What to consider when making the final decision

As you find yourself heavily immersed in house-hunting mode, you may encounter a situation in which you're torn between two houses. Perhaps you and your spouse each have a favorite, or perhaps you both like two houses equally - or think you do.

Making a final decision and determining which house to make an offer on shouldn't be taken lightly. The decision should be made rationally and not guided by emotion.

Of course, you may not have the luxury of taking your time on deciding which house you'd like to pursue. You may be in a market in which homes in your price range get snatched up as quickly as they go on the market, perhaps even attracting multiple offers.

But in some situations, you may find yourself torn between two houses. Sometimes the easiest thing to do is take pen to paper and outline your family's needs, your budget, and the pros and cons of each house.

Some things you'll want to compare include:

• The neighborhoods. If the two final contenders are in different neighborhoods, evaluate the pros and cons. If you have kids and being close to a park is important, you'll want to consider that. How close are shopping, restaurants, church, and other services? Are the streets maintained? Do homeowners landscape and maintain their homes nicely? How long will your commute to work be?
• The schools. If you have school-aged children, you definitely want to consider the reputation of the neighborhood schools. You can usually find general district information and state standardized test results online. But once you're this deep in the process, you'll want to visit the schools and receive the information first-hand from school officials. You should also talk to teachers and parents.
• Crime. Go to the local police or sheriff department and ask about crime in your specific neighborhood. You might find theft or vandalism to be more prevalent in one area than another.
• The houses compared to others in the neighborhood. While it may boost your self-esteem to have the biggest house on the block, it's typically a better idea to stay away from purchasing the neighborhood monster. When it comes time to sell you'll find that the lower value of your neighbors' homes will shrink your home's value.
• Appreciation. If the two homes you're eyeing are in different parts of town or different neighborhoods, ask your real estate agent to retrieve sales of homes in those neighborhoods over the past few years. If one neighborhood shows an annual average 8 percent increase and another is skyrocketing at 15 percent, you may have your decision made.
• The sellers' situations. If you don't know already, ask your real estate agent how long each home has been on the market. Usually the longer a house has been listed, the better chance the seller will accept an offer lower than asking price. Conversely, if the house has been on the market for just a couple days, the sellers will probably wait for a better offer if you offer less than the listed price. Your real estate agent might also be able to dig up additional information about the sellers, like why they're selling. If it's a job-related move or a divorce, the sellers likely want to move as quickly as possible, meaning you have a better shot at them accepting a lower price.
• The houses themselves. If you haven't already, you should make a list of the amenities and attributes you want your house to have. If you want that first-floor home office, a large, open back yard for the kids, or a gourmet kitchen, be sure to include that on your list. Then, rate how each house measures up to each need on your list.
• Drawbacks. Likewise, make a list of the cons associated with each house and determine how much of a negative impact each will have.

As you carefully weigh all the factors, it might become clear that one house is more enticing than the other. Or, you may find the houses are still equally appealing. If that is the case, be sure you look at the homes more than once. You may notice something you didn't the first time around - something that could sway you one way or the other.

In fact, you should probably visit each home at least two more times, at different times of the day to get a feeling for how the house and neighborhood look and feel in the morning versus late afternoon or evening. Once you make a decision and an offer, you can take comfort in knowing you may still have a back-up if the deal falls apart.

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First, find a local agent that specializes in that area

Novices interested in buying foreclosed houses should find a good local agent specializing in that area, says Steve Berges, a seasoned renovator of distressed homes and author of real-estate investing guides including "The Complete Guide to Flipping Properties" (John Wiley & Sons, 2003).

He says many real-estate brokerages have agents who are experts on foreclosed properties. Some of them advertise that skill in local real-estate publications. Agents who work regularly with banks in finding buyers for foreclosed homes should be able to let you know what's available and guide you through what can be a complicated process. Try to find someone experienced in your market who can recommend an agent.

Another real-estate author, William Bronchick, whose books include "Flipping Properties: Generate Instant Cash Profits in Real Estate" (Dearborn Trade, 2001), suggests finding a local information provider to e-mail you regular reports on notices of default. He pays about $40 a month for one such service covering six counties. There also are national companies that provide such information, but sometimes their information is dated, Mr. Bronchick warns.

A good source of data on repossessed homes being sold by the U.S. government is the Web site of the Department of Housing and Urban Development (www.hud.gov). Information on available homes is updated weekly, HUD says.

