Ep. 81 – Home Buying Fees, Closing Date Info, and Love Letters 

 March 29, 2022

HBH 81 | Home Buying Fees

What are the home-buying fees first-time buyers need to know? For military and veterans, you can put $0 for a down payment. But for the civilians, the minimum is often 3% down. Next, you’ll have to consider the earnest money or due diligence fee. It allows you to bail during the due diligence period. You should put down the max, 3% of the sales price. If you put anything lower, it shows that you got no skin in the game. Show the sellers you’re serious about buying the home. Want to know more? You’ll also discover do’s and don’ts for closing day. And the controversy surrounding the age-old-secret buyer trick—love letters to the sellers. Dive in!

Home Buying Fees, Closing Date Info, And Love Letters

First-Time Buyer Questions Answered And A 2022 Market Update

2022 housing market is insane. If you’re out there and ready to buy a home, you probably have a whole bunch of questions. If you’re paying attention to the current speed of the market and the rising prices, then you want to get those answers quickly. Don’t be self-conscious about being thirsty for information. Knowledge is power. I’m ready to figure it out. How about you? Let’s go.

What is up, my How to Buy a Homies? I’ll tell you what’s up. It’s home prices. We’re going to go over a few things that buyers ask me about all the time. Our topics are going to be, “What are the fees when I buy a home?” Also, moving date details. The day you get your keys, the most exciting day. I have some crucial information to help you avoid moving day horror stories. The last topic is love letters to use or not to use and the secrets that are going to help you win a bidding war and get you the house that you love.

Quick Market Check-In

Let’s do a quick market check-in before we jump into the topics. What’s happening in March 2022 and with other buyers, not only working with me but from all around the country? First, I will give you a quick story. I have some wonderful clients that bought a new build home in 2014. They didn’t call me, but I still talk to them. They’re nice.

They called me around 2017, have been in the house for years and realized their family would soon be growing. That new condo was going to be getting small for them pretty soon. We touched base off and on. As it often gets when you have a child, you lose track of time. We talked every 3 months or 6 months and then there’s a big update. They’ve got the kid that is a toddler, but twins are on the way to join their first child.

The reason why we first started talking back in 2017, the very long story summarized goes like this. Phone rings and they’re like, “Sidoni, we’re having twins. We need to sell.” I replied, “Let’s see. It’s November of 2017. Can you hang out until February of 2018? We’ll get the most money on the sale then and get you in a new home before June of 2018 when the mistress here is set to release the twins to the world.” They said it was cool.

I marketed the home with my big full marketing package. I honed and perfected that marketing technique for many years. I called all my contacts in real estate that I know all over the place. I even split the listing because I knew someone that I’ve worked with before is a track specialist in that area. I was like, “She’s awesome. I’m cool with it.” That’s going to net my people the most money because my concern is always my people’s bottom line, not mine.

Fast forward, 10 offers on the house in 6 hours on the market. It sold for $50,000 over the list price plus three months of free rent back. If you’re wondering if it’s a competitive market, the answer is yes. We started putting off our new houses, found one we love, got there early, worked the rapport with the listing agent at the open house and it turns out she has grandkids who were twins.

There was a lot of bonding going on with the open house with my very twin pregnant-looking buyer and the grandma who also had grandkid twins. We saw a few more houses and my buyer said, “That first one is the one.” They went home. I got back in my car and drove over to meet Ms. Listing Agent. I had a personal chat with her. She recognized me immediately when I walked in and said, “It’s the twin’s guy.”

HBH 81 | Home Buying Fees
Home Buying Fees: Some put down a real small earnest money deposit, but that just shows they got no skin in the game.

I asked her questions very professionally but also personable. I discovered that not only was the client that was selling that home older and had an emotional attachment to the home, but I found out the agent who I was talking to wasn’t even from the area. She was doing this as a favor for one of her older sellers, who needed to trust the realtor she was working with. She used this person who wasn’t even from the area.

