How to Buy –  Laguna Beach Real Estate / Coastal Homes

Getting Started

How do I decide whether to add on to an existing home or purchase a new one?

For Buyers of Laguna Beach Real Estate (and homes for sale within the “Beach Cities” of Orange County), there are a few important items to consider: Cost, individual needs, and future value of the property. Other things to consider would be:

1. Can you finance the home improvement with your own cash or will you need a loan?
2. How much equity is in the property?
3. Is it possible to develop the current space for an addition and what does this involve? (for Laguna Beach Real Estate – does this require going through Design Review or just the Building Department?)
4. What is permissible under local zoning and building laws in your town or city?
5. Are there properties for sale that would better satisfy your changing housing needs?

What is the first step to buying a home?

Make sure you are ready both financially and emotionally. Consider the following:

1. Is my debt lower than my total income?
2. Do I have steady income?
3. Do I have enough money to pay for the down payment and closing costs?

How much can I afford?

The general rule of thumb is that you can buy a home that costs about two-and-one-half times your annual salary. You will need to take a closer look at your total monthly household income as well as the debts and regular monthly payments you are already making.  Your mortgage broker or lender can also help you determine how much you can afford and estimate the maximum monthly payment based on the loan amount, taxes, insurance and other expenses. To find out now how your income, debts, and expenses can affect what you can afford, click on the Mortgage Calculator (click here) to figure out how much you may be able to borrow in order to purchase a home.

What are the advantages of owning a home?

Bottom line is – You own it!  The other perks arise from potential tax savings and the build up of equity, as your property likely appreciates in price over time. Also, the mortgage interest paid on a home loan is tax deductible, as is the local property tax. If you get a fixed-rate home mortgage loan, you also can invest more wisely knowing your monthly mortgage payment, unlike rent, will not change substantially.

Should I buy a less expensive starter home and just keep saving for my dream home?

The market has been inundated with great low mortgage rates, which ultimately make home buying more affordable. If you purchase a starter home today, you might start to build value that can lead to the purchase of a larger, dream home in the future.

Working with a Laguna Beach Real Estate “AGENT / REALTOR”

What should I expect from a good real estate agent?

Good Real Estate agents adhere to a strict code of ethics – avoid high-pressure sales tactics, refrain from showing you properties that do not fit your needs or goals, and alert you to problems about the condition of potential properties. Realtors have good knowledge of financing options, are up to date on the latest housing trends, and will share data on the local housing market and home sales with prospective buyers. Agents pre-inspect most properties, take the time to qualify buyers and show properties in their price range and plan showing routes. California Real Estate Agents and Brokers need to take numerous courses in Real Estate including: Practice, Ethics, Appraisal, Property Management, Economics, Legal Aspects, Financing, etc. and must past a rigorous test to earn their license. Realtors are educated to best service their clients, whether selling a home or assisting buyers in identifying and purchasing a new home. They have a fiduciary responsibility to act with the utmost good faith in the best interests of their client.  To connect directly with a knowledgeable Laguna Beach Real Estate Agent click link here.

What should I NOT tell the listing agent, and WHY?

It is not advisable to disclose the maximum amount that you are willing to pay for a home – especially to the listing agent – who has a fiduciary responsibility, primarily to the owner, and seeks to get “the highest and best price” for his sellers property. Although the agent can provide important information to guide you in a home purchase, the truth of the matter is that the seller ultimately pays the agents involved in completing the home sale in the form of a commission – a percentage of the proceeds from the home sale. Your best bet is for you to hire your own real estate professional by signing an employment contract commonly known as a buyer’s agent or a buyer’s broker agreement. By signing an Exclusive Buyer Agent Agreement, your agent will negotiate the best price and terms and protect your interests in the real estate transaction.

It is always best to work with one agent and not engage multiple agents during your search.  A great deal of work goes into providing lists of properties meeting your specific search criteria, diligently showing you homes and then researching the homes that look promising.

Your agent will run CMA’s (Comparative Market Analysis) of the properties to make sure they are priced fairly, order Title Reports to investigate the history of loans, past sales, etc. and do their “due diligence” in overseeing the process for you. They don’t get paid for all this work until you successfully close escrow – so a lot of time goes into doing the initial work for you before they are compensated for their efforts.

Calling numerous agents causes confusion, resulting in duplicated information, and could end up causing a legal issue down the line if there is a question over which agent is the “procuring cause”.

If I can find a home by myself on the Internet, do I need a real estate agent?

Beyond forwarding listings, showing properties and negotiating on your behalf, your Laguna Beach Real Estate professional will analyze data, handle and oversee all the paperwork that is involved in a real estate transaction. Further, he/she will answer questions and share their professional expertise. There are many disclosures that your Agent will use to protect you according to California Real Estate laws, your agent can best advise what is necessary. Purchasing Real Estate can be complicated and stressful. An agent can guide you through the myriad details and keep you apprised of all aspects of the transaction, so you feel protected. Real estate agents typically arrange inspections for you, review inspection and title reports, and can appropriately recommend if further inspections are advisable. Your Realtor will guide you through contingencies and necessary repairs until the successful close of escrow.