Both authors warn that the pursuit of foreclosed properties is highly competitive in some markets and no sure ticket to riches. Berges says he invests in houses only if he is confident he can make at least a 15- to 20-percent return on his money. He wants a wide margin for error because the costs of rehabilitating and selling a house can be hard to predict. That furnace that seemed sound could conk out before you sell the house.

Aside from the cost of buying and fixing the house, you need to add up the likely cost of financing, insurance, taxes and any brokerage commission on your eventual sale of the property, Berges says. "It's not as cut-and-dried as you might be led to believe," he says, but it can be very profitable if you get it right.

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Buying a home is more affordable when you share the costs with friends and family

In today’s market, home prices are out of reach for many, but some are pooling their resources with a friend or family member to purchase a home they otherwise wouldn’t be able to afford. For young adults who can’t pay for a home on their own—or for family members who want to take advantage of the tax benefits associated with home ownership—co-buying is the best bet when it comes to buying a house.

"Neither of us had a big enough chunk of money to put down for a home in a desirable neighborhood," Brian Free told the U.S. News & World Report about his decision to purchase a home with his friend. "However, aggregating our resources allowed us to find a home that suited our needs."

As with any financial arrangement involving close friends or family, planning and careful consideration are needed. But with forethought and a little know-how, many of the common pitfalls can be avoided.

Choose how you will hold title

The decision on how to hold title determines who can sign documents and how the property is transferred in case of an owner’s passing. Co-buyers who aren’t married to each other may share a title as tenants in common (TIC) or as joint tenants with right of survivorship (JTWROS). Married co-owners may also take title via community property or tenancy by the entirety.

How do TIC and JTWROS ownerships differ?

When each co-owner has an equal interest (or share) in a home, a JTWROS applies, with one title held between all the co-owners. When a co-owner dies, his or her share goes to the other owners. Ultimately, the last surviving owner will own all the shares in the property.

The shares of tenants in common may be equal or unequal, and each co-owner has a separate legal title. In a TIC arrangement, there is no right of survivorship, so the home doesn’t go to the last surviving owner. Each co-owner can pass along his or her ownership via a will, meaning that the remaining tenants in common may find themselves sharing ownership of a home with someone they have never intended to.

Tenancy in common can be dissolved when one owner buys out another, the property is sold or one owner files a partition action to sell the home.

How are TIC and JTWORS ownerships similar?

In both tenancy in common and joint ownership situations, co-owners have equal rights of possession, meaning that each may occupy and use the property. If the home is rented, each co-owner is entitled to rental income from the entire property in proportion to the ownership share.

Before you buy, write a co-ownership agreement

Sharing the cost of buying a home can benefit all the parties involved, but it’s essential to determine ground rules before any money changes hands.

Co-ownership agreements are essentially the pre-nuptial agreements of home ownership: they lay out the relevant concerns of the parties involved. While it might be difficult to imagine problems when you’re excited to own a home with a friend or family member, these documents are important because they are the only way to resolve ownership issues aside from court proceedings. And when thousands of dollars are stake, it’s important to address the next three concerns.

What are the ownership percentages?

For joint tenants, this is easy: each co-owner has an equal share. Tenants in common may choose to divide the shares, perhaps based on the amounts contributed for the down payment.

How are ongoing expenses divided?

The division of recurring expenses such as mortgage payments, property taxes, insurance, utilities and maintenance costs should be spelled out in your co-ownership agreement. They may be divided to match the ownership percentages, or by the amount of time each co-owner will invest in improving or providing upkeep for the property. Consider setting up a joint checking account so that any co-buyer may draw from it in order to pay these bills.

What happens when one co-owner wants to sell?

When co-owners want to their interest in the house, they are not required to sell to someone approved by the remaining co-owners. However, a co-ownership agreement can grant the remaining co-owner the right of first refusal.

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Five steps to Successful Negotiation

Whether you're a buyer or a seller you want to succeed in the realty marketplace. That's natural and reasonable, but what are the steps you need to triumph?

Negotiation is a complex matter and all transactions are unique. Both sides—buyer and seller—want to feel that the outcome favors them, or at least represents a fair balance of interests. In the usual case there is a bit of bluff, some give-and-take, and neither party gets everything they want.

So how do you develop a strong bargaining position, one which will help you get the most from a transaction? Experience shows there are five basic keys which will determine who wins at the negotiating table.