Fast forward. By taking all that information to present a clean and professional offer with full validation of the buyer’s finances and letting the other agent know that my team and I will handle all the details because she doesn’t want to, we’re going to take a lot off her and her client’s plate. This deal is going to be easy-peasy for her. We got the home even though her phone was ringing off the hook. Every time I called her, she kept telling me, “Everybody’s calling me. I want to talk to all these people. I talked to the seller about you and they love you. They have twins.”

The moral of that story is now more than ever, you need a unicorn realtor to help you in this competitive market, someone who understands every aspect of the negotiation, not just the schmoozy part but also how to be a professional and present a professional offer. Discount agents, new agents and part-timers won’t have the savvy to know what to look for, what questions to ask and how to present an offer that is best suited for the seller and the seller’s realtor. It’s a combination of reputation, professional skills, presentation of you, as well as your offer and then the people skills. That is a unicorn and it’s worth far more to you being the buyer than anything else that you can learn.

That was a wonderful true story. It’s time for a salty Dave truth bomb. I’m about to drop some knowledge that might bum some of you out. If you want to try and beat the system by doing it yourself or by using one of those discount buyer’s agents that give kickbacks to the buyers, I can almost guarantee you that in almost every circumstance, the money that you “save” in comparison to having a unicorn represent you when you’re using that discount realtor giving you the kickback.

Remember, your unicorn is free. It’s going to be peanuts compared to the so-called discount, the money that you think you’re going to be saving when you’re getting a kickback from someone giving you a discount or you trying to do it all by herself. This is the truth bomb part. If that’s you right there and you still think that’s what you can do, you’re in the wrong show. I want everybody to be set up to win. What I’m trying to tell you is there are ways to set yourself up to win where I have stats, data and all kinds of information that shows you how you can beat the system best.

Imagine that you’re on trial for murder. You want to hire the best defense attorney in town. If you can’t afford that, you have to find a cheaper one and offer their services to you at a better rate. Here’s the way it works when you’re a buyer in the market the way it’s working in 2022. All buyers’ realtors are working pro bono. That’s free to you. You just have to find and hire them. Hire the best.

One more market update. This one’s got a moral, but it sounds a little scary but don’t bum out. You’ve got to wait until the end to know the moral story. An audience wrote in and said, “Thanks, David. We appreciate the check-in.” That’s nice. “With the market’s bonkers now, we have our approval and have seen several places. We haven’t put any offers in yet though, because we were informed when we were getting ready to write an offer that they were $80,000 over-asking price with other offers. That put it way outside our budget.”

Patience, persistence and perseverance have been our motto. “Viewing another property tomorrow, hoping it goes well. Appreciate everything, though. We love our unicorn team, so we know we’re in good hands. A fresh set of new properties each week here in Denver is pretty cool. It keeps us on our toes.” The moral is homes are going for way over list price. You might look at a list price and think you got it, then realize, “We do not have $80,000 over that.”

[bctt tweet=”You need a unicorn realtor to help you buy a home in this competitive market.” via=”no”]

Is that fair for you? No. Does that make sense for you? No. Is it logical? No, but if you work the three Ps in the 2022 market, which are Patience, Persistence, Perseverance, you’re going to have a better chance. Whether you’re in Denver, Orange County, where I am, Chicago, Portland or anywhere else all over the US or Canada, I’m getting reports of new inventory coming out every single week as they did in Denver as the winter thaws out and the spring market heats up. That’s your market update.

Home-Buying Fees

Let’s get to the topics we’re going to go over in this episode. Topic number one, what are the fees when I buy a home? This is a question I get a lot and I understand it’s a major concern to you when you’re pinching pennies trying to come up with your down payment. Here’s a quick breakdown. You’re going to need your down payment. That’s $0 if you’re military or veteran. It’s called the VA loan.

