JOSEPH SCROFANI JD - WELCOME HOME, HERO

WELCOME HOME, HERO

JOSEPH SCROFANI JD

Table Of Contents

How Real Estate Agents Help Veterans Buy Homes

Owning vs. Renting

Buyers' Needs and Desires

Real Estate Horror Stories To Learn From 35

Searching for the Right Home

Buying a House: Negotiation Dos and Don'ts 49

What to Know About Home Inspections

Shopping for a Home Loan

VA Loans

10. Other Home-Buying Resources for Veterans 79

11. Programs For Traditional Home Buyers

12. The Closing Process

13. Organizing Your Move

105

About Joseph (Joe) Scrofani JD

When I'm not busy serving my client's needs, you can find me with my wife and grandkids, playing golf and teaching real estate. Golf is how I unwind after a long week or weekend working hard for my clients — and that’s not just a cop-out. I have dedicated my life in real estate to helping my clients achieve their real estate goals. I was raised in Southern California with two siblings. From a young age, I was taught that if you want something in life, you must work for it. So that’s what I did. And I worked hard. (But that’s not to say I didn’t have fun along the way.)When I'm not busy serving my client's needs, you can find me with my wife and grandkids, playing golf and teaching real estate. Golf is how I unwind after a long week or weekend working hard for my clients — and that’s not just a cop-out. I have dedicated my life in real estate to helping my clients achieve their real estate goals. I was raised in Southern California with two siblings. From a young age, I was taught that if you want something in life, you must work for it. So that’s what I did. And I worked hard. (But that’s not to say I didn’t have fun along the way.) I entered the real estate industry in 1978 after Several years in the corporate world. My dad, my hero, was a real estate broker in Southern California and convinced me to get into real estate. So, I did, and I do not regret my decision. After three years into my real estate career, I enrolled in Law School, earning a Juris Doctorate Degree in Law. I enlisted in the US Army and served four years of active duty and seven years in the US Army Reserves. After my training at Officer Candidate School, I served as a platoon leader at Fort

Ord, CA. I was then deployed to Korea, where I served thirteen months. After my four years of active duty, I fulfilled my commitment as a Company Commander in the US Army Reserves. I currently live in Las Vegas, Nevada, with my wife. I have two wonderful children, a beautiful daughter, an awesome son, and two grandchildren. EXPERIENCE* SERVICE* RESULTS About Joseph (Joe) Scrofani JD Throughout my career, I have earned numerous accolades, including: REAL ESTATE EXPERIENCE: Broker Salesperson with 45+ years in Real Estate Licensed Real Estate Broker Salesperson in Nevada Licensed Real Estate Broker in California. Specializing in Residential Real Estate, Seniors, Land, and Commercial DESIGNATIONS: Emeritus Status with National Association of REALTORS®

Seniors Real Estate Specialist® (SRES®) Certified Real Estate Negotiator (CREN*) Certified Real Estate Instructor DEGREES EARNED: Bachelor of Science. Juris Doctorate Degree in Law. US ARMED FORCES: United States Army Officer Veteran.

Joseph (Joe) Scrofani /JD Coldwell Banker Premier 702.882.4949

JoeScrofani4949@g i4949@gmail.com Website: jscrofani.realtor NV RE License: BS 17796 e: BS 17796 CA RE License: B 613250 e: B 613250

vii

CHAPTER 1 How Real Estat eal Estate Agents Help e Agents Help Veterans Buy Homes y Homes

I’ll come right out at the start and tell you I’m a real estate agent and a Veteran—proudly so! Nice to meet you! I’m not trying to sell you anything, but I’m pleased to be of service. I’m giving you the benefits of my experience and advice gleaned throughout my career selling houses and conducting real estate transactions—for both sellers and buyers. We can talk if you want me to help you find a home. Call me if you need me. Technology has changed the way homes are sought and bought today. In this “Information Era,” most buyers are first introduced to the house they eventually purchase via the internet, through Zillow, Trulia, Yahoo! Homes, Realtor.com, Redfin, or one of hundreds of other real estate websites. So that means there’s no need for a buyer’s real estate agent, right? Using a real estate agent is to find a home and show homes available for sale, right? If a buyer can find and visit a home on the web independently, why involve another party?

WHY VETERANS NEED A VE ANS NEED A VETERAN REAL ESTATE AGENT! GENT!