Negotiating and Purchase Price

Negotiation tips to know when entering a real estate transaction:

The asking or the listing price of the house for sale is not necessarily the price that the seller will ultimately accept. The list price is simply the approximate price of which the seller would like to sell the property. It is good rule of thumb to check recent sales and the current listing prices of neighboring homes and compare them to the sellers asking price. Understanding the sellers motivation to sell will enhance your negotiation position.  Your Laguna Beach real estate agent will research all these items on your behalf. Sometimes sellers have to move quickly due to a variety of reasons (contract on another home, divorce, job transfer, etc.) and might be willing to accept a lower price to speed up the process.  An important tip during any real estate transaction is NOT to allow emotions get in the way of any negotiation.  And, be flexible – never say this is your final price.  That will only leave you in a dead lock.

Are low offers to asking price a good idea for negotiation?

While it is all relative to the market in which you are buying property, a “low-ball offer” is not usually advisable (unless the home has been overpriced). You risk offending the seller, dampening the prospective negotiations or preventing the seller from negotiating with you at all.  In most cases, you can expect to have your low offer rejected entirely.  Best to present a fair offer based on “comps” and the “price per square foot” of relative properties on the market.  The aim of presenting a reasonable offer is to motivate the seller to give you a counter-offer or even accept the offer as is.  Although, a lower priced offer will typically only work in a “Buyers Market” – in a “Sellers Market” you could lose out altogether when multiple offers may be reviewed and your offer ends up at the bottom of the stack.

Market Value and Appraisal

What are the standards in the industry to determine the value of the property?

There are two reliable ways to determine the homes value, (1) An appraisal, which is conducted by certified appraiser and (2) the comparative market analysis (CMA) which is a report compiled by your Laguna Beach real estate broker.

The appraiser inspects and verifies that size and square footage, improvements, number of rooms, construction qualify of the property, the neighborhood condition and the comparable sales in the neighborhood, thus determining the estimated value of the home. Typically, the lender does require the appraisal since the report ensures and protects the lender regarding the home value. The appraisal fee is paid by the buyer and usually runs between $350.00 to $450.00.

The comparative market analysis is an informal market estimate of value based on the recent selling prices of similar properties in the immediate area that have been sold within the last 3 to 6 months.

In additional to the recent “Sold” homes or “Comps”, your Realtor will run reports of the properties that are in the neighborhood currently on the market  as “Active” and “Pending” sales.

The “CMA” should provide a snapshot report of the current market and the “price per square foot” of comparable properties to arrive at the subject property’s estimated value. Property values tend to stay very stable along the Laguna Coast and today’s values are trending up, so it is a good time to purchase before interest rates climb!

Home Inspector and Home Inspections

What are the duties of a home inspector?

After signing the purchase contract, your Laguna Beach Real Estate professional will schedule the “Physical Home Inspection”.  The buyer hires the home inspector to examine the structure of the property.  A Home inspector thoroughly inspects your future property and conducts tests to make sure that the house is safe by searching for defects or other problems that could lead to potential and costly issues. The Home Inspector will focus on the homes construction, structure and other systems and, if problems surface, they may recommend hiring other experts to further inspect the property for potential structural issues, asbestos or mold, water disposal system etc.  It is a good idea for a Buyer to be present for the inspection, since the home inspector will go over the findings and discuss the problem areas following the inspection. They will also provide a written report with photos detailing any concerns within a day or two after their physical inspection of the property.

Employing a home inspector and inspection clauses:

It is always advisable to include an inspection clause in your purchase agreement.  Purchasing a property without a home inspection is not wise, since the home inspector might discover problems in the plumbing or electrical that will save you additional expenses down the line. The inspection clause will give you the opportunity to negotiate further if repairs are needed.  The purchase agreement can specify that any or all problems that have been uncovered must be repaired before close of escrow. In some cases, the seller may offer a credit to the buyer instead of completing the repairs.

Where do I go to choose the right home inspector?

Your Realtor can provide names of local, reputable Home Inspectors. Also, the American Society of Home Inspectors (ASHI) http://www.ashi.org – is a good source.  This organization has a strict code of ethics and standards set for its members who must be qualified and experienced and have demonstrated field experience and knowledge about structures and their various systems.

Typical contingencies in an offer.

Most offers include two typical contingencies: an inspection contingency, which gives you the right to have an accredited home inspector inspect the property condition, and an appraisal/financial contingency which makes the sale dependent upon receiving a loan from a lender.  Without contingencies, a buyer could forfeit his or her deposit if he or she backs out of the purchase contract. The purchase contract should also include the sellers responsibilities in making any agreed repairs, maintaining the property in its present condition, passing clear title etc.