If you’re eligible, you can put zero down or whatever you want down. It doesn’t have to be zero, but if you’re a veteran, this loan is supremely dope and buyer favorable that you’ve got to figure out a way to use this loan. The rest of us civilians can go 3%, 3.5% down or whatever you want, 5%, 10%, 15%, 20% or higher. That’s the one cost that you’re counting for. On top of your down payment, you also have your closing costs.

In most states in the US and provinces up in Canada, you have to put down what we call an earnest money deposit. It’s also known as earnest money, good faith deposit, and in some states like in North Carolina, they call it a due diligence fee. Sometimes that’s even an extra fee that’s a non-refundable fee, allowing the buyer to bail on it at any time during the due diligence period. Their rules and laws are a little bit different. Check with your local unicorn to get your state’s laws.

The amount of your earnest money that’s your initial deposit once you get accepted on the home varies from area to area, but in California, in this competitive market, you best be putting down the max, which is 3% of the sales price. Some people put down a real small earnest money deposit, but that shows you got no skin in the game and you might keep the house off the market for 1 week or 2 and then bail. They want to see that you’re serious about it.

In most states, the earnest money deposit shouldn’t be looked at as an extra fee. What you’re doing is you’re saving your down payment and closing costs before you get ready to buy the house. You get the house and put your earnest money deposit down, but you subtract that from your down payment. It should be looked at as the first chunk of your down payment, not as an extra fee.

Most of the time, what happens is you deposit it into an account. On the West Coast, it’s an escrow company and in other parts of the country, it’s title companies or a closing company. You do that after the days that you get your offer accepted on the home. The home that will get cashed will be held by that neutral third party, even though you’re still in your inspection period, due diligence period or buyer beware period.

Should you do inspections and due diligence and decide that you’re ready to move forward with a home? That money stays there and at the closing of your transaction, it gets allocated towards your down payment. It’s not a fee. It’s going to count towards your down payment, held as good faith deposit and earmarked to be added to your down payment when you officially decide to buy the home, which brings us to another edition of Why Do We Say That? Earmarked, who knows why we say that?

HBH 81 | Home Buying Fees
Home Buying Fees: Please do not waive the appraisal unless you understand what that entails.

First of all, did you know that when you spell out earmark, the correct spelling is one word, a compound word with no space? For those of you city folks that don’t know why you say earmarked, I bet some of my people in the farms do know. Here’s a hint. The same comes from a livestock term. It’s where the ears of the domestic animals were cut in specific ways so the farmers could distinguish their stock from another grazing on the public land. In general, with cows, you get a raw deal. You’re branded, ears cut so I can figure out who you are, not to mention the whole embarrassment of the milking process. That doesn’t look very dignified. I suppose the whole becoming a hamburger and steaks, that’s no picnic either.

Fees, you’re saving for your down payment and closing costs and then you take from your down payment and put it into your earnest money deposit. You’re under contract. This is where you have a couple more non-refundable fees that are going to happen during your inspection, due diligence and buyer beware period where you can still back out of the deal.

That means the fees that are going to happen is you’re going to need some cash during the contract period within the first week or so of the acceptance. You’re going to pay for these services. They will get done for you. If you back out of the deal, you don’t get refunded if you decide not to make the purchase. They are your inspection and appraisal. They both have fees.

They can vary. It can be $300 to $500 for a general inspection and $200 to $300 if you’re going to do a sewer inspection. For anything extra like detailed septic, geological inspection or a survey, for that, you’re going to have to check with your local unicorn realtor. Things are different everywhere. We don’t even have septic where I am here in California.

Most people in California do a general inspection and they sometimes throw in the sewer. If the general inspection calls for more detailed specialized inspections for areas that have major issues, that’s up to the buyer to decide if they want to pay for it. The second money that you pay cash out of pocket that is non-refundable if you bail on the deal is your appraisal fee. If you need a loan to buy a home and most of us do, you’re going to need an appraisal.