The reason to use a real estate agent and an agent who is a veteran is that the agent who is a veteran will understand all of the ramifications of a VA loan and transaction. The ease of online transactions and proliferation of services to assist 1

veterans in handling their real estate transactions came about recently, throughout the last decade. This has caused veterans like yourself to wonder if using a real estate agent is no longer necessary or an expense that can be avoided. Doing the work yourself can save you money if you buy a “For Sale By Owner” (FSBO) house, and sometimes the seller agrees to reduce the price by what they would have typically paid to a listing broker (half of what a listing broker would traditionally receive). Still, for many veterans, a do-it-yourself home purchase might be pricier than a real estate agent’s commission in the long run. In most home sales, there is a listing agent (the agent the seller engages to sell the property) and a selling agent (the agent who introduces the eventual buyer to the transaction). The selling agent is sometimes called the “buyer’s agent” because they are often working on a particular buyer’s behalf, and it’s easier than explaining that the selling agent is not the listing agent but the buyer’s agent. Some real estate agents market themselves as “buyer’s agents,” “exclusive buyer’s agents,” or “buyer’s representatives.” These agents have chosen to make a business of finding homes for prospective buyers, including veterans like yourself, and handling the negotiations and transactions attendant to the purchase. These agents want to accentuate why buyers shouldn’t go directly to the listing agent when they purchase real estate. A buyer who goes directly to the listing agent and allows that agent to “manage” both sides of the transaction deals with an agent with conflicting responsibilities. Their job is to get a reasonable price for the seller, and they might not zealously represent the buyer's interests. Those who market themselves as buyer’s agents indicate they only work for the buyer in a real estate transaction.

The seller traditionally paid the buyer’s agent's commission.

They were either paid directly by the seller, or the transaction was set up so that the seller provides a “credit” to the buyer for how much the real estate commission is, and then the buyer pays the commission. However, evolving regulations mean buyers may pay their agents directly, and the traditional practice of commission splits may evolve alongside other compensation structures. The commission the buyer agent would receive is now 100% negotiable with the buyer broker. The intricacies of changing regulations are just one of the many reasons buyers can benefit from having an agent dedicated to their interests alone.

BUYER BROKER AGREEMENT GREEMENT WHAT YOU SHOULD KNOW

Real estate agents who use and list properties for sale on a Multiple Listing Service (MLS)—a local marketplace used by real estate professionals (both buyer brokers and listing brokers) to share information about inventory in a particular area—will be required to enter into written agreements with buyers before touring a home. Those written agreements must include: • A specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive or how this amount will be determined. • Objective compensation (e.g., $0, X flat fee, X percent, X hourly rate)—and not open-ended (e.g., cannot be “buyer broker compensation shall be whatever the amount the seller is offering to the buyer”). • A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer and • A conspicuous statement that broker fees and

commissions are entirely negotiable and not set by law. Things to know as a home buyer or seller: • If you are a buyer and your agent is using an MLS, you must sign a written agreement with your agent before touring a home so you understand precisely what services will be provided and for how much. • Written agreements are required for both in-person and live virtual home tours. • You do not need a written agreement if you speak to an agent at an open house or ask them about their services. • Agent compensation for home buyers and sellers continues to be entirely negotiable. • When finding an agent to work with, ask questions about their services, compensation, and these written agreements. • More details about these changes and their meaning can be found in the facts. Realtor.

MORE ACCESS TO THE REAL ES O THE REAL ESTATE MARKE TE MARKET

A real estate agent will have better access to the market and a unique knowledge of local conditions. The agent is a full-time liaison between sellers and buyers. An agent will have ready access to other properties listed by different agents. Buyers’ and sellers’ agents know how to negotiate a real estate deal. A real estate agent will track down homes that meet your criteria, contact sellers’ agents, and secure appointments for viewing the homes. On their own, buyers have a more difficult time with these things. This is even more so when a buyer moves due to relocation or employment opportunities and does not engage a buyer’s agent to handle matters. This certainly applies to veterans like yourself, who may be purchasing a home in a

new location after leaving military service retiring to a favorite city or state they were once stationed in, or going back to their hometown, where they may not have lived in a while.

WHAT VALUE WILL Y UE WILL YOU RECEIVE FR U RECEIVE FROM YOUR AGENT? GENT?

According to Zillow, Realtor®.com, and other internet search companies, 97% to 98% of prospective buyers and sellers go directly to one of the above sites. So, real estate agents do not have to find properties with most buyers because they have already viewed their dream home on one of the above sites. This is also true with sellers, as they will go to one of the above sites to see what their home is worth. Why, then, do you need an agent? Selling a home is easy! If you have a motivated seller and a motivated buyer, the home is sold, as long as it is priced correctly. Closing the home is where an EXPERIENCE agent can provide you with the following: QUICKEST sale with the LEAST amount of PROBLEMS within the SHORTEST time!

What VALUE can your agent provide you as a seller or buyer?

Here is one VALUE. Whether you are a seller or buyer, the agent MUST be able to explain:

The Five Phases of a Transaction:

The Offer Phase The Appraisal Phase The Home Inspection Phase

The Escrow Phase The Closing Phase

The five phases above are important to understand because

many factors will determine when you will proceed in each phase. Your real estate agent is there to keep you informed about the five phases as they occur. The OFFER PHASE Look for an agent who is a Certified Negotiator. When you are ready to submit your offer, this is of great value to you. That agent has the experience and has taken classes to become certified! Look for an agent who can explain what is the APPRAISAL PHASE, The HOME INSPECTION PHASE Look for an agent who will direct you to a licensed Home Inspector! This is a critical stage! Look for an agent who can explain the ESCROW PROCESS and what is entailed within the ESCROW PROCESS! CESS! Look for an agent who will explain the CLOSING PROCESS! CESS! Will my agent be there during the CLOSING?

