Rick Dulai

Real Estate Broker, Investor & Entrepreneur

Phone

(586) 997-9900

Closing Costs Explained

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There are a lot of things that go into purchasing your new home. As a result, your expenses can add up very quickly (especially, closing costs). However, the worst feeling in the world can be when you get your closing package.

You will almost always find that there are many fees and debits you likely weren’t expect.

I am going to solve that problem for you today. Knowing what types of charges will be on your closing documents will help you plan better ahead of time. As a result, planning ahead should hopefully provide with you the peace of mind you deserve.

If you have a loan officer helping you get a mortgage, your closing disclosure will cover most of your expenses. Regardless, I’m going to break down all of the credits and debits on the settlement statement from the title company that you can expect when purchasing your next home.

Credits

Under normal circumstances there are only really two major credits.

  1. Loan Amount – The loan amount is the amount the you as the buyer are borrowing from the bank to purchase the house.
  2. Seller Concessions – The seller concessions are the amount the seller is crediting to you. As a result, these proceeds of the sale go towards your closing costs.

Debits

Closing Costs Prorations/Adjustments

The buyer is charged these amounts to pay back the seller for amounts already paid. So, consequently that’s why they are pro-rated from the date of the closing.

  1. Association Dues – Any unused dues paid annually or monthly will be charged to the buyer and credited back to the seller.
  2. City/Town Taxes – This is also know as “summer taxes” in Michigan. You pay your summer property taxes in advance. They are due July 1st. Any unused amount is charged to the buyer and credited back to the seller.
  3. County Taxes – These are your “winter taxes” in Michigan. You pay your winter property taxes in advance. They are due December 1st.
  4. Title Charges & Escrow / Settlement Charges – The buyer is charged these amounts for services provided for the closing, along with the lender’s insurance policy is also included in this.
  5. Lender’s Title Policy – Your lender will require a Lender’s Title Policy or Loan Policy if you are getting a loan to purchase the home. This covers the lender from problems with the title.
  6. Settlement or Closing Fee – The title company charges the buyer this fee for actually closing their side of the transaction.
  7. Government Recording and Transfer Charges – These amounts are for the service of recording paperwork with the county. The title company is insuring the ownership of the property. Therefor, they also make sure that the ownership paperwork is recorded correctly.

Other Debits to Keep in Mind

  1. Record Warranty Deed
  2. Tax Certification
  3. Record Mortgage

Don’t hesitate to reach out to me directly, if you would like to obtain more information about what you can expect when it comes to your closing costs.

What to Expect During a Home Showing

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Before scheduling a home showing, most people begin their search online. When it comes time to actually view the property, there are a few things to consider when scheduling a home showing.

First of all, unless you are an investor or make a living in real estate, I highly recommend getting a buyer’s agent. See my article How a Buyers Agent Helps for more information.

Once you have identified houses to view, call/text/email your agent to schedule your home showing (or showings). Since you are seriously looking at homes now, you should be flexible with your schedule. Remember, your agent has other clients and a life outside of work.

Having said that, most agents will bend over backwards for their clients and do their best to accommodate your schedule.

At this point, your agent will put in the requests for your home showing appointments. They will contact all of the listing offices for the properties you identified. The listing office/agent will then coordinate with each seller. So if you are trying to see 4 homes in a 2 hour window, understand that we are coordinating your schedule, our schedule and the 4 home owner’s schedules.

Once a home owner confirms the showing, the buyer’s agent gets a notification with showing and access instructions. Sometimes we get lucky and all 4 showings in our example will confirm just as requested. Other times you might only get 3 (or 2 or 1 or NONE) of the 4 requests confirmed. Then it is just a matter of moving showings around to accommodate everybody’s schedule.

Each showing is for a limited window of time.

As tempting as it is to just slowly evaluate every inch of a home, keep in mind that there might be other showings schedule for that home and you might have other showing appointments to get to still. So be respectful of the schedule appointment window and be as punctual as possible.

