FAQs - Michael McDonald, Realtor

Below you will find some questions I am often asked, with some answers. If you have comments or questions, or if you think I should add another question, please email me by clicking here.

1. When is the best time to sell my home?
2. I'm thinking about selling my home, should I try to sell it myself or use a Realtor such as yourself?
3. I'm thinking about buying a home, but I'm early in the process, and don't even know whether I will actually buy. When should I contact you to help?
4. What is the property tax rate in Santa Cruz?
5. I currently own a home with a low property tax rate (basis). Can I transfer that property tax basis to my new home?
6. How do I understand what my closing costs will be when buying/selling?
7. Will I have to pay capital gains taxes when I sell my house?
8. I'm planning to buy a home, how do I determine how much money to budget each month to cover my housing costs?
9. How's the market?
10. I'm thinking about asking you to to help write up an offer on a property. How much should we offer? What else should we be considering?
11. What is seller financing, and how does it work?

1. When is the best time to sell my home?
Your personal circumstances may dictate a time window for selling, and that is probably more important than anything else I'll say here. It's true, properties sell all year long - even during the Christmas holidays! However it's also true that more properties tend to sell in the warmer, drier months than in the cooler wetter ones. Does this mean summer is the best time to sell? Not necessarily. A lot of people put the houses on the market in the warmer months, so the inventory is high when the demand is high. So, the answer is not obvious, and may have a lot to do with the real estate dynamics in the immediate area. What is true for one area may not be true for another. So, let me share my observations and experiences with you regarding properties in Santa Cruz: All other things being equal, I think the best time to put a house on the market is late winter or early spring. At that time, inventory is typically lower (than in summer) and demand is on the upswing. I think this dynamic can be more favorable for sellers.

2. I'm thinking about selling my home, should I try to sell it myself or use a Realtor such as yourself?
Use a Realtor. You may accuse me of giving an answer that is self serving, and I won't deny that it's true. However, if you are interested in actually getting your house sold, and getting the best possible price for it, that's what I think you should do. Think of it this way: you will get the highest possible price if your house is exposed to the maximum number of potential buyers. Any limit on the exposure means that you might be missing someone who's ready to buy it at a price that would make you very happy! Don't short change yourself. Call me and I'd be happy to talk with you more about this, and carefully explain how I will make sure all those potential buyers know about your home.

3. I'm thinking about buying a home, but I'm early in the process, and don't even know whether I will actually buy. When should I contact you to help?
In my experience, buyers go through several stages in the buying process. The first stage tends to be a "What if?" stage, where imagination is running wild. Some people stay in this stage for minutes, some for years. A subtle shift brings a buyer to the next stage: "Can I?" Some people immediately think "No." and back away (or go back to the "what if" stage). Others either know they can or aren't sure. For those in the latter two categories, I think this is the time to call a Realtor (me!). Why? Because this is the time when you need to start gathering information, and educating yourself about the market, what things should be considered etc. No one can help you do this better than a Realtor. It's true that you can educate yourself, but with the expertise and tools a Realtor brings, you will learn faster and feel more certain that you have all the bases covered. For those of you who can buy, or think you might be able to, give me a call and let me help you get the best results possible.

4. What is the property tax rate in Santa Cruz?
Check out the tax assessor's portion of the county web site: http://www.co.santa-cruz.ca.us/tax/assrpam.htm. There is a great explanation of how it works on that page (look down a bit under the question "How do I calculate my taxes?")

5. I currently own a home with a low property tax rate (basis). Can I transfer that property tax basis to my new home?
If you are 55 or older and live in California, the answer is maybe. If you are moving to Santa Cruz County, you can start by checking out this web site: http://www.co.santa-cruz.ca.us/tax/60pam.htm. If you are moving to another county, then you should look at that county's web site, and/or contact the local tax assessor's office. Some counties are "reciprocal" and allow people to transfer their current tax basis when moving there. Another great web page for answers to this question is this one: http://www.boe.ca.gov/proptaxes/faqs/reappraisal.htm

6. How do I understand what my closing costs will be when buying/selling?

Common Closing Costs for Buyers
The lender must disclose a good faith estimate of all settlement costs. A check to cover your closing costs will probably have to be a cashier’s check. The title company or other entity conducting the closing will tell you the required amount for:

Down payment
Loan origination fees
Points, or loan discount fees, you pay to receive a lower interest rate
Appraisal fee
Credit report
Private mortgage insurance premium
Insurance escrow for homeowners insurance, if being paid as part of the mortgage
Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as they are paid with the mortgage, then pay the insurance or taxes for you.
Deed recording fees
Title insurance policy premiums
Survey
Inspection fees—building inspection, termites, etc.
Notary fees
Prorations for your share of costs, such as utility bills and property taxes

A Note About Prorations: Because such costs are usually paid on either a monthly or yearly basis, you might have to pay a bill for services used by the sellers before they moved. Proration is a way for the sellers to pay you back or for you to pay them for bills they may have paid in advance. For example, the gas company usually sends a bill each month for the gas used during the previous month. But assume you buy the home on the 6th of the month. You would owe the gas company for only the days from the 6th to the end for the month. The seller would owe for the first five days. The bill would be prorated for the number of days in the month, and then each person would be responsible for the days of his or her ownership.