NEGOTIATING IS HARDER ON YOUR OWN

A real estate agent will keep the transaction “at arm’s length” so personalities and emotions do not become involved. Price negotiations require special skills and an understanding of the psychology of offering and counteroffering. A Veteran real estate agent keeps the transaction dispassionate and rational. For example, a buyer (you) might like a home but despise its wood-paneled walls, shag carpet, and lurid orange kitchen. When you work with an agent, you can express your opinions on the current owner’s decorating skills and complain about how much it will cost to upgrade the home without

insulting the owner. Your agent will translate that to the seller — that you like the property but can see having to spend a certain amount on decorating costs and thus can offer much less.

CONTRACTUALLY SPEAKING…

There are many contracts and documents involved in purchasing a house, and the stack is more than an inch thick. Unless you’re a real estate lawyer or title agent, these documents will be foreign to you. Yet, they require detailed and accurate completions. Buying a property is not necessarily a “fill-in-the- blanks” transaction. One mistake, let’s say, in title work could haunt the buyer well down the line after purchase. This very situation happened. A property that sat on a double lot was put on the market. The neighbor bought it to remove a bit of the second lot to expand his yard. The seller then returned the home to the market, and it sold. Months later, through a property tax notification, it came out that, in preparing new deeds for the properties, the expanded yard area was correctly in the neighbor's name; however, the house had been transferred to the home buyer. The new homeowner now owned both houses, and the neighbor owned his expanded driveway and yard. Fortunately, they were good neighbors and settled the matter with a few signatures. A veteran real estate agent deals regularly with these contracts, conditions, and unexpected situations and is familiar with which conditions should be used, when they can safely be removed, and how to use the contract to protect you.

YOU WON'T NECESSARIL N'T NECESSARILY SAVE MONEY

The point of not using a veteran's real estate is to save money. Otherwise, why would someone turn down professional assistance in finding a home?? However, it’s unlikely that both the buyer and the seller will reap the benefits of not paying real estate agent commissions. It works like this: An owner selling on his own (FSBO) will price the house based on the sale prices of comparable properties in the area. Many of these properties will be sold with the help of an agent; therefore, the seller profits in keeping the percentage of the home’s sale price that might otherwise be paid to the real estate agent. Veterans looking to purchase a home sold by an owner without an agent may believe they can save money on the home by not having an agent involved, so they look solely at FSBO houses. They might expect money to be saved and make an offer accordingly. Unless the buyer and seller agree to split the savings, they can’t both save that money—and that’s if the listing price was not already lowered to make it more market-attractive. Here’s a short list of the advantages that using a real estate agent can bring to your buying experience:

Education and Experience A buffer between you and the seller Neighborhood knowledge Price guidance Market conditions information Negotiation skills and confidentiality The ability to handle paperwork The ability to handle closing questions Relationships for Future Business A recommended list of vendors you will need

A real estate veteran understands this because that veteran real estate agent has more than likely bought or sold a home before.

For veterans looking to relocate to a new destination they may not be very familiar with, a real estate agent brings that on-the- ground knowledge about the best neighborhoods for you and your family, whether you are still raising your family or empty- nesters looking for a quiet (or active!) retirement community. It’s essential to know the “ins and outs” of real estate agents before you hire one to help in your search for a home so that you know what to expect and what will be expected of you.

WHAT IS A REAL ESTATE AGENT? GENT?

Simply put, a real estate agent is licensed to list and sell real estate, including homes, multi-family properties, and commercial and industrial buildings. A Realtor®, however, is somewhat different. A Realtor® is a member of the National Association of Realtors®. While an agent is always a real estate agent, a real estate agent isn’t always a Realtor®. As mentioned, real estate agents who work on behalf of the best interests of the buyer are commonly called buyer’s agents. All listing agents represent the seller, but other agents who don’t have buyer-agency agreements with prospective buyers — even though they may show homes to those buyers — are working on behalf of the seller and must obtain the best price they can for the seller. In contrast, buyer’s agents traditionally work on commission, as outlined in the listing agreement. However, evolving regulations now allow for more varied compensation structures. When a buyer's agent represents a buyer, the commission structure may involve a split with the listing agent, direct payment from the buyer, or other negotiated arrangements.

HOW TO CHOOSE THE BEST AGENT FOR YOUR NEEDS UR NEEDS

You might be urged to pick the first real estate agent who appeals to or approaches you, but that’s something to avoid. As with any professional, there are degrees of professionalism, dedication, and experience. The “wow factor” will wear off. Meet with prospective buyer’s agents in their offices. A good buyer’s agent will want to know whether you’re pre-approved for a loan by a financer, what kind, and the loan terms you’re getting. As a veteran, you should inquire if the agent you are considering working with is familiar with or has worked with veterans who will be using their VA loan benefits to buy a home. The agent should spend adequate time discovering what you’re looking for in a house. They should listen as much as talk and ask questions. Watch to see if the agent makes notes. If the agent doesn’t broach the topic, ask for an explanation of his understanding of agency relationships and obligations to you. The law requires agents to explain whether they’ll work for the buyer or the seller whenever they have substantive contact with a customer or prospective client. If the agent doesn’t offer you a Duties Owed or an Agency Disclosure, that agent represents the seller, not you. If the agent can’t explain agency concepts, move to the next agent. Be sure that the agent will show you all listings or properties on the market that meet your requirements, not only those handled in-house. Buyer’s agents have the legal duty to put the buyer’s needs ahead of their own (Article One of the Code of Ethics). Even if an agent might be paid more for selling an in-house listing, they must inform you about other available, suitable listings and take you to see viable prospects. A good buyer’s agent will educate you on the buying process. While the listing agent will point out all the features of a home, a