It is always a good idea to take notes.

With our smart devices these days that can be very easy to do with your voice recorder or note taking app. As tempting as it might be to take pictures inside of a seller’s home, I do not recommend it. Maybe take a picture of the outside if you need a reminder but most photos are available online or from your agent. Sellers are not giving us permission to come in and take photos of their private property.

Efficiency is everything.

Typically we agents will do our best to schedule showings with enough time in between to travel to each showing appointment. So plan to go out and hit one house after another. Typically you can get 30 minutes at each house. I recommend to limit the number of showings in a day to 4 or 5. That is about 2 hour block for all showings. In my opinion it is difficult to keep track of showings beyond that. I also find that people do get fatigued looking at so many houses back to back.

Somethings to consider when you are in seller’s home:

  1. Follow the seller’s instructions – often sellers will leave instructions about the lights, doors/locks and if they want you to remove your shoes. Always be respectful as it is THEIR home still.
  2. Beware of Security Devices – some sellers have security systems with cameras and listening devices. Don’t say or do anything in their home thinking that nobody is watching. Always act as if the seller were present.
  3. Don’t go through personal drawers and items – Of course we want to check cabinet drawers for functionality, open and close closet drawers, etc. Just refrain from looking through the stuff in drawers and closet as much as possible.
  4. If this is a home you really like, we can always come back for a 2nd showing. Also, you will have plenty of time to really investigate the details of the home if you end up doing a home inspection.

Would you like to learn more about what to expect when viewing potential homes for purchase? Contact me directly here and let me help provide you with the guidance you deserve.

How to Setup a Home Search

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If you are ready to begin your home search journey, then you’ve come to the right place! Let’s go through how to prepare and setup your home search to most effectively find that perfect home for you.

The first thing you need to do is come up with a list of all of your “needs” and “wants”.

The goal is to get everything you need and want, but knowing the difference between the two can help you make better decisions along the way. You also will start to realize what truly is a “need” vs a “want”.

Once you have your list established. We can prioritize the “wants”. When it comes to searches (especially in databases), the MORE specific you are, the LESS results you will get. I always recommend starting with a broader search criteria and work your way down as you see what is actually avaiable.

Somethings to consider when setting up your search:

  1. Number of Bedrooms
  2. Number of Full Bathrooms
  3. Garage Size
  4. Do you need a basement? finished or unfinished?
  5. Square footage – this is typically a range like 2000-3000 sqft.
  6. Do you want a ranch style home? 2 story colonial?
  7. Do you want a first floor master suite? or do you want the whole family on the same floor?
  8. What size lot do you want?
  9. Are you only interested in new construction homes?
  10. How important is the school district to you? School districts can have dramatic effects on resale value even if you don’t have children yourself.

Sign up here on RickDulai.com to create your search profile and begin your home search. If you prefer, you can also contact me directly and I can setup a search for you to automatically email listings as they come on the market live.

Learn How a Buyer’s Agent Can Help You

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Buyers looking to purchase a home often start the process themselves. Then when they see a house they like online or while out on a drive, they call the listing agent for information. While there is nothing wrong with that, keep in mind that the listing agent is capturing your name, phone and/or email in order to follow-up with you and convert you to a buyer. The listing agent is charging a fee to the seller which includes BOTH the listing side and buying side commissions. So if the listing agent can “double-dip” the listing, they could potentially double their commission on that one deal.

You might think, “well that’s ok, they are doing double the work!”. Not exactly, I am all for double-dipping. It’s one of the perks of listing the home and spending time and money on marketing. However, it isn’t exactly double the work. In fact, the listing agent (even if they work both sides) are ONLY REPRESENTING THE SELLER in most cases. They have a contract and fiduciary responsibility to get the most money and best deal for their client, the seller.

So here are all of the benefits of using a buyer’s agent when you purchase a home:

It’s FREE!

