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Redfin’s Home Buying Class

April 16, 2013 Lawrenceville, GAPresented by: Will FassingerRedfin’s Atlanta Team

Follow: @RedfinAtlantaLike: http://www.facebook.com/RedfinAtlanta

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Agenda● To buy or not to buy● Overview of purchase

process● Understanding the Market● Condos/Townhomes● Touring● Mortgages● Choosing an agent● Redfin as a tool ● Short sales & foreclosures● What to know about closing

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A Little Bit About Who We AreRedfin is a real estate brokerage that has helped over 20,000 people buy or sell a home; 97% would refer us to a friend.

● Customers, not commissions● Informed decisions● The right home for the right price

No obligation Get back a portion of our commission

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To Buy or Not to Buy

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Why You Should Buy a Home● You have a family and need room to grow● You expect to stay put for 5 or more years● You’re handy & and ready to invest● You’ve saved up a down payment

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Why You Shouldn’t Buy a Home● You don’t have a good reason

● You can’t afford the down payment● You can rent for much less● You plan on moving soon● You’re worried about job security

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Understanding the Buying Process

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Overview of Purchase Process (more details to follow)● Information – learn as much as possible about the

market, the neighborhood, price trends● Tour some houses to get a general idea● Interview Lenders- get pre-approved● Choose an Agent● Tour more seriously and find YOUR home● Mutual Acceptance on your offer● Home Inspection “Contingency”● Financing and Appraisal “Contingencies”● Closing

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Understanding the Market

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Case-Shiller: Atlanta Area v. 20-City

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50.00

100.00

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250.0020 City CompositeAtlanta

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Case-Shiller – By the Numbers Case-Shiller: Atlanta Area

Up 13.4% year-over-yearPeak was July 2007Down 29.0% from peakCurrently at June 1999 prices

20-City CompositeUp 8.1% year-over-yearPeak was July 2006Down 29.2% from peakCurrently at September 2003 prices

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National Market TrendsMultiple Offers - More than a Quarter of Listings Still

Selling Fast● 2012 inventory fell 30%● Through the first 6 weeks of 2013 – inventory dropped

another 18%● Multiple offers are not only against 3 or 5 buyers, but more like

10, 20 and sometimes even 30 or more

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National Market Trends● January YoY Prices up 10%● January YoY sales increased 9.1%● 70% of homes in January had competing offers● 30% of new listings were under contract in < 2 weeks● # new construction projects in Q4 2012 up 44% YoY● Why could slow the market?

► Mortgage rates have increased to 3.75% (highest since last Sept.)

► Eventually money will get more expensive and buyers will become more scarce

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Where is the Local Market Headed?● Supply of homes is at a five-year low and won’t

increase the rest of the year● Rents have been rising, making buying more

attractive● Market stabilizing, though likely 2-3 years before

significant appreciation● Rate increases - biggest issue for buyers● Rise in New Construction activity

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Lawrenceville March Home Prices

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Lawrenceville March Home Inventory

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Absorption Rate

Number of Active listings or comps in a specific market

Number of homes that sold in that last 12 months

“The rate at which available homes are sold in a specific real estate market during a given time period”

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Short Sales and Bank Owned

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What is a Short Sale?The owner owes more on the mortgage than the home is worth● Usually pre-foreclosure, but not always● Listed for less than what’s owed to the bank● Requires 1 - 2 banks’ approval (usually 2)● May have other liens (taxes, utilities, HOA)

How are short sales different?● Flexible closing date● Contract Price has to be approved by the seller’s

lender(s)● Property is sold “as-is”● Get a 15% commission refund

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What is a Foreclosure? ● A foreclosed home owned by a bank, lender or GSE● Standard sale but:

► Verbal negotiations► Long response times► Repairs unlikely► Legal addenda may require an attorney► Limited or no disclosures► Potential for multiple offers► Bank can back out any time until they’ve signed► Fannie Mae and Freddie Mac(GSE’s) – First Look

Period► HUD Homes also have a First Look Period

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Condominiums and Townhomes

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Condos● HOA

► Monthly Fees Ext Building Maintenance Ext Liability Insurance Ext lighting, security Landscaping Pest Control

Water Utilities Cable, Internet

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Condominiums● HOA

► Meeting Minutes► Special Assessments► Rental Cap (10-25%)► Wait list for Rentals► Litigations?

► Typically, the older the building, the higher the HOA fee

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Condominiums● Financing

► Conventional ► FHA► FNMA► Factor in HOA fee for approval amount

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Condominium● What to look for….