This is what the bank uses to verify the value of the home. They only want to issue a loan up to the appraised value and that’s done by a neutral third party. The reason they do it is if you buy the home, get the keys and then all of a sudden, you’re all dancing in the street celebrating and get hit by a bus, the bank is on the hook for the loan. That means they’re on a hook for whatever the appraised value of the home was.

In other words, you can’t try to beat somebody out by making your offer $25,000 more than the last person was. The appraisal has to match the actual value of the home. Everybody wants to do that. These homes sound like $300,000 but let’s offer $325,000. It’s only an extra of $135 a month for the next 30 years. That’s no big deal to you, but if you are roadkill the day that you own it, the bank owns the home for less of a value than their loan.

I understand a lot of people are doing this, but please do not waive the appraisal unless you understand what that entails. If you understand it, go for it because it might be the only way you can get a home in this crazy market. That appraisal fee is part of your cash out of pocket. You’ve got to pay for the inspection and appraisal even if you don’t buy the home. You can be paying anywhere from $450 to maybe $800 for the average first-time homebuyer. In most areas, those two items are just the expenses for your out-of-pocket fees. It’s different everywhere, but that’s pretty much the standard. You’re paying for your inspection and appraisal. We then got to come back to your closing costs.

[bctt tweet=”Set yourself up to win using the correct information showing how you can beat the system. ” via=”no”]

This is another one of those questions I get all the time. For this one, I understand why nobody has tried to explain it to you because it is as far from an exact science as anything could ever be. For many years, I’ve been trying to explain this to people. The only one thing I know for sure about closing costs is that if you are a meticulous spreadsheet loving down to the penny shopper, you are going to hate this.

I have nothing to do to help you about it. For your super anal peeps, think of the closing costs as a license and registration fee to buy a car. You can’t get around it. It’s mandatory. There’s nothing you can do about it. Even if you think there’s a cheaper way to do it, you’ve got to get your butt cheeks more tightened up, lemon juice style, because there is never an exact amount until the moment that you have to cough up your check.

We don’t even know what that could be. It could be anywhere from 1.5% to 2.5%. That’s all I got for you. That’s what closing costs are. I can’t tell you what it’s going to be. To freak you out even more, neither can your unicorn realtor, lender, escrow, title people, closing company, real estate attorney or super smart uncle who bought six houses. Nobody can give you the exact numbers until you get the actual closing date and you’ve had a chance to look at multiple different factors that are going to be part of the closing costs.

I get it. I’ve seen smoke coming out of the years of some of my clients when I tell them this. Here’s my best suggestion. If your little spreadsheet makes you warm and comfy when you tuck yourself in it, prepare for it not to total out because you’re going to have one entry with a question mark, your closing costs. It’s going to be there. You can put in some numbers, but I’d make them all squiggly and wavy because they’re not real. Is there more butt pucker happening?

If this sounds like you and you’re starting a home purchase planning, I suggest first you find yourself a unicorn team and then immediately find a psychiatrist and get on some meds. The uncertainty comes from two sets of fees in the closing costs. The first fees are all set fees. Those are the ones like. The second one is moving part fees that come in very many different varieties in every state. Depending on the exact day you close, that’s how they calculate them. They’re all related to calendar events.

The technical terms for these are nonrecurring and recurring closing costs. The nonrecurring closing costs, the set fees include your escrow, title company costs, closing company costs or attorney cost, depending on what part of the country you live in. You’re also going to have your loan costs or lender fees. If you’ve decided to do anything funky, it’s any other upfront loan fees, depending on the specific type of loan and options that you chose. Even the set fees have some variables in them.

For the onset fees, the recurring closing costs, the ones related to the calendar on the day that you closed are the ones no one can calculate until we figure out exactly when you’re going to be closing and that’s where it gets funky. Your first mortgage payment’s going to be a prepayment for the remaining days in the month that you close. If you close near the front of the month, you’ve got to pay 15, 20 days or so for the rest of the month. That’s a larger number and part of your closing costs. What if you closed near the end of the month? It’s smaller, which means you don’t have to put as much in, so your closing costs get less. See how confusing this is, but that’s just the beginning.