Buyer broker services generally are free to the buyer since we are paid by the listing office. If the listing office is collecting 5% or 6% or even 7% from the seller, they typically pay the buyer’s agent anywhere between 2.5% to 3.5%. You could argue that that fee is being included in the purchase price and the buyer could try to negotiate that saved commission for themselves, but most of the time that is not the case. The seller and the listing agent are also looking at those dollars as potential savings.

Experience

A buyer’s agent, who has been in the business for a while and has done many transactions, has seen a lot of different scenarios. That experience on how to deal with sellers, their agents, problematic home inspections, municipalities, etc will be incredibly useful to you. That experience totally removes the stress of how to handle unexpected situations.

Negotiations

This probably should be #1 because having a proxy that is legally required to represent your best interests is the best way to ensure that you get the best deal possible. It’s not always about price. Sometimes you need to negotiate terms like the closing date to match your plans. A good real estate agent will know how to handle occupancy rates (the amount a seller has to pay after the closing if they plan to live there for a set amount of town), seller concessions, appraisal issues and home inspection concerns.

Expectations

A good buyer’s agent will help establish the timeline to close and what to expect along the way. This is probably the most helpful in reducing the stress associated with purchasing a home. Many buyers just don’t know what to expect and therefore are skeptical of everything in the process. That type of thinking causes unnecessary stress and that’s when mistakes happen. Your buyer’s agent is there to show you through the process as well as explain details of the entire transaction

I hope this helps you understand the value of your buyer’s agent and why it makes sense to take advantage of this free service to you. If you have any questions or comments, please feel free to reach out to me directly or visit my YouTube Channel for more tips and information!

Pre-Qualification vs. Pre-Approval Explained

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One of the very first steps you should take as a home buyer is to speak with a lender to determine your buying power (what you can afford). Most people actually start searching online, sometimes months before they are ready to start the process. There’s nothing wrong with that. But, when it is time to get serious you need to know the difference between a “pre-qualification” and an actual “pre-approval”.

Pre-qualification

A statement from your potential lender stating that you can afford to purchase a home up to a specific amount is called a Pre-qualification Letter. The problem with this pre-qualification letter is that it is based on very minimal information (typically just your credit score and a few questions).

A pre-qualification letter is not an official approval. It typically states the conditions that are still required in order to actually pre-approve you for the amount stated. Typically these verification of income, debts and cash on hand (in your bank account).

Pre-approval

A pre-approval letter goes the extra few steps not covered above. The loan officer has done more than just check your credit. They have reviewed w-2’s, 1099’s or other income statements (like recent paychecks). They have also verified how much cash you have available for a down payment.

Keep in mind is that when you get a pre-approval, it is in the very beginning stages of your search. We have not identified a property, a purchase price or a timeline yet. As a result, we call this a PRE-approval.

Financing Approval

An actual approval comes once you have written an offer on a specific property with a target closing date. At that point, the loan underwriters will really dig into your debt and income. As a result, they’ll be able to determine if they will lend you the money for this purchase.

An approval is given after the property has appraised at value. This simply means that the appraisal came in at the purchase price or higher. There are other items like debt-to-income ratios. If everything checks out, the lender will approve your request for financing the loan.

My purchase agreement has a finance contingency in it. This allows you to cancel the purchase without penalty if the lender disapproves the financing request.

Sellers like to see offers accompanied with a pre-approval vs a pre-qualification. This is because they know a buyer that is pre-approved is more likely to get an actual approval once they go under contract. You want to set yourself apart from the crowd by making sure your offer comes with a pre-approval letter.

For more information and tips about purchasing your next home, please contact me directly or visit my YouTube Channel.

Rick Dulai Presents: Case Study #2 – Widow Downsizing

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In this case study we’ll be talking about widow downsizing. The seller was a recently widowed member of the community and our place of worship. She was referred to me by a mutual friend. As sweet and mild mannered as she was, she was equally sharp and capable of doing what it takes to get what she wants!