1. What does the market say?
At various times we're in a "buyers" market, a "sellers" market, or a market where housing supply and demand are roughly equal. If possible, you want to be in the market at a time when it favors your position as a buyer or seller.

Because all properties are unique—it is possible to buck general trends and have more leverage than the marketplace would seem to allow. For instance, if you have a property in a desirable neighborhood with few sales, you may be able to get a better deal than elsewhere. Or, if you're a buyer who can quickly close, that might be an important negotiating chip when dealing with an owner who just got a new job 500 miles away.

2. Who has leverage?
If you're on the front page of the local paper because your business went bust—and the buyer knows it—you have little clout in the bargaining process. Alternatively, if you're among six buyers clamoring for that one special property, forget about dictating an agreement—the owner can sit back and pick the offer which represents the highest price and best terms.

3. What are the details?
A lot of attention in real estate is paid to transaction prices. This surely makes sense, but the key to a good deal may be more complex.

Consider two identical properties that each sell on the same day for $275,000. The houses are the same, the sale prices are the same, but are the deals the same? Maybe not. For instance, one owner may have agreed to paint the property, replace the roof, purchase a new kitchen refrigerator, and pay the first $3,000 of the buyer's closing costs. The second owner made no concessions.

In this example, the first house was actually sold at discount—the $275,000 purchase price less the value of the roof repairs, closing credit, and other items. If you're a buyer, this is the deal you want. If you're a seller, you would prefer to be the second owner and give up nothing.

4. What about financing?
Real estate transactions involve a trade—houses for money. We know the house is there, but what about financing? There are several factors that impact the money issue:

Has the buyer been pre-qualified or pre-approved by a lender? Meeting with a lender before looking at homes does not usually guarantee that financing is absolutely, unquestionably available—a loan application can be declined because of appraisal problems, title issues, survey findings, and other reasons.

• But, buyers who are "pre-qualified" or "pre-approved" (these terms do not have a standard meaning around the country) at least have some idea of their ability to finance a home and know that they are likely to qualify for certain loan programs.
  The result is that pre-qualified buyers represent less risk to owners than a purchaser who has never met with a lender. If the seller accepts an offer from a buyer with unknown financial strength, it's possible that the transaction could fail because the buyer can't get a loan. Meanwhile, the owner may have lost the opportunity to sell to a qualified buyer.
• The lower the interest rate, the larger the pool of potential buyers. More buyers equal more potential demand, good news for sellers.
  Alternatively, high rates or even rising rates may drive buyers from the marketplace—and that's not good for anyone.
• It used to be that downpayments were a major financing hurdle—but not anymore. For those with good credit, loans with 5 percent down or less are now widely available. In fact, 100 percent financing, mortgages with nothing down, are now being made by conventional lenders. Reduced downpayment requirements are good for both buyers and sellers.
  5. Who has expertise?
  Imagine you're in a fight. The other guy has black belts in 12 martial arts—and you don't. Who's going to win?
  Brokers have long represented sellers, and now buyer brokerage is entirely common. In a transaction where one side has representation and the other does not, who has the advantage at the bargaining table?
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You may save money in the long run

Looking for a new home can be exciting and frustrating. You can help alleviate the frustration by paying close attention to five key areas of the homes you're considering buying; it may save you money in the long run.

Don Walker is an inspector and owner of Ace Home Inspections. He says there are five areas in homes that he frequently reports problems with. They are electrical, foundation, plumbing, the attic, and landscaping.

Electrical
Walker says sometimes homeowners assume with newer homes that all will work just fine but that's often not the case. "I [inspected] a brand new house -- four years old but the electrical was all done incorrectly," says Walker.

Having a complete home inspection will help to rule out any problems and point out any areas of concern. However, even as you're browsing homes, buyers can start to make note of the key areas that Walker mentioned, such as the foundation.

Foundation Walker says a four-year-old home he inspected recently was already showing trouble signs which could result in a costly repair project. "It was a model home. What [the homeowners] did was plant trees for shade to make it look really nice, but they planted the wrong trees and they're going to crack the foundation and it's going to cut the property value down by $50,000," says Walker.

Walker says in the case of that home, the trees were causing micro-fractures in the tile in various locations of the home. "As you walk through the house, 21 feet in and 30 feet deep, there's just too much root invasion and it's going to ruin their tile," explains Walker.