In some states, you have to prepay your HOA dues. In some areas, you’re going to have to pay local taxes or city fees that fall under the prepaid, but it depends on when you fall in the payment calendar of those prepayments. The big one, besides where you land on the calendar with your mortgage, is your property taxes. If you’ve got to pay property taxes where you’re buying a home, you have to prepay those taxes within the tax calendar.

HBH 81 | Home Buying Fees
Home Buying Fees: Closing dates are fluid; don’t think that is set in stone.

You could be prepaying five months of taxes, which is going to be a lot or if you’re getting close to when the next taxes are due, you might only be paying one month ahead of time. That can jack up your closing costs and raise or drop it by a couple of grand. All of these fees can’t be calculated until you have the exact calendar day that your home is going to close and you know exactly when it’s going to record with your local county.

In summary, closing costs are usually near around, roughly, approximately, generally, could be close to 1.5% to 2.5% maybe. The fees to buy a home are earnest money deposit, inspection and appraisal fees and closing costs. That’s what you’re going to need over and above your down payment. If you’re cutting it tight, add 3% to your down payment savings or if really tight, cut it to maybe 2.5% depending on the price and the loan that you’re going to be using.

The second topic is closing day, the most exciting day of the entire process, the one that I have seen crush more excited buyers than I care to remember. I’m like that nervous teenager laughing when they know they’re about to get busted. It’s not funny. There are two big things I want to tell you about a closing day. If you keep these two things at heart, I guarantee you that you’ll avoid the horror stories out there because there are people who have stories about expecting to get the keys one day and they didn’t. Those delays are inevitable and probably should have been explained to them.

First thing, people in the real estate industry do their best, I promise you, but I can tell you no matter what they tell you, until they give you the keys and say, “We have recorded this deed,” closing dates are fluid. Don’t think that is set in stone. I want you to walk away from this show, realizing that the music of the mid-1980s was far and away the most diverse and inclusive era in music. Top 40 back then included hair metal, cheesy pop, good pop, emo, techno, early hip hop, solo saxophone artists, new wave, power ballads with both singer-songwriters and metal bands. It also has ska, punk, new country, the beginnings of alternative rock and the end of classic rock with harmonic guitars and vocals. That is a straight-up fact.

You need to know what you should know and understand the joy of the local Top 40 station. Imagine what I was going through in my high school days. Back to back on the Top 40 radio, I could hear Madonna, Kenny G, Depeche Mode, Public Enemy, Iron Maiden, Whitney Houston, Bon Jovi, Michael Bolton, Michael Jackson, Run-D.M.C. There was also Lionel Richie, Metallica, Phil Collins, Madness, Guns N’ Roses, Journey, Prints, The Smiths, The Cars, The Cure, Bruce Springsteen and U2. They were all in the Top 40 chart. That is the number one thing that I want you to take away from this episode.

Closing Date Info

The second most important thing I can tell you is closing date is fluid, if you hate the word fluid and moist, good. I want you to remember and to hate this. Closing date is fluid. If you hate that statement, you’ll never forget it. Never expect to close on the day they told you. If it does happen for you, happy surprise, but don’t plan a party on the day that you expect to get your keys.

Don’t have your parents fly in to meet you and the realtor to open the front door. Don’t order a moving truck and have all your belongings packed away. Don’t drive across the country expecting that you will for sure have a place to unload or sleep. Don’t ever have your last day in your apartment be the same day as you were told you’re going to get your keys. It’s fluid.

It may not be exactly the day they tell you that they hope to close. There are tons of moving parts. Plan an overlap. Enjoy the fun of running around an empty house that you own with nothing in it. If you’re one of the lucky ones that close on time on the day everyone else was shooting for, you get a big empty house to play with. Good for you.