I took the time to sit down with her and her son to explain my pricing strategy and recommendations. This included a discussion around some minor repairs and a little staging. The recently widowed seller was all over it. She got the landscaping done, her deck refinished and the whole house was cleaned top to bottom. She even touched up paint in several areas. Extra furniture was eliminated as a final effort and the house was ready to show in its best presentation.

Although she was concerned we priced the home too high, I was confident that my pricing was spot on. Sure enough we sold the home in 3 weeks and for 97% of the asking price! She was thrilled and was happy to downsize and move close to her grandchildren.

If you’d like to learn more about specific details when it comes to widow downsizing, please reach out to me directly. For additional information about buying or selling a home, you can visit my YouTube Channel here.

Case Study #1 – Selling a Home Due to Job Transfer

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In this case study I originally helped this young couple purchase their home in 2008. The real estate market was down and home values were down, but the economic crash and the foreclosure crisis were yet to get worse. Read below to learn how I later helped them sell that same home due to a job transfer.

He was a doctor and had just finished his fellowship. They moved back to Michigan where he had done his medical school and residency. We found them a home near the hospital that met their criteria. Over the years they did some amazing upgrades to the flooring, stairs, opened up some walls, updated the master bathroom, etc. The work was very well done and a great investment!

In 2017 they decided to sell due to a job transfer. The husband had accepted a job at another hospital. When I ran comps to price the home, we were surprised to see the values had come up so much in the past 9 years and those upgrades had really paid off. We were able to sell the home for almost 43% more than their purchase price.

In general this process went very smoothly. We had professional photos done to highlight the space and updates. Although we priced aggressively in the beginning based on nearby sales, we made some quick adjustments to increase showings and potential offers. That move made all the difference.

For more case studies and general information about buying or selling your next home visit my YouTube Channel. If you would like more specific information, please reach out to me directly here.

Seller’s Net Sheet Explained

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A seller’s net sheet breaks down all of the debits and credits based on the accepted purchase price for the property. Let’s take a look at the credits first (the easy part).

Credits

The first thing on the seller’s net sheet is the selling price or the agreed purchase price. In this example I will use $400,000.00 as the selling price. This is the first line item for the credit column.

The second item on the seller’s net sheet is the prorated taxes. In Michigan we pay our taxes in advance. The summer tax covers from July 1st of this year to June 30th of next year. The winter tax covers from December 1st of this year to November 30th of next year. Buyers that are closing in August are paying the seller for 11 months of summer taxes and 4 months of winter taxes. Here’s another example if you are closing in May. The buyer will pay the seller for 1 month of summer taxes and 6 months of winter taxes.

The third item that could be on there is prorated association dues.

Any amounts that were paid by the seller for annual dues or monthly dues will be pro-rated back to the seller. As a result, this turns into a charge to the buyer.

The fourth item that might come up is prorated trash collection fees. The seller is entitled to the prorated amount in municipalities where trash collection is a monthly charge.

That is really it for the credit side! Pretty simple, huh?

Debits

This is where things can get a little complicated. You can not avoid this if you just take your time and follow the math.

Mortgage Pay-offs

Mortgage Pay-offs are first lien position amounts owed that are registered with the county. They are due on the sale of the property.

Assessments

Any assessments from the city, county or state will be paid out of the proceeds of the sale.

Title Insurance Policy

The seller must pay for an insurance policy from the title company. This is to insure the title is clean when delivered to the buyer.

Real Estate Transfer Tax

In Michigan, the seller is responsible to pay the real estate transfer tax unless otherwise agreed between both parties. This tax has two parts. 1) State transfer tax of $3.75 for every $500 of value transferred and 2) County tax of $0.55 for every $500 of value transferred.

Discharge of Mortgage

If you have a current mortgage on your home, when you sell it, there will be a discharge fee recorded with the county. The cost typically falls around $36.00.