He says some tell-tale signs with this home were the minor cracks in the foundation that were causing a lifting and separation of the foundation. Also, the windows were not opening and closing properly, "which means the foundation is moving."

However, just because you see cracks doesn't mean there is a foundation problem. "Most people don't understand that there are natural cracks in a house. That's why when we do an inspection report we have to look at it and say 'Okay, this is a typical crack and this one is an untypical crack,'" says Walker. He says some cracks may lead to other problems while others won't.

Plumbing Walker says another big area of concern is the plumbing. It's an area that you can't always spot as easily but it can create expensive repairs if plumbing issues go either undetected or are not properly fixed. "Mold forms underneath sinks when people have a leak and they fix the pipe but they don't take care of the mold," says Walker.

He says things like caulking the sink can help prevent mold. "That's my number one thing I always find -- bad sinks," says Walker.

He says that when you look at the sink, look behind it and most of the time you will discover a little crack. "What happens is, when you wash dishes or you wash your hands in the bathroom or the kitchen, the water gets in that crack and seeps down. Once the water gets behind the cabinet it's in a perfect position to create mold," says Walker. The dampness, humidity, and lack of light can turn that area beneath the sink into a mold-breeding ground.

Attic "You can tell everything about the house by the attic," says Walker. He says other areas of the home can be covered up if a repair had occurred. For instance, if there was a leak and it damaged a wall, with the right contractors and repairs it can be made to look like new and, hopefully, function like new. But Walker says the attic is sort of the eyes to the soul of the home. "In the attic you can tell where all the damage has been," says Walker.

"If you're in a 20-year-old house and you see that the insulation is brand new, you know that there was a water leak because it had to be replaced," says Walker. He adds, "You can tell if the roof is good because you can look right at the wood."

Landscaping "There should not be moisture or plants next to your house," says Walker. He says there should be a 12 inch barrier between the landscape and the house. Walker says otherwise you run the risk of having the foundation crack and affect the home. What happens is, as the landscape that is too close to the home is watered, the foundation and soil expand. Then, when no watering occurs, the foundation dries up and shrinks and this can cause it to crack.

Remember, knowledge is power, so learning about the home before you close the deal on it will keep you from making a mistake that may cost you extra out-of-pocket money later.

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Make sure you ask the right questions

You've found the house, your offer has been accepted, and funding is in place. But before you start packing, be sure you hire a professional home inspector to make sure your house doesn't have any major defects that could cost you down the road.

A home inspection typically includes an examination of heating and central air conditioning systems, interior plumbing, electrical systems, the roof, attic, visible insulation, walls, ceilings, floors, windows, foundations, and basements. Inspections may also include appliances and outdoor plumbing.

Once the inspector examines the house, he or she will write up a report with findings. If there are any major problems, you'll need to negotiate with the seller to either lower the sale price of the home, or determine how the problem will be fixed.

When you make an offer it's wise to have a contingency clause based on the home inspection. In other words, if the inspector finds $10,000 worth of problems and the seller doesn't want to provide the fix, you can rescind your offer.

In fact, two in five resale houses will have at least one major defect that could cost you from a few hundred dollars to as much as $15,000 to repair, according to the 2000 HouseMaster Resale Home Deficiencies Study.

Spending a few hundred dollars for a home inspection is well worth the peace of mind.

If you don't know how or where to find a home inspector, be cautious about asking your real estate agent.

"Be careful, though, of inspectors who are popular with agents—that popularity may stem from not killing too many deals by going easy on their inspections," says Eric Tyson and Ray Brown in their book Home Buying For Dummies.

Tyson and Brown say the American Society of Home Inspectors is a good place to start.

"Just because an inspector is an ASHI member doesn't guarantee that you'll get a good inspection, but it certainly increases the likelihood that you'll be working with a qualified professional," Brown and Tyson write.

All certified members have performed at least 250 inspections have passed two written proficiency exams. They must also adhere to standards of practice, continuing education requirements, and code of ethics.

