As we spring forward into the traditional homebuying season, there are plenty of bargains to be had, thanks to continued low interest rates and sliding prices. But do you have enough in your account to handle closing costs? We'll look at who pays for what at closing and how buyers can manage these costs.
We'll also ask experts to take the temperature of the market, and show you how to do your own real-estate research before taking the big homebuying plunge.
Who pays for what?
You know where you want to live, you've saved up a nice down payment, you're pre-approved for a loan and you're inching ever closer to finding the right house.
But how much do you know about the purchase transaction itself? There's more than just price to consider, says Adam Brett, a real-estate agent in Fullerton, Calif. There are a slew of fees to pay, plus taxes, insurance and inspections.
"The sellers typically pay for the majority of closing costs," Brett says. But it can vary widely depending on the region and the seller. And in today's buyers market, many are subject to negotiation.
Here's a general breakdown of what buyers and sellers are expected to pay:
- Escrow fees.
- Title insurance, to assure the lender that the property has a free and clear title.
- Home inspection and any other inspections such as chimney, roofing or geological.
- Fire-insurance premium for the first year.
- Recording fees and notary fees for documents.
- Termite inspection and remediation of infestation or damage.
- Escrow fees.
- Real-estate commission.
- City and county transfer fees.
- Title insurance, to assure buyer of free and clear title.
- Homeowners association transfer fees and any unpaid balance.
- Home warranty.
- Any bonds, assessments or tax liens.
The tab for closing costs can vary widely, from about 1% of the purchase price to 3% for Federal Housing Administration loans that require a mortgage-insurance premium and additional lender fees.
Many buyers are now asking sellers to help cover these steeper FHA fees, in essence lowering the purchase price of the home, Brett says.
"They are playing hardball with the attitude that 'I am here to get you [the seller] out of trouble,'" Brett says. Indeed, he says, he has even seen some buyers ask for six months of seller-paid property taxes.
There's not as much room for expense negotiation with bank-owned properties. In fact, most don't provide a home warranty, and many don't cover termite work, Brett says. Of course, the tradeoff is that these homes are often priced at a discount to traditional listings.
A great time to buy?
Just when you thought the market's slide was over — it's not. After six consecutive months of decline, prices in the 20 markets comprising S&P/Case-Shiller Home Price Composite Index edged down an additional 3.1% in January, compared with the same month a year earlier.
In fact, 11 cities, including Atlanta, Detroit and Chicago, posted new post-bubble lows, making that oft-talked-about double-dip price recession a reality.
"There's still not enough demand relative to supply," says Maureen Maitland, S&P Indexes vice president. "The homebuyer tax credit just masked the extent of the recession for a while."
The only cities posting a year-over-year increase were San Diego, at 0.1%, and Washington, D.C., with a healthy 3.6% growth rate.
So should homebuyers wait on the sidelines a bit longer? Not necessarily, Maitland says.
Although prices in most areas are expected to remain weak for the foreseeable future, no one, she says, is expecting significant further price drops, especially because prices in the 20-city index are already down 31.8% from their peak in the summer of 2006.
"Perhaps we are not at the bottom, but have another 5% to go," Maitland says.
The latest home-sales data
The news was even more erratic in February: The National Association of Realtors says existing-home sales dropped 2.8% from February 2010 and 9.6% from January, a number that many in the industry think is overstated.
Its February Pending Home Sales Index, which measures home contracts, not closings, ticked up 2% from January, enough to make NAR chief economist Lawrence Yun almost cheery.
"We may not see notable gains in existing-home sales in the near term, but they're expected to rise 5% to 10% this year, with the economic recovery, job creation and excellent affordability conditions providing confidence to buyers who've been on the sidelines," Yun said in a statement.
What do you think? Are you as optimistic as he is? Is it a good time to buy?
Make an 'educated' homebuying decision
Want to learn more about how healthy your market is? Homebuyers can tap into a number of free resources to find out more about their local economy, home prices and the surrounding rental market – all factors that will affect the value of their investment.
"These (resources) can help answer such questions as, 'Should I rent or buy?' 'Has the market hit bottom?' 'How much value has my local market gained or lost?' and, 'Is there a high potential for future home price declines?'" says Ingo Winzer, president of forecasting firm Local Market Monitor.
Here are a few Web resources that LMM uses to make its home-price predictions and a little instruction on how to pull this information from these often-bewildering government sites. Use them to draw your own conclusions about when and where to buy.
- Job growth: Halfway down the page you will find "Employment, Hours and Earnings — State and Metro Area." Click on "One-Screen Data Search," select your state and metro area, then select total nonfarm and all employees.
- Home prices: Near the top of the page, click on the drop-down menu for "House Price Index," then "Downloadable Data." The "All Transactions Index" for metro areas shows quarterly pricing information for local markets.
- Unemployment: Near the bottom of the page is "Unemployment." Find "Local Area Unemployment Statistics" and click on the "One Screen Data Search."
- Income growth: Click on "Interactive Tables" then on table "CA1-3." Select "Per Capita Personal Income " and "Metropolitan Statistical Area."
- Vacancy rates: Look at tables Nos. 4 and 5 for rental and homeowner vacancy rates in about 75 metros across the country.
And don't forget, the number of foreclosures will play a big role in how your market does in the next several years. Data firm RealtyTrac provides free quarterly information on foreclosure rates in more than 200 U.S. cities.
One caveat: To understand economic statistics, and therefore the direction of the market, LMM says homebuyers should always compare them to historical data, data for other markets or state and national averages.