► Noise levels► Staff friendly and helpful► Pet friendly► Pet restrictions► Common Area cleanliness, maintenance► Parking, location and number of spaces, visitor► Storage► Security, Concierge 24/7?► Amenities, pool, fitness, tennis, clubhouse, etc

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Townhomes● Fee Simple

► Lower HOA fees than condos► Owner responsible for interior and exterior of

building► Maintain full home insurance► If problem occurs, then work with insurance vs

HOA

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Mortgages

Grant EshbackOpen Home Mortgage

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Review Your Financial SituationTo Buy or Not to Buy● Pull credit report, look for errors● Establish comfort level for monthly payment● Figure out how much monthly income goes towards

debt: 28 – 33% healthy

● Pay down credit balances to 1/3rd● Don’t open any new lines of credit● Don’t buy any big ticket items● Source of money● Current employment status

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Start Shopping for LendersCompile a list of 2-3 lenders & brokers

Good sources include:● Redfin's partner lenders ● Referrals from friends, family & co-workers● Online review sites, such as Yelp● Local chains and offices

*Know your lender

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Getting Pre-ApprovedA pre-approval letter is a letter from a bank or a lender estimating how much they'll lend you● Establishes what you can afford & makes offer process go

faster● What’s the difference between Pre-Approval and Pre-

Qualification● Good for 90 days, depending on lender● Ask for a few different amounts● Similar, yet different from pre-qualification● Redfin asks that you get pre-approved before your third

tour● Are gift funds involved?● How much do you have for a down payment?

Information needed:

●W-2, two pay-stubs, tax returns, bank statements

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Comparing Loan Estimates● Gather loan estimates

► A minimum of three, more is better► These aren’t final numbers, but within a few

thousand dollars► Compare similar loans

Program (FHA, conventional) Timeframe (same day)

● Compare costs side-by-side► Discount & origination points► Interest rates► Insurance premiums (FHA, PMI)► APR (interest rates + fees + points + PMI)

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Types of Loans● Conventional:

► As low as 5% down► Fixed or adjustable rates, conforming or non-conforming

● Federal Housing Administration Loan (FHA):► Always have mortgage insurance► Buyers need only a 3.5% down payment

● VA Guaranteed Loan:► Veterans, active duty personnel, reservists/national guard,

surviving spouses► No down payment

● Ask your lender if they have special loan programs► Example: BB&T Chips Program

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Where Are Rates Headed?

Type of Loan April 11, 2013 April 4, 2013

30-Year Fixed 3.43% 3.54%

15-Year Fixed 2.65% 2.74%

5/1 ARM 2.62% 2.65%

1-Year ARM 2.62% 2.63%

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Make Your Decision ● When possible, get a loan commitment● Make alternative funds liquid (401k, stock)● Lock your rate once you have a contract on a

property and a set closing date

Good news! Loan payments are made in arrears, so your first loan payment won’t be for two months.

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Putting it all together to find YOUR home

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Redfin.com-Benefits of a MLS Powered Site

● All the homes for sale: 30% more listings● You see what the agent sees: 4x the data● Real-time market data: photos, details of just-sold

homes

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Highlights of Redfin’s Site● Search by zip code

or neighborhood● Saved searches/instant alerts● Agent notes● Download results● Price your home● Forums● Home buying guide● Home inspection guide

● Any questions about the site?

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Open Book● Redfin Certified Providers● Every professional is reviewed and all reviews are

shown● Search for local:

► Inspectors► Lenders► Attorneys

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Choosing the Right Agent

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What to Ask Any Agent●Is this your full-time job?●Familiar with foreclosures or short-sales?●Where were your last five deals?●Who else will be working with me?●Will you show me all properties for sale?●When am I committed to working with you?●Has a client ever filed a complaint? ●How are you paid?●Can I see some reviews of your work?

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This occurs when inventory is down and buyer interest is up

5 Tips for Winning in a Bidding War1. Make the competition eat your dust2. Get pre-approved with a local lender & get

underwriter approval3. Start the conversation early4. Write a letter & appeal to the seller5. Know your limits

Experience With Multiple Offers

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Redfin’s Partner ProgramPartner agents are employed by other

brokerages, but have teamed up with us to provide Redfin-Certified service to a wider range of customers.

We’ll refer you to a partner agent when:► A home is outside of our direct service area► A home is below our price minimum► We’re experiencing an unusually high customer

demand

We survey all partner agent clients► All surveys are published on their Redfin page► 97% of customers would recommend Redfin

partners

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Traditional vs. Redfin

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Touring

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Making the Most of Your Tour1. Bring a camera, notebook & tape

measure2. See how much sunlight the place gets3. Check the bathrooms for rot & mold4. Look for wavy or discolored wood

siding5. Make sure water spouts drain away

from house6. Take stock of storage space7. Turn off any music playing in house8. Check for hardwood floors

9. Peek into the attic10. Bring a marble or two11. When sharing a wall, make sure it’s

thick12. Ignore the appliances and carpets13. Check the closets14. Get the disclosure packet15. Compare the property’s tax records to

the listing details

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How Touring with Redfin Works● Up to six homes per

tour in two hour blocks● Go on as many tours

as you need● Led by agent or field

agent● Need to be verified●No obligation

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Home Inspection and Other Contingencies

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Home Inspection● We recommend that you have a home inspection● Home Inspections are performed early in the due

diligence period● $350 to $800+ depending upon the size of the

house● Your agent will accompany you● Your time to evaluate the property● Types of Due Diligence

► Specialized Inspections – Structural, Stucco, Septic, Sewer Scopes, Well, Specialized Roof, Tree, Pool, Radon Test, Air Quality/Mold Test, Termite & Pest

► Survey► Other – Schools, Crime, Traffic, Sex Offender, etc.