Do I need an attorney to purchase a home?

This depends on the state where your property is located. California does not require an attorney, but they are customary in New York.  Real Estate in California is processed through an Escrow Company – a third party “holding company” that collects the deposits, contracts and necessary legal documentation, disclosures, etc. and works with the agents and lender before the escrow can be successfully closed. Both agents and Escrow officers pay close attention to any contingencies, clauses and other special considerations that might hamper the sale.

Closing Costs

What do they mean by closing costs?

Closing costs are the ADDITIONAL cost above the price of the property. They can average between 2 to 3 percent of the total home purchase price and include: title insurance, escrow fees, notary charges, property taxes, document process fees, loan points and lender fees. Parties, the buyer and the seller, absorb some of these costs upon transferring the ownership of the property. But, who pays what, all depends on buyer and seller negotiation and what is typical in your part of the market.

Insurance: Home Insurance, Mortgage Insurance, Title Insurance

What kind of homeowners insurance should I get?

Although most home owners get a standard policy.  Typically this type of policy does provide coverage for several natural disasters and catastrophic events. However, it does not guard against earthquakes, floods, war, and nuclear accidents.  Please note that your lender might request from you to purchase flood or earthquake insurance if the house is in a flood zone or a region susceptible to earthquakes.  While you are not required by law to have home owner’s insurance, mortgage lenders stipulate that you do.  It protects their investment in the home in case of a natural disaster or catastrophic event.

Why do I need Private Mortgage Insurance aka as PMI ?

When you have conventional loan with less than 20 percent down payment your lender will require you to have private mortgage insurance. Please note that this insurance is no longer necessary after enough equity has been built up in the property. PMI guarantees the lender will not lose money if you default on the loan.

What about title Insurance?

The title insurance is almost always a requirement when closing escrow. The insurance protects the lender against unclean title to the property. The price of the title insurance is a set value per thousand of dollars of the total loan amount.

Property Taxes – Laguna Beach Real Estate

What is property tax and why do I have to pay it?

Property taxes are levied by the city and county.  This real property tax is an “ad valorem tax”, or a tax based on the value of property. The property taxes in general help pay for public services such as police and fire protection, libraries, schools roads etc.  Property taxes in Laguna Beach CA are currently a low 1.1%.

Can I deduct property taxes?

Yes. You may deduct them every year on your primary residence, second home and other investment properties. Very similar to the mortgage interest paid on a home loan, property taxes are fully deductible from your income

Tax Breaks for First time Homebuyers

Do first time homebuyers get tax break?

Yes. Many city and county governments offer Mortgage Credit Certificate (MCC) programs, which allow first-time homebuyers to take advantage of a special federal income tax write-off. Program requirements for MCCs vary, although most go by the following guidelines:

• The buyer must live in the home being purchased with an MCC-assisted mortgage.
• Total household income cannot exceed certain limits.
• The buyer cannot have owned a principal residence within the past three years. This restriction may be waived if a property is purchased within a certain targeted area.
• The purchase price must fall within an established limit.

For more detailed information contact your local housing or redevelopment agency.

Are up-front fees and closing costs deductible?

The points that you pay to purchase your home loan are deductible for the year when you purchase the home. However, the other costs paid at closing are not immediately deductible. The appraisal, document, recording and loan application fees that are paid when purchasing the home can be recouped by adding them to the adjusted cost basis, the starting point for figuring a gain or less when selling the home. Significant home improvements also can be calculated into your cost basis.

What are the benefits with taxes when owning your own home?

There are numerous tax benefits from the time you buy to the time you sell. The mortgage interest is tax deductible for the primary residence (up to a home loan of $1,000,000.00) or second home.  And if you use a potion of your home for business purposes, you can depreciate deduction as well.  Please contact your local tax agency for more information. Many federal tax benefits are also available from local and state tax agencies.

Lease Options – Laguna Beach Real Estate

What is lease option and how does it work?

Lease option is an agreement between the landlord and the renter in which the renter signs a lease together with an option agreement to purchase the property. The option only binds the seller, and the renter has the choice to opt out. The landlord agrees to give the tenant an exclusive option to purchase the property.  A portion of the rent/lease goes towards future down payments.  The option price is usually determined at the beginning of the agreement and the agreement states when the purchase should take place. A Lease option is very attractive to tenants that would like to own a home but do not yet have enough financial capital for closing costs and down payment.  A lease option may also be helpful for tenants who are working to improve bad credit before approaching a lender for a home loan.  It is best to consult an attorney before you decide to do a lease option.

For more Advice for Buyers in along the Laguna Coast, please feel free to contact us  here to speak with a  Laguna Beach Real Estate professional directly.  Laguna Coast Real Estate is a full service company and we look forward to assisting you in finding a new home along our beautiful South Orange County coastal areas.