good buyer’s agent will point out the faults—or advise when they can be overlooked. Competent buyer’s agents can help veterans think clearly as the home-buying process unfolds. For example, if a house is a good buy, a buyer’s agent might suggest looking past the dated bathroom and kitchen and looking at the space above the garage that will make the perfect art studio you desire. Likewise, a cute house with all the amenities but with knob-and-tube wiring or a 40-year-old roof might not be worth the asking price. According to the San Francisco Chronicle’s Home Guide, if you decide to buy to build an addition or make modifications to accommodate a veteran who uses a wheelchair or has another type of disability, the agent should advise you to check the zoning before making an offer. A buyer’s agent must legally maintain your confidentiality, disclose material facts to you, including the potential for direct compensation, and maintain your loyalty.

LOOK FOR PROPER CREDENTIALS

You wouldn’t trust a doctor who didn’t have the proper credentials and licensing. Don’t trust a real estate agent who doesn’t present theirs or doesn’t have them at all. It’s easy to find real estate agents who can take the job, but finding agents with exceptional credentials — like those who have gone that extra step to take additional classes in certain specialties of real estate sales and have worked with veterans using their VA benefits to buy a home — is worth looking into. Here are just a few credentials within real estate that you should be on the lookout for: Certified Residential Specialist (CRS): t (CRS):Completed additional training to handle residential real estate, such as houses and

apartments. Seniors Real Estate Specialist (SRES): RES):Completed training to help sellers and buyers 50+ years old. Certified Real Estate Negotiator (CREN): r (CREN):Completed additional training and courses in negotiation skills. Similarly, if you choose to use a real estate agent who’s also a member of the National Association of REALTORS®, it will be a bonus. However, ensure they have credentials relevant to your need(s).

RESEARCH LICENSING

Your state will have a license board for all active Realtors® and agents, which you can easily access. You will also be able to see their contact information, disciplinary actions, complaints, or any other information you’ll need to help influence your decision — especially since most information is now posted online.

YOU WANT AN EXPERT AGENT

A good agent will know about all the other properties in the area. Also, a good agent always does their research regarding the events in the current market and those homes that are out there for the taking. In short, you want an agent who’s an expert in the current market and someone who constantly stays on top of things.

GOING THE BUYER'S AGENT ROUTE

So, you’re ready to take the plunge and look for a place to call “home.” To get the most out of it, use a buyer’s agent to avoid paperwork, stampedes of buyers competing for the same property, and other challenges. Home buying can be exciting but also complex and stressful — so having a pro by your side can

make an enormous difference.

As discussed, you’ve probably heard of buyer’s agents, seller’s agents, listing agents, and so on. You’re a buyer, so what’s a buyer’s agent? True to the name, buyer’s agents assist home buyers every step of the way; they can also save you both time and money on the road to homeownership. When you find the right one for you, these real estate agents will work day and night to ensure all your needs and requirements are met when it comes to finding the right home.

WHAT BUYER'S AGENTS DO FOR YOU

Your buyer’s agent will have a vast knowledge of the area's current real estate market, including neighborhood amenities and conditions, the law, zoning issues, price trends, negotiations, taxes, financing, and insurance. Once you meet with the buyer’s agent, they’ll help you determine your needs and wants when finding a home and a neighborhood. The agent will teach you what you can afford, help you set a budget, provide some insight into the current conditions of the market, and explain what you should expect while shopping for a home. During the shopping period, you’ll meet with your agent for tours of homes you might be interested in. They will give you insight into the floor plans, the home’s pertinent selling points, and the overall crime rate of that neighborhood. They will also give you a rundown of local activities, restaurants, shopping centers, and schools nearby. Your agent is responsible for ensuring home inspections and the disclosures therein are complete.

They also ensure coordination and completion through the roof inspector, attorneys, lenders, and all other professionals involved with the home purchase. If bargains are needed over the price, you won’t have to negotiate. Your buyer’s agent will do that for you and sign the final closing documents. They will be present whenever there are documents to go through and sign.