[bctt tweet=”Judge what the home sellers offer you based on their merit alone. ” via=”no”]

The second thing about closing dates is to put the utilities in your name before you close. Don’t you dare me, you cheapskate. I’ve been doing this long enough to see some tightwads and frugal buyers decide they’re not going to change utilities until the very last day in their name because they don’t want to spend the money for that extra couple of days. Only to find out that the seller was more of a cheapwad than they were.

They turned the utilities off or a couple more days early before they moved out because they cleaned up and got out of there. Trust me on this one. Sometimes the reconnect fees are hundreds of dollars and might take 1 or 2 weeks before the utility people can get out there. You’re going to wish that you’d spent the $0.84 a day for that water bill.

Love Letters

Our third topic of the day is love letters. Once, it was a great way to sway the minds and hearts of your sellers to get them to choose your offer over everyone else or in a less competitive market. When you were the only offer, you used your love letter to maybe get a better price or deal on the property. Here’s a heads up. The practice of love letters is under some severe scrutiny. It has been for a little while, but the full system has gone up to state courts. Why would love letters cause a problem? Do you know?

Hola, soy Dora. Can you say discrimination? Don’t shoot the messenger here. I’m simply reporting what has been rumbling for a while. We have federal judges, state attorneys and generals battling out in courts all across the country. In most states, they’re no longer allowed. The bottom line is by the time you read this, the laws may have changed, but it seems like this will eventually be deemed illegal everywhere. The seller could discriminate based on ethnicity, family unit, sexual orientation, age, gender or other information that could be used for/or against certain buyers.

In that way, what sellers will be doing is violating the fair housing laws in any attempt to connect or not connect with the sellers intentionally or unintentionally. It could be discrimination against others. The laws are being changed, so the sellers are only going to be judging their offers on merit alone. If you’re looking for a way to make your offer appealing because you’re bummed out you can’t write a love letter, do that. Make your offer more appealing without the emotional backdoor.

Sellers are going to react to things like money, better terms, tighter timeframes and stronger commitments to the deal, possibly even waiving some contingencies and a strong professional presentation of the offer. Unicorns know how to do that. Have yourself a professional, respected unicorn realtor who knows how to present a great offer but also knows how to present you well without violating any of the fair housing laws. Remember the story of my clients having twins? I didn’t say anything. I just showed up and they started talking about twins. That was the selling agent. It’s up to the listing agent what they do and say.

Looking back on these topics, do me a favor. Raise your hand if you learn one thing that you didn’t know before you read this episode. I’m picturing some cute couples lying in bed together, both raising their hand, someone on a treadmill freaking out of the gym because they hoisted their hand up for no reason and some person chasing their dog down the street. It’s because they raised their hand and it was the leash hand and accidentally let go of the dog and ran away. Sorry about that.

If you learn one thing, share this show with a friend. If more questions come to your head that I didn’t answer, go ahead to HowToBuyAHome.com and ask me yourself. Find more information on Instagram, @DavidSidoni or the How To Buy A Home Podcast. Don’t forget to check out the How to Buy a Home Podcast YouTube channel. Rate and review. Spread the love. If you still have your hand up, what are you doing? Put it down.

Keep reading to more episodes and market updates coming in. If you want to look for a unicorn that’s going to help you with your specific questions, ask. 2022 has been a challenging year for buyers with more questions than answers, but the show has been getting more people connected than ever because readers are getting empowered and connected with the unicorn who listens to them and answers their questions. Eventually, the unicorn, like me, tells them the same thing I tell you. You can do this.

Important Links

I hope you are getting your questions answered about this crazy process. I know there’s not a lot of clear information out there on the internet, so that’s why I started this podcast. To demystify the whole thing and get you first timers the help you deserve!  Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out.  And if you’re not already a regular listener, please subscribe.  If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts. Let’s change the way the real estate industry treats you first time buyers one buyer at a time – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused.  Viva la Unicorn Revolution!

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