Common Closing Costs for Sellers

Real Estate Commission
Document preparation fee for Deed
Document transfer tax ($1.10 per thousand of the sales price)
City Transfer Tax (according to contract)
Notary Fees
Payoff of all loans in seller's name (or existing loan balance if being assumed by buyer)
Interest accrued to lender being paid off, statement, fees, reconveyance fees and any prepayment penalties
Termite inspections and/or work (according to contract)
Home Warranty (according to contract)
Any judgments, tax liens, etc. against the seller
Tax proration (for any taxes unpaid at time of transfer of title)
Recording charges to clear all documents of record against seller
Any unpaid Homeowners Dues
Any bonds or assessments (according to contract)
Any and all delinquent taxes

7. Will I have to pay capital gains taxes when I sell my house?
To know for sure, you should contact a CPA or other qualified tax specialist. The generic answer is that if your gain exceeds the amount the IRS allows you to exclude from capital gains taxes, you will owe capital gains taxes. Right now the exclusion is $250,000 for individuals and $500,000 for married couples. For some detailed information, refer to this IRS document: http://www.irs.gov/pub/irs-pdf/p523.pdf

8. I'm planning to buy a home, how do I determine how much money to budget each month to cover my housing costs?
At a minimum a new homeowner should take a look at the "PITI" costs, which stands for Principal, Interest, Taxes and Insurance. The principal and interest costs have to do with the mortgage on the house. Your mortgage broker or lender should give you this information when you "lock in" on a loan program and loan rate. For taxes, see question number 4. Insurance costs can vary depending on the type of coverage you get, deductibles, and other things such as the replacement cost of your home should it burn down in a fire. To understand your costs here, you should have a discussion with one or more insurance companies. Beyond the "PITI" costs, there may be homeowners dues if there is an association, there will be utility costs (for example, electricity, gas, waste management, water), and it may be a good idea to budget for ongoing maintenance costs, such as repairing or replacing failing appliances, etc. While these costs may be sporadic, it's probably a good idea to be prepared when the time comes.

9. How's the market?
By far, I'm asked this question more than any other. If I were to answer this question today, by tomorrow my answer would be out of date, so I won't even try on this web page. If you really want to know, call me (831.331.3183), email me (Michael@MMcDRealtor.com) or find me at an open house (most weekends I can be found holding one house open or another). I'd love to chat with you about the market. I watch it every day, so I'm bound to have some observations to share with you!

10. I'm thinking about asking you to to help write up an offer on a property. How much should I offer? What else should I be considering?
When it comes to an offering price, this often requires some discussion. Let me tell you some of the points I think are important to consider:

We need to study the "comps" - meaning the comparable properties that have sold recently, to determine what a reasonable price for the house seems to be. I can provide you with all the data necessary for you to determine what you think is a reasonable price. I'll also provide you with my opinion of what seems reasonable.
Regarding list prices: the list price of the house you want is the current owner's hoped-for price. Some owners have flexibility when it comes to that, others do not.
How long has the house been on the market? Has there been a recent price reduction? Often there is more flexibility when a house has been on the market for awhile, and there may not be if it's brand new. If there was a price reduction, but it wasn't within the past week or two, then again there might be some more flexibility.
Are there any other offers? If we are the only game in town then we have more bargaining power.
I recommend that you offer a price that causes no regrets. If you offer $X, and you get the house for that price, will you have any regrets? ("Oh gee, I should have offered less!") On the other hand, if you offer $X, and you don't get the house, will you have any regrets? ("Oh gee, I should have offered more - I really wanted that house!")
Do you have any other special requests to make as part of the offer? Will you be asking the seller for something such as an extended escrow or a special contingency (special condition of the sale)? If you are, then you may have to compensate for that with a better price. After all, this is a negotiation and while you can ASK for everything you want, it's reasonable to expect that you may have to compromise on some issues.

11. What is seller financing, and how does it work?
Seller financing can be a creative way to buy/sell a property, especially when a buyer can't find an attractive loan using institutional lenders. Seller financing works well when a seller has a fair amount of equity in the house they are selling. Instead of taking all cash for the sale, they typically take some cash and the rest is considered to be a loan to the buyer. The exact terms of the seller financed loan are negotiable and established as a part of the sale. The property officially changes ownership at the close of escrow, however the seller typically retains a "lien" (Lien: A form of encumbrance which usually makes specific property security for the payment of a debt or discharge of an obligation such as judgments, taxes, mortgages, deeds of trust, etc.) against the property for the amount owed. The title company also typically draws up a "note" (Note: A unilateral written agreement acknowledging a debt concerning real property that contains an express and absolute promise with the signer promising to pay according to the specified terms and conditions to a named person, or order, or bearer, a definite sum of money at a specified date or on demand and that usually provides for interest and which is secured by a mortgage or trust deed. ) and both the lien and note are officially recorded against the property. There are lots of "What happens if..." questions that can follow from this situation, and if you'd like to discuss them with me, just call or email! I'm here to help.