DUAL AGENCY: THE BASICS

A “dual agency” relationship occurs when a buyer is represented by a brokerage firm controlling the listing. Once an agent represents the seller and the buyer within the same transaction, the situation is known as “dual agency.” In multiple states, this is illegal because of the conflicts of interest that can arise regarding the broker. All agents are responsible for informing their clients of all potential risks that could arise due to conflicts of interest. Legally, agents are not allowed to work on both sides of any transaction without the clients' consent. If you’re selling your home and don’t want your agent to work with the buyer, it’s your right to say so in the listing agreement. The same is true for buyers. A buyer can opt out of a deal with an agent if they want to purchase a home their agent is listing. Regarding dual agency, there are definite advantages for the seller. Trust has already been gained with your listing agent, so we have established representation for the buyer. Your agent brought you the buyer knowing you’re selling, even if your property has not yet hit the market. Your listing agent will have already covered and researched your

neighborhood’s market to generate buyer inquiries. This means your agent will be working from all sides of the deal to sell your house faster and with more incentive. Your agent works with corporate relocation buyers who need to find a house quickly, and they will ensure that your home is bought. There are also cons for the seller when it comes to dual agency, and they are: To avoid surprises or missteps in a dual agency sale, please clarify essential details with your agent beforehand. You can use an exclusive buyer agency agreement or a listing agreement.

HOW REAL ESTATE AGENTS ARE PAID

The National Association of Realtors® Profile of Home Buyers and Sellers states that approximately 10% of homeowners opted to sell their homes without using a real estate agent or Realtor®. A handful of For Sale By Owner (FSBO) transactions dealt with sellers and buyers who previously knew each other or were directly related; 87% of buyers chose to work with a real estate agent or Realtor® on the buyer’s side. Real estate agents and Realtors® traditionally receive a commission at the end of each sale, unlike professionals in other fields who may bill by hourly rates or earn a salary. However, recent changes in industry regulations may introduce more varied compensation structures, including direct payment options for buyers. For example, if an agent has worked with a seller or a buyer for months, they don’t get paid for the time spent if there is no transaction during that period.

Agents receive a commission once the transaction goes through to settlement (closes) based on the home's selling price. At that point, the commission is earned. Historically, the listing agent and the buyer’s agent split the commission, but • As a seller, you can offer compensation to buyer agents. • You should consider doing this to make your listing more attractive to buyers. • Your agent will need to disclose to you and obtain your approval for any payment or offer of payment that a listing agent will make to another agent acting for buyers. • This disclosure must be made to you in writing before any payment or agreement to pay another agent acting for buyers and must specify the payment amount or rate. • If you approve an offer of compensation, there are changes to how it can be communicated—your agent cannot include it on an MLS. • Your agent can advertise your listing via off-MLS platforms such as social media, flyers, and websites. • As the seller, you can still offer buyer concessions on an MLS (for example, concessions for buyer closing costs). • Compensation for your agent remains entirely negotiable and is not set by law. If your agent is a REALTOR®, they must abide by the REALTOR® Code of Ethics and have clear and transparent discussions with you about compensation. • When you find an agent to work with, please ask questions about compensation and understand what services you are receiving. • Agents who are REALTORS® are here to help you navigate the home selling process and are ethically

obligated to work in your best interest. ( Added 9/5/24 )

PAYING THE COMMISSION ITSELF

Both buyers and sellers must understand that while this is the current standard practice, the real estate industry is dynamic, and practices can vary. Different arrangements might be made for commission payments, especially in light of evolving industry regulations and market conditions. As a buyer or seller, you should discuss commission structures with your agent to understand how they apply to your transaction.

CHAPTER 2 Owning vs. Renting

Owning your own home might be one of the defining qualities of the “American Dream:” the ideals that include opportunity for prosperity and success and upward social mobility for the family and children, achieved through hard work. Homeownership is indeed ingrained as one of the strongest representations of that vision — 66% of Americans own their own home, and more hope they will or wish they did. Something about home ownership strikes a strong chord with Americans. Many of us seek financial security, permanency, status, and pride. Lifestyle plays a significant role in the decision to own versus rent. Home buying is most often driven by household formation, such as marriage and growing a family. Less than 40% of people under 35 own homes, 60% of people over 35 own homes, and more than 80% of people 65 or over own homes. Interestingly, for the millennial generation, owning a dog is the primary reason for buying a home. The U.S. homeownership rate has fluctuated between 62% and 70% since the 1950s. Most young people begin their independent lives renting an apartment, maximizing lifestyle flexibility and minimizing the hefty upfront costs of purchasing a home. As they build careers, save money, and start families, many buy a house, recognizing that home ownership, as opposed to rental living, is more appropriate to their growing family needs. At the other end of the age spectrum are homeowners nearing 19

retirement who may desire to sell their homes, downsize, avoid maintenance and other obligations, and return to renting.

WHICH IS BEST?

