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Business & Tech

The Home Buying Process Has Become More Complicated

New government regulations, short sales, foreclosures and new bank addendums have put sales at risk, delayed closing or caused deals to fall apart. Buyers and Sellers must be pro-active in understanding the documents that they sign.

Distressed properties may offer the possibility of a “great deal”  but, even after the buyer receives an acceptance from the bank, there can be changes by the bank that add costs - costs that may price the buyer out of the sale.

Banks are using new methods to recoup their investments. Many of these new requirements are made known early in the transaction and buyers have the time to decide if these added costs are acceptable. Many, however, are hidden in lengthy addendums and are presented to the buyer at closing.

As an example: Typically, the seller is responsible to pay excise tax (sales tax on the selling price). In a recent transaction on a bank-owned property, the buyer and buyer’s broker were surprised to learn that the bank stipulated that the buyer pay the excise fee in order to buy the property. 

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Attorney Annie Fitzsimmons wrote in an article for the Washington Realtors, "If buyer signs this addendum and agrees to the transaction terms with the seller, then buyer is obligated to all terms of the transaction, including all of the terms embedded in this lengthy, complicated addendum. There is no lawful reason that buyer cannot pay seller’s excise tax and thus, the provision is enforceable."  

Excise tax on a $500,000 sale is $8,900.

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Addendums similar to this one are becoming common. There are also new requirements on FHA, Freddie Mac and Fannie Mae transactions. It is not uncommon for the buyer to ask for incentives from the seller in any of these. 

Steve Tedrow, Windermere Mortgage, brought this to the attention of agents when he related the following. "I wanted to alert you all of a potential issue with Freddie Mac (FHLMC) owned properties where the seller is paying allowable closing costs. On a transaction we closed today, Freddie Mac refused to pay 2nd half taxes for the buyer since they consider this to be an ongoing cost of owning a home, rather than prepaid expenses. They draw a very narrow line on this issue. They paid the 2 months required by the lender for reserves, rather than the full 6 months."  

Surprises occur in every transaction. This Freddie Mac late contract inclusion could have cost the buyer an additional $1,800. Buyers purchasing a Freddie Mac owned property and attempting to have the seller pay all their allowable closing costs should be aware of possible last minute changes like this one.

In a normal transaction, sellers will pay for the utilities until the day of closing. In a short sale or foreclosure, the seller has already walked away from the home and any residual costs. Banks have a tendency to not pay these charges and buyers are left with the "bill."

So what is a buyer or seller to do? Even though home prices have fallen and interest rates are at record lows, buyers still purchase homes based on their ability to pay. To protect their interests, they must read and understand the fine print. Contacting legal counsel before signing any non-standard form should be considered.

Having an unfamiliar addendum included at closing which states that the buyer must sign to continue with the transaction often put undue pressure on the buyer who really wants a home that they have already mentally moved into. Buyers must consider the consequences and realize that they can walk away if they do not fully understand what the addendum is obligating them to do.

Joan Probala is the managing broker for Issaquah Windermere (Windermere Real Estate/East Inc.). She has 30 years of experience in real estate, construction and sales. She is president-elect (2013) of the Seattle King County Association of Realtors.

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