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Redfin’s Home Buying Class

December 8, 2012 Sacramento, CA

Follow: @RedfinSacramentoLike: http://www.facebook.com/RedfinSac

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Agenda● To buy or not to buy● Overview of purchase process● Understanding the Market● Touring● Mortgages● Break!● 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 obligationGet 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: San Francisco Area v. 20-City

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250.0020 City CompositeSan Francisco

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Case-Shiller – By the Numbers Case-Shiller: San Francisco Area

Up 5.3% year-over-yearPeak was May 2006Down 34.8% from peakCurrently at September 2002 prices

Case-Shiller: 20-City CompositeUp 2.0% year-over-yearPeak was July 2006Down 29.4% from peakCurrently at September 2003 prices

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Sacramento October Stats for Homes

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Sacramento October Stats for Homes

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National Market Trends● Multiple Offers

►74% of offers in OC faced competition in March, 51% in DC►Offers increased 50% nationwide but closings only

increased by 17%►Competition is up for getting offers accepted

● Tale of 2 markets►Prices are mostly soft for condos and townhomes►Entry level and mid range houses are selling like hotcakes

● Nationally, prices are down 3.8%● Number of homes for sale is down 27% from March last year

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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

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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)

We Can Help With a Short Sale!● See short sales with a Redfin agent● If you want to buy, work with a Redfin agent or a short sale partner

agent ● Redfin partner agents work for other brokerages but share Redfin’s

commitment to customer service● Get a 15% commission refund

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What is a Bank-Owned Property? ● A foreclosed home owned by a bank or lender● Standard sale but:

►Verbal negotiations►Long response times►Repairs unlikely►Legal addenda may require an attorney►Limited or no disclosures►Banks demand use of their own contracts►Bank can back out any time until they’ve signed►Contract often requires early release of earnest money

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Mortgages

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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 3-4 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 November 21, 2012 November 29, 2012

30-Year Fixed 3.31% 3.32%

15-Year Fixed 2.63% 2.64%

5/1 ARM 2.74% 2.72%

1-Year ARM 2.56% 2.56%

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Make Your Decision ● When possible, get a loan commitment● Make alternative funds liquid (401k, stock)

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

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Break!

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Putting it all together to findYOUR 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►Title Companies

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Choosing the Right Agent

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Traditional vs. Redfin

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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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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● Cost runs $350 to $1200 depending upon the size of the

house● Your agent will accompany you● Your time to evaluate the property● What an inspection contingency covers and doesn’t cover● Types of inspections

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Other Contingencies● Appraisal – Performed in conjunction with financing● Financing● Termite● Other

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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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Title Companies● What does the title company do?

►Prepares the final documents, including the HUD-1►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● Title insurance guarantees that the property is clear and

marketable● 2 types of title insurance policies

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

►Enhanced (Eagle)Costs 20% more than Standard policyCovers post closing fraud, forgery, identity theftIncreases with value of the property up to 150% of original priceIncludes 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

● 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

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Appendix ● Important forms/contracts● Favorite Real Estate Resources

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Some Of Our Favorite Sites● Seattle Bubble: market analysis● Curbed Seattle: cool houses● Urbnlivn: for condo shoppers● WalkScore: see what’s nearby

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