Is it better to rent or buy a home? Most adults ask themselves this at some point as they form their goals and plan for the years ahead. Before you answer the question, here are some things to ask yourself. Owning and renting each have advantages, but what’s best for you depends on your circumstances. What will be the duration of your stay at home? Each market is different, but whether the time you plan to spend in the house warrants its purchase is possible to predict. Generally, it takes four to seven years to break even on a home (i.e., where there has been enough appreciation to pay back the cost of the transaction and ownership). If you’re considering buying and selling a home in two years, buying is very unlikely to be cheaper than renting. Do you think of or need your house as an investment in your retirement plan? Many Americans see their homes as a valuable asset, often integral to their retirement strategy. Real estate is commonly regarded as a solid long-term investment, frequently favored over other options like stocks, gold, or savings accounts. Its appeal lies in the potential for value appreciation over time. However, it's wise to remember that the real estate market is subject to fluctuations. Various market and economic factors can increase and decrease property values. This reality highlights the importance of considering real estate as one component of a diversified investment portfolio, recognizing both its potential benefits and inherent risks. Are you financially ready? Owning a home is a financial commitment that requires planning how home ownership fits into where your life is headed. Ask yourself your budget and

whether buying or renting would require you to stretch your finances. Crunch all the numbers. A frequent mistake of first- time home buyers is comparing a month’s rent to a month’s mortgage payment. Many people don’t have all the numbers. Many additional fees are necessary to make a fair comparison: principal interest, property taxes, property insurance, homeowners’ association (HOA) fees, and ongoing maintenance. Are you prepared for the down payment? This lump sum payment funds your equity in the property (how much of the property you own). Down payments vary; 20% is preferred and gets the best rates. Some loans allow down payments as low as 3%. Sometimes, relatives help with the down payment. If you have a choice, take a gift rather than a loan because lenders will add the loan debt to other monthly obligations and potential mortgage payments to determine your debt-to-income ratio, which generally can’t top 43% to qualify for a home loan. Can you afford the monthly mortgage and its components? Generally, a mortgage includes loan principal and interest (both amortized over the life of the loan) plus homeowner’s insurance and property taxes (prorated). These items can affect the monthly loan-only payment by several hundred dollars. Are you emotionally ready? Can you handle the stress? A significant factor to consider when buying a home is stress. The Holmes and Rahe Stress Scale, a landmark stress study, ranks many events that accompany buying a home in the top 43 most stressful circumstances in life. Four events are specifically home- related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28), and change in residence (No. 32). If someone has recently made other life changes, such as marriage (No. 7), switching careers (No. 18), or having a child (No. 14), it might be wise to postpone buying a home. Stress overload can lead to missed payments, destroying

credit, or even losing the house. It’s better to rent if your life is in flux and buy when your stress levels are lower. Are you ready for commitment? Are you prepared to make many decisions, from picking a real estate agent to picking paint colors? Are you confident enough to choose a neighborhood where you believe home values will continue to appreciate and that will serve your needs (i.e., proximity to schools, shopping, recreation, etc.)? Are you ready to devote time and attention to maintaining a home (i.e., leaf-raking, grass-cutting, appliance maintenance and repair, etc.)? Taking care of your most significant investment can be gratifying, but only if you’re ready.

ADVANTAGES OF BUYING YOUR HOME

Control over housing expenses. By selecting a fixed-rate 15-, 20-, 25-, or 30-year mortgage, the homeowner is assured that housing costs won’t increase over the period and will be eliminated at the end of the term (subject to refinancing). You build equity. Some of each monthly mortgage payment goes toward the loan’s interest. Other portions may go to homeowner’s insurance and county taxes. The remainder pays down the loan principal. Every dollar put toward your loan’s principal represents a dollar of equity — actual property ownership. Further, the property should appreciate each year, adding to equity (what the house could be sold for versus what is owed). Discounting specific blip periods, such as the 2006 housing bubble burst, home prices in the U.S. appreciate nationally at an average annual rate between 3% and 5%. Remember that home value appreciation in different metro areas can be appreciated at markedly different rates than the national average. Improvements increase your home’s value. A homeowner can also increase a home’s value through home improvements, thus

making your home more comfortable and enjoyable while growing its loan-to-value (LTV) ratio. For instance, adding a bathroom or finishing a basement substantially increases the property’s functionality and appeal while potentially boosting its value. Tax advantages of home ownership. There are significant tax benefits associated with buying a house, both at the time of purchase and for the duration of time you own the home: Homestead exemption. Many states exempt owner-occupied homes (homesteads) from a portion of the property tax amount that would typically accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000. Federal tax deductions. When purchasing a home, it’s essential to understand what can be deducted from your tax return and what can’t. Property taxes and interest paid on your mortgage can be deducted if you itemize your federal income taxes, which can reduce your income tax burden. Many home buyers, unfortunately, overlook the effect of mortgage interest on their federal income tax payments. Mortgage interest can be a powerful financial planning tool. Calculate the mortgage interest deductions you are eligible for and include that in your annual financial planning. Then, check Internal Revenue Service (IRS) Form 1098, which you’ll receive from your lender at the end of the year. This form shows the amount of mortgage interest that you’ve paid. The Tax Cuts and Jobs Act (TCJA) applies from 2018 to 2025 and limits the aggregate deduction for state and local real estate property taxes; state and local personal property taxes; state, regional, and foreign income; war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year, up to $10,000 ($5,000 for marrieds filing separately). This limit does not apply if those taxes are paid or accrued in carrying on a