The authors and the ASHI recommend you interview several inspectors before choosing one. Some of the questions you should ask include:

• What does the inspection cover? Make sure the inspection and the inspection report meet all applicable requirements and comply with the ASHI Standards of Practice.
• How long have you been in the profession and how many homes have you inspected? Again, ASHI Members are required to have completed at least 250 paid professional home inspections and passed two written exams that test the inspector's knowledge.
• Are you specifically experienced in residential inspection? The answer should be yes. If someone says they have specialized training in something like construction or engineering but not in residential inspection, you may want to move on to the next candidate.
• Does the inspector's company offer to do repairs or improvements based on the inspection? The answer should always be no. This is against the ASHI Code of Ethics because it might cause a conflict of interest.
• How long will the inspection take? The average for a single inspector is two to three hours for a typical single-family house; anything less may not be enough time to do a thorough inspection. Some inspection firms send a team of inspectors and the time frame may be shorter.
• How much will it cost? Costs vary quite a bid depending on the region, size of the house, scope of services and other factors. A typical range might be $300-500, but consider the value of the home inspection in terms of the investment being made.
• Does the inspector prepare a written report? Ask to see samples and determine whether you understand the report.
• Does the inspector encourage the client to attend the inspection? This is a valuable educational opportunity for you to learn about how things work around what could be your house, and the inspector may point out things that don't quite merit a mention in the report but which you should keep an eye on. An inspector's refusal to allow you to be present should raise a red flag.

Finally, once you've found an inspector you like, ask him for references, then follow up and contact those clients. Two key questions—whether they discovered any major defects after the close of escrow that the inspector missed, and whether they'd use the inspector again.

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How to scout out the best place to call home

Once you've become pre-qualified for a loan, you should be ready to put your house-hunting efforts into full gear. But don't skip the important step of scouting out neighborhoods before you start your search for the perfect house.

The neighborhood in which you live will heavily dictate your whole way of life—things like walking to a nearby park with your kids, knowing your kids are attending good schools, feeling safe when your children play outdoors, being close to restaurants and shopping, enjoying a short commute, and knowing your home will appreciate at a healthy rate.

Of course one way to get started in your neighborhood search is to get in your car and explore, especially if you're unfamiliar with the area. Get an idea about the neighborhoods by driving around and seeing which areas appeal to you. Walk around, explore, and talk to some of the residents.

Take note of the general appearance of the homes. Are they well maintained? Are they nicely landscaped?

If you have children, you might be looking for a neighborhood with plenty of children around, as opposed to neighborhoods that attract more seniors or young singles.

Other factors you'll want to consider are the schools, crime, your family's specific needs, and appreciation - as in how much the value of the home is likely to increase.

A good Realtor will be very familiar with all the neighborhoods in the area and should be able to tell you about the strengths and weaknesses of the specific neighborhoods you're eyeing.

The school district Even if you don't have school-aged children, buying a home in a district with good schools will be in your best interest. When and if you sell the home at some point in the future, future buyers with children will likely consider good schools their top priority. And neighborhoods with good schools typically attract more buyers.

There are several sites on the Web in which school reports are just a few mouse clicks away. Basically all you do is enter a geographical area or zip code and it will display ratings for the school system. Also:

• Ask your Realtor about information on schools in the area.
• Talk to people in the neighborhood, especially people with children.
• Standardized test scores are also available on the Internet.
• Visit the schools and take a tour if you have children. It's important that your decision isn't based purely through facts gathered online. Get a true feeling for what the school is like.

Crime statistics No one wants to live in a neighborhood where break-ins and burglary are the norm. There are web sites that can provide you with statistics on crime and other information pertinent to your search.

In addition to school information, Homestore lets you enter a city or zip code and provides you with crime data for the area you choose. It also compares crime statistics with other cities (such as the city from which you are moving).

In researching a neighborhood, you must first determine your area. The suburbs may have lower crime statistics, but may be farther from your work. Cities may have more crime, but may have other qualities that you consider more attractive, such as convenience and cultural activities.

Use the following tips to help you learn about crime statistics in a neighborhood:

• Talk to neighbors.
• Take note if there are bars on the windows and doors of homes.
• Talk to the police or sheriff's department.
• Check for gang graffiti on walls and walkways.
• Keep in mind that if you're looking in-town, you may not be able to get away from everything you consider unappealing (such as noise and traffic).
  Keep your family in mind A home isn't just an investment when you have a family to think of. You'll need to consider more than just the number of bedrooms or whether it has an attached garage. You'll need to consider the community first and foremost. Do you want schools that are in walking distance? Do you want to be close to your place of employment? Do you want to be close to shopping, restaurants, and other services?
  You'll also want to research property values before you find a home in the neighborhood that you like; property values reflect a community's overall health.
  And when you do your research, find out what houses sell for now versus a decade ago, five years ago, and three years ago. Also, find out how much property taxes have gone up.
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