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Other Contingencies● Appraisal Contingency

► Performed in conjunction with financing► Appraisal report must be completed prior to the

expiration of the Appraisal Contingency Period● Financing Contingency

► Buyer must make full application for the mortgage with their selected lender within 3 days of binding agreement

► Lender must provide a loan commitment letter or denial letter prior to the expiration of the Financing Contingency Period

● Title – Owner must provide clear title to the property● Other – Contingencies on sale or lease of other

property, etc.

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Closing – what you need to know

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Closing: HUD–1 SettlementHUD-1 Settlement Statement – Lists all

fees/charges/creditsBy law, the final costs listed on your HUD-1 must be

within 10% of the estimates provided on your Good Faith Estimate (GFE).

● Lender charges ► Includes origination fee, appraisal fee, credit

report, insurance and tax escrows● Title charges

► Includes settlement fee, and owner’s and lender’s title insurance

● Government charges► Includes recording fees, recordation taxes and

property taxes

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Attorney Closings● What does the Attorney do?

► Prepares the final documents, including the HUD-1

► Represent the buyer’s lender► Conducts the closing► Examines and clears the title to the property► Records the deed, mortgage and any other

recordable instruments► Issues title insurance to the lender and the buyer

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Closing: Title Insurance● Lender and Owner Title Policies● Title insurance guarantees that the property is clear and

marketable● 2 types of Owner title insurance policies

► Limited (Standard) Protection against pre-closing defects in title

► Enhanced (Eagle) Costs 20% more than Standard policy Covers post closing fraud, forgery, identity theft Increases with value of the property up to 150% of

original price Includes coverage for: mechanic’s liens, invalid

permits, forced removal of structure, unrecorded easements, unrecorded leases,

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Closing Day● You’ll have a final walk-through on

closing day or just before● What to bring:

► Government issued photo ID► Certified check or wired funds

● Closing typically takes 1 hour● Get keys and take possession!

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So What Now? ● Make sure it’s the right time for you● Start browsing online● Check out our Home Buying Guide and Events page● Find the right agent● Look for a lender and get pre-approved● Start seeing homes● Make an offer & close the deal

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Thanks for Coming!Please fill out the survey that was handed out at the

beginning ofclass. We appreciate the feedback!

Check out our upcoming classes and events at http://www.redfin.com/buy-a-home/classes-and-events

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Appendix

HUD Settlement Statement

Favorite Real Estate Links● Property information

► PropertyShark: Zoning data, title history, permits, neighborhood data; navigation is clunky

● Neighborhood information► WalkScore: Proximity to points of interest► Trulia Heat Maps: Median prices across a county

Favorite Homes For Sale Links● Redfin: MLS + FSBO + REO, updated every 15

minutes, with DOM, price history, Zestimate● craigslist: Major FSBO source that Redfin doesn’t

have● HotPads: Foreclosure heat maps● RealtyTrac: Foreclosure market detail,

subscription required for full reports● Brokerage site of listing agents: more photos of

the listing

Favorite Data Links● Case-Schiller Indices: Pricing trends by

metropolitan area● Altos Research: Median price trends and days on

market by city, but some complain data is unreliable

● MSN Home Affordability Calculator: Based on your income & credit score

● SmartMoney's Home Buying Worksheet: Similar to the MSN calculator, but requires more info

Favorite Mortgage Links● Bankrate: Many ads, but is great for comparing

local lenders● Zillow's Mortgage Marketplace Help Center:

Articles mortgage rates, types of mortgages, credit reports, and a series of mortgage calculators

● The Mortgage Professor: Bare bones information on mortgages, definitions of common terms, myriad of mortgage calculators

● HUD FHA page: Most reliable explanation of FHA loans, good site for first-time buyers

Favorite Links● Loans for first-time home buyers

► Federal Housing Administration (FHA)► Fannie Mae and Freddy Mac

● Government sites► Federal Trade Commission: Articles & alerts for

home-buyers.► Dept. of Justice: Role of competition in real estate

Favorite Links Cont. ● Remodeling & renovations

► DoItYourself.com: A few ads, but a useful clearinghouse of information on remodeling

► National Association of Home Builders (NAHB): Articles on remodeling your home, most are good