trade or business or in an activity engaged in for the production of income. In other words, if you are living in your home, you can only claim up to $10,000 in tax deductions on your property, but if you are earning income directly from your home in some way, the limit might be waived. Comparatively lower lending rates on mortgages. Though subject to fluctuation, mortgage rates often remain more favorable than other types of loans. Even in periods of higher rates, mortgages typically offer more competitive interest rates than personal loans or credit cards. This aspect of home financing can make homeownership financially advantageous, providing a more affordable route to building equity than other borrowing options. Ownership rights and creative freedom. Your decorating and home-improvement choices are yours, provided they don’t break building codes or violate homeowners’ association rules. You can paint walls, add fixtures, update or finish your basement, or build a patio or deck. Changing your environment to suit your whims is a freeing aspect of homeownership. A sense of belonging to the community. Homeowners stay in homes longer than renters and are more likely to grow roots. They might join a neighborhood association, volunteer at a nearby community center, join a school group, or align with a business improvement district. Renters might not do any of those things, mainly if they know their lease is up in a year, and they might move. An intangible pleasant feeling is attached to owning your own house — a sense of freedom and independence. Your home belongs to you, and you can do what you want with it. You aren’t daunted about increases in rent or losing the lease. You’re free to make improvements and changes. Also, owning your home gives your children the guarantee of attending the schools in the area more permanently; you never need to worry about a notice from the landlord to vacate your

rented house or apartment for various reasons over which you have no control.

ADVANTAGES OF RENTING

It seems like a shorter list, but one man’s pro is another man’s con, and renting certainly has advantages that factor into your buy-or-rent decision. No responsibility for maintenance. Admittedly, this is a big one. You’re not responsible for home maintenance or repair costs as a renter. If a toilet backs up, a pipe bursts, or an appliance stops working, you don’t have to call an expensive repair person — you call your landlord or superintendent. Renters in condos, townhouses, or apartments also don’t have lawn and grounds care obligations. Relocating is easier. When renting, relocating for work is more manageable. Though a sudden move may require you to break your lease, you can partially offset the cost by subletting your apartment or talking with your landlord. On the other hand, selling a home takes time and effort. If you have a short timeline to sell your home, you may be forced to accept a lower price and lose some of your investment. No real estate market exposure. Home values fluctuate and can decline over time. If you’re a renter, that’s not your problem. If you’re an owner trying to sell — it is.

DISADVANTAGES OF OWNING

Maintenance. The renter’s most significant advantage might be the homeowner’s major disadvantage. While insurance might be available to protect against expenses from significant catastrophes, usual maintenance items are on the homeowners’ dime. Maintenance and repair can be as simple as repainting the

baseboards and as extensive and expensive as replacing an HVAC system or sewer pipe. The expense will vary from year to year; however, you can expect to pay about 1% of the value of your home annually toward these expenses. If you live in a $200,000 home for 10 years, that’s $20,000 over the period, and perhaps more if you must replace a costly, long-lived mechanical item, such as a furnace. Remember the usual homeowner’s lawn care chores, snow removal, gutter cleaning, and other regular home maintenance needs. Upfront and closing costs. Buying a home entails numerous upfront costs. Some are paid out-of-pocket after the seller accepts your purchase offer, while others are paid at closing. These include earnest money, down payment (typically ranging from 3.5% for FHA [Federal Housing Administration] loans to more than 20% of the purchase price), home appraisal, home inspection, property taxes, and first year’s homeowner’s insurance. Loss of relocation flexibility. It’s much easier to break a lease and move out of town than to arrange to sell a residence. Selling the home from out of town involves special logistics and financial matters, such as dealing with the mortgage while the house is on the market. Financial loss potential. Homeownership builds equity over time; however, equity doesn’t equate to profit. If home values in your area go down or remain stagnant during your time as a homeowner, the appraised value of your home could decrease, putting you at risk of a financial loss when you sell.

DISADVANTAGES OF RENTING

No equity building. The monthly rent you pay goes to the landlord. It represents the fee you pay for using the property. No matter how long you live there, you gain no property ownership.

No tax benefits. While homeowners can deduct property taxes and mortgage interest on their tax returns, renters aren’t eligible for housing-related federal tax credits or deductions. Home improvements go to the landlord. Any structural and decorative home improvements that renters make belong to the building owner and will have to stay behind when you move to a different place. Also, approval for the desired significant redecoration will be needed. After all is done, the decision to buy or rent depends on the prospective home buyer’s circumstances. There’s no denying that a home of your own is a sound financial and a significant emotional investment. An investment in a home can also mean an investment in your future. There is much to consider when buying a home. Switching from renting to homeownership is a highly challenging but exciting and fantastic decision.

