side, a drip in a bathroom faucet would not, in my opinion, be a material defect, nor would a cracked window pane, a loose roof shingle, etc. It is also important to understand that the licensee, acting as your agent, has the same responsibility to disclose as you. He must make potential buyers aware of any material defects in your property that he knows about. In this case you told the agent, so he knows and must pass this along. Besides being the law, disclosure allows you the peace of mind knowing that a buyer is unlikely to try and sue after a sale for financial damages for any defect that they knew about before they bought. Such affirmative disclosure, combined with allowing potential buyers to conduct reasonable tests and inspections on the property before contract are the best protections we know for sellers. A buyer who fully understands what he/she is buying is the ideal buyer. Back to Top ANSWER #5: As potential buyers, you should understand that mere interest in a property on the market does not create any kind of legal right to that property or the right of first-refusal on that property. Instead, you are only a party who might be interested in creating a purchase contract. Therefore, the fact that you submitted an offer that was not accepted does not mean the seller must allow you to submit subsequent offers. We hope the agent told you that the seller might come back to you with a counter offer or that you might have an opportunity to make another offer. The agent probably did not intend to indicate that you positively would have such an opportunity. Apparently the offer that was accepted (it was presented at the same time as yours) was for the full asking price, cash, with a two-week closing. This type of offer is difficult for any seller to refuse, even if the agent says another party might be prepared to make a second offer, as in your case. We understand your desire to hold back on your initial offer to allow room to negotiate, but you must remember that you run the risk of not being able to make a second offer. Back to Top ANSWER #6: Depending on what happens to your offer, different things happen to the deposit (earnest money). If your offer is not accepted, the deposit will be posted in an escrow account maintained by the broker for this purpose. It is an account separate from the broker's operating accounts, and cannot be used by the broker for any other purpose. The broker is just holding the funds pending completion of the transaction. If the transaction falls through due to the fault of neither party (an example would be the inability of the buyer to obtain financing, even though the buyer made a good faith effort to obtain such financing), the contract between the parties generally will spell out what happens to the deposit. Contract contingencies (additional clauses) also will indicate the disposition of deposits. If the the transaction falls apart for some other Reason, the broker will continue to hold the deposit until the parties involved (buyer and seller) agree to The disposition of the deposit or until some other resolution relative to the disposition is made, such as a court order. If the transaction goes through, the deposit is applied against the purchase price. A $5,000 deposit would decrease the amount due at closing by a like amount. In any case, the handling of deposits is spelled out in the standard contract form used in the Capital Region. Ask the broker to go over it with you. Be sure you're comfortable with what you are signing. Back to Top Still Have Questions? Contact Sharron Now! Sharron Kelley, CRS Relocation Specialist Hall of Fame, ABR, CRS Office: 847-388-7518 Fax: 847-963-8660 E-mail Sharron RE/MAX SHOWCASE 25884 East Route 83 Long Grove, IL USA 60060-4236 Tollfree: 1-800-575-8661 NorthernIllinoisHomes.com Lake County, Illinois Real Estate and New Home Listings Copyright © 1997-2008 Sharron Kelley, Realtor. All World Rights Reserved.