Administrative Fees

The listing broker charges this fee to cover administrative costs associated with the sale of your home. This fee is separate from any commissions.

Home Warranty

If the seller has agreed to provide a home warranty to the buyer, then there will be a line item debit for that cost. This can range from $300 to $1,000 depending on the type of warranty and coverage.

Commission

The seller is paying the entire commission amount. The listing brokerage pays a specified amount to the selling brokerage out of the amount collected by the listing brokerage. So if the listing broke charged 7% to list the house and advertised a %3 commission to a potential buyer’s broker/agent, then the listing broker would collect the remaining 4% as their fee for marketing the home for sale. Commissions are completely negotiable!

Seller Concessions

These are previously agreed upon amounts the seller is willing to pay towards the buyer’s closing costs and pro-rations. In general, on conventional loans this amount cannot exceed 6% of the purchase price. In some cases it is an amount “up to”. If all of the costs are covered within the agreed upon amount, the remainder comes back to the seller, .

Miscellaneous

Pest Inspection fees, City Certification fees, Delinquent taxes, etc are all types of debits to the seller.

As a result, when we look at all of the credits and debits, we can estimate (based on the offer price) how much the seller will put NET in their pockets.

I always like to show my sellers several price scenarios.

A) This helps them understand if their list price makes sense or not.

B) This helps them negotiate with better information (knowing their bottom-line).

Visit my YouTube Channel for more Tips and Information when comes to selling your home!

Home Selling Process Timeline Explained

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A lot of the anxiety and stress in the home selling process can come from not knowing what to expect next. In this article, I will break down the timelines and explain the most significant takeaways for each item.

Home Selling Process Timeline Breakdown:

  1. List the Property for Sale: Listing the property for sale includes much more than just meeting with your agent and filling out paperwork. There is a lot of prep work that goes into putting your house on the market. Cleaning, repairs & maintenance, photography, yard sign installation, lockbox access, etc are all parts of this first step in the process. You can read more about that here.
  2. Order Pre-title: I always like to order what we call “Pre-title” when the property is first listed. Basically, what that means is that I am asking the title company to do a preliminary title search on your property. This means that they will do a quick check to see who has claim to the title of your house besides you. Also, this gives them a chance to start your file. Now, when a buyer comes along, we already have a jump on things.
  3. Showing the Property to Buyers: Often the most showings (and best offers) come right at the beginning. As a property sits on the market it can lose its luster. However, it all depends on the market. DOM stands for “Days on the Market.” The average DOM for Oakland County is 36 days. To learn more about what to expect when showing your home, click here.
  4. Review Offers: If your agent has prepared you well, you should already have a good idea of what you will net at various price points. Most offers come with an expiration date/time. In a hot buyer’s market, that might be a matter of hours. In a hot seller’s market, it could be a day or two (or even more). So by this point, you might be 4-5 weeks into the whole process. To learn more about what to look for when negotiating offers, click here.
  5. Home Inspection: A typical home inspection period is 5-10 days from acceptance of an offer. Always pay attention to the wording of the purchase agreement regarding the timelines. Some purchase agreements just give a definitive amount of time to do the inspection and notify the seller whether the buyer is satisfied with the results or not. Other purchase agreements are worded such that the buyer has XX number of days to report their satisfaction. This gives the home inspector time to produce the report and the buyer time to review before notifying the seller. So keep this in mind. If you are keeping track, we would be about 6 weeks into the whole process at this point. To learn more about what to expect during a home inspection, click here.
  6. Appraisal: The lender will order an appraisal, once the buyer is satisfied with the home inspection and decides to continue with their purchase. The appraiser will schedule to view the home just like a showing. It usually takes about 3-4 days to get results back to the lender. To learn more about what to expect during an appraisal, click here.
  7. Lender Clear-to-Close: After the appraisal is in, the lender’s underwriter (the person that qualifies all the details from employment, income, debt, etc to approve the loan) will finish reviewing all of the borrower’s (the buyer’s) credentials and issue a “clear-to-close”. What that means is that all of the closing costs, interest rates, payments of principal and interest, etc have all been set and they have what is referred to as a “CD” or “Closing Disclosure”. This means the buyer side is ready to close and the file is passed on to the title company. This is typically 2-4 weeks after the appraisal is received.
  8. Title Company Clear-to-Close: Remember earlier in step 2 above I mentioned pre-title? Well, once an accepted offer was in place the title company goes to work researching the chain of title. This is to make sure they can provide the appropriate title insurance for the transaction. The title company in Michigan becomes the central hub for the closing. Essentially the buyer, seller, listing broker (seller’s broker), selling broker (buyer’ broker) and the lender all coordinate with the title company. If the title company has completed its research and is ready to issue a policy and the lender has already sent their clear-to-close, then the title company will let everyone know that they are also clear-to-close. The title company only needs about a week or so after the lender is clear.
  9. Schedule Closing: The title company then coordinates the closing with the listing and selling brokers/agents. The agents will coordinate with their respective clients. Typically the closing takes place at the listing agent’s office or at the title company. The title company will send out closing packages for the sellers and the buyers. The numbers are based on the actual closing date for accurate pay-offs, interest payments and other pro-rations.
  10. Attend Closing: Most closings take place 4-6 weeks out from an accepted offer. At this point, we are at about 8-9 weeks into the process (based on the average DOM). A typical closing will have the title company rep, the sellers, the listing agent, the buyers, the buyer’s agent and sometimes the loan officer. So it can be a roomful! A typical closing can take anywhere from 45 minutes to 2 hours. Timing al depending on the amount of paperwork and how much time everyone needs to review all of the documents. I would say the average closing is just about an hour.