CHAPTER 3 Buyers' Needs and Desires

After you buy a home, your next decision point is what sort of home it will be. It’s better to have a concrete vision of what type, features, and amenities you want in your home rather than taking a “shotgun look” at every listing in your price range. Imagine your dream house. It fulfills both your needs and desires. It fits the need for a good roof over your head, a sturdy structure, modern fixtures and appliances, living space (e.g., bedrooms and living room), and functional rooms (e.g., kitchen and bathroom[s]). Your needs are fulfilled, and you turn to your desires. Perhaps you envision a home on the beach or in the woods, a gourmet kitchen, a wood-paneled den, a crystal chandelier over a banquet table in the manor-sized dining room, or an Olympic- sized swimming pool with a hot tub and sauna. Your priority in any home purchase should be meeting all your needs. Sometimes, you won’t find everything you desire in a home, and if you do, you may not be able to afford it. It’s essential to prioritize the things you want in a house based on their importance in your search.

Could you decide your needs vs. your desires?

Would you like a swimming pool? Enough that a home without one will not be looked at? In what areas or neighborhoods might the home be located? Where do you want to live? Where might you have to live for

work commute or home price reasons? What features would make it unique? 29

What can you afford, and what is out of your budget?

Budget usually constrains us most when selecting a home. While some things are necessary for any home (e.g., a good roof and working appliances), others will stay on the list of desires for now (e.g., the sauna).

MAKE A LIST; CHECK IT T ; CHECK IT TWICE

You may have an impression of what you want in your new home. Writing that down and having a complete checklist can be helpful. Before starting your hunt for a new home, it’s advisable to list all your basic needs and desires, then prioritize the desires, figuring that all needs must be met in any house under consideration. This will make the search easier and help weed out the ones that don’t meet the basics. Realize, however, that it’s nearly impossible to find a home that meets all requirements. Compromises will be necessary. It’s a good idea to work from outside-the-house factors to inside-the-house. For example, location is perhaps the primary concern and both “needs” and “desires” factors might be involved. A “need” would be “within 25 miles of work.” A desire might be “would like Westwood” (a favored neighborhood), while a need might be “on the west side of the city” (because work, family, friends, and recreation activities are all located there). Location needs may include proximity to schools, frequently used recreation facilities or modes of transportation (bus or suburban rail access). Whether an item is a need or a desire depends on circumstance.

Closeness to family might be a need for a couple with young

children or elderly parents to care for—or a desire if those factors aren’t involved. Items like these make a checklist very helpful. After compiling location needs and desires, housing factors can be considered. Needs include having all essential house structures and systems in good working order. Accepting a house needing a new roof because the owner is willing to knock $7,000 off the listing price—but it will cost $10,000 to replace the roof in two years—is not a sensible deal. Needs might include a minimum number of bedrooms and bathrooms, no steps, a fenced yard, perhaps a first-floor laundry facility, and any feature prospective buyers have decided they cannot accept a home without. Desires are features that make the house more attractive or enjoyable—an upgraded kitchen, walk-in closets, and a primary bedroom suite. Of course, one buyer’s need is another buyer’s desire. The point is to know your needs and desires to assess potential properties and make the process smoother quickly. Regardless, buying a house is not a simple process. Before contacting a real estate agent or looking at homes, much planning should be done. Work out the costs and budget. Choose a general location. Contact lenders well ahead of home shopping so that your offers aren’t tied up with getting financial approval. Having the image of your dream home is reality, married with imagination. You may find that some aspects of the house you intend to buy are different. It’s not the same as what your dreams told you. Other people have different requirements. It depends on your thought processes as well as your personality. We understand essential things and potential compromises differently. Needs are basic requirements that just can’t be

ignored or compromised. On the other hand, desires can be left behind if the situation demands it. You must clearly distinguish between your needs and which items you would classify as desires. No matter how many unfulfilled desires you have, you can work on them later. For example, you can add a pool and permanently change the paint colors.

A NOTE ABOUT PETS

Please take care of your pets while shopping at home. Home buyers who are pet owners have specific requirements — they must provide for their pets. A third of millennial-aged Americans (born between 1981 and 1996) who purchased their first home (33%) say the desire to have a better space or yard for a dog influenced their decision to buy the home, according to a survey conducted online by Harris Poll, on behalf of SunTrust Mortgage. Dogs ranked among the top three motivators for first- time home purchasers and were cited by more millennials than marriage/upcoming marriage, 25%, or the birth/expected birth of a child, 19%. The neighborhood where you’re going to buy a house must have no restrictions on pets — or livestock if that’s something you desire. Do you raise American Staffordshire Terriers, also known as pit bulls? Some neighborhoods ban this breed. What about goats? Vietnamese pigs? Have you always wanted fresh eggs from your chickens? Include your animals in location planning. Some pet owners choose wood or other hard flooring, not wanting to risk pet damage or odors. Many pet-owning house buyers list an appropriate-sized fenced backyard on their “needs” list. Consider the arrangement of rooms and the house's structure to ensure it’s suitable for your

Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90 Page 91 Page 92 Page 93 Page 94 Page 95 Page 96 Page 97 Page 98 Page 99 Page 100 Page 101 Page 102 Page 103 Page 104 Page 105 Page 106 Page 107 Page 108 Page 109 Page 110 Page 111 Page 112 Page 113 Page 114 Page 115 Page 116 Page 117 Page 118 Page 119 Page 120 Page 121 Page 122 Page 123 Page 124 Page 125 Page 126 Page 127 Page 128 Page 129 Page 130