I hope this helps you understand the timeline to sell your house a little better than before. Don’t forget to visit my YouTube Channel for more tips and information.

What to Expect with the Appraisal Process

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In my experience buyers and sellers have a huge misconception about the appraisal when purchasing a home. The simplest and best way I can describe the purpose of the appraisal is to justify the lender’s investment. It is not to prove the seller has negotiated the best price or for the seller to prove how much equity they are receiving.

So what does the above actually mean? Well let’s start with buyer’s equity position. I have noticed the appraisal usually comes in at or around the purchase price. This is not a coincidence that the buyers and sellers have negotiated the exact appraised value! Instead the appraiser is justifying (if the evidence supports it) the bank’s loan to the buyer which is based on the purchase price. Essentially, the appraiser is telling the bank that if the buyer defaults on their loan, the bank should be able to take the house and sell it to recover their loan amount. This is especially critical when the buyer is putting less money down.

Sellers often like to know that they didn’t leave a lot of money on the table. So they want to know what the appraisal came in at. However, the appraisal is paid for by the buyer and is required by the lender. It is really on for their information. If they decide not to share the appraisal amount, that is their right. Typically the lender will just report that the property appraised and that they are moving forward with their loan approval process.

In some occasions when the buyer is in fact purchasing a home well below market value, the appraisal can come in much higher than the purchase price. That is typically expected by all parties in that case.

The bigger issue is when the appraisal comes in low. In that case, any of the following could apply:

  1. The buyer must come up with the difference out-of-pocket in order to satisfy the lender’s requirement. This will allow the lender to proceed with the loan and purchase.
  2. The seller might agree to reduce the purchase price to keep the deal together and move forward with this buyer.
  3. The seller and the buyer can split the difference (to varying degrees) of a price reduction by the seller and more cash down from the buyer.
  4. The buyer can kill the deal because they don’t want to do any of the above. It is their right by most contracts as finance contingency is based on a loan approval which requires the appraisal. In this case, the buyer gets their Earnest Money Deposit (EMD) back and can move on to another property.

I hope this helps you understand a little more about how appraisals are related to the transaction. If you have any questions, please feel free to reach out to me anytime.