Your Legal Companion to Buying a Home in California

1. Describe Your Dream Home

• You Know the House You Want to Buy
• Don’t Be Talked Into Buying the Wrong House
• Identify Your Ideal House Profile
• Create a House Priorities Worksheet
• Prepare a House Comparison Worksheet

2. How Much House Can You Afford?

• The Basics of Determining Housing Affordability
• Prepare a Family Financial Statement
• How Much Down Payment Will You Make?
• Estimate the Mortgage Interest Rate You’ll Likely Pay
• Calculate How Much House You Can Afford
• Tips on Improving Your Financial Profile
• Get Loan Preapproval

3. Narrowing the Affordability Gap: How to Afford Buying a House

• Why California Houses Tend to Be Expensive
• Rent and Wait?
• Fix Up the House You Already Own
• Strategies for Buying an Affordable House

4. Working With Real Estate Professionals

• Great Things About Working With a Real Estate Professional
• Cautions When Working With a Real Estate Professional
• Is Your Real Estate Agent Really Working For You?
• Hiring an Agent by the Hour
• Finding a Good Real Estate Agent
• How Not to Find an Agent
• Getting Rid of a Broker or an Agent You Don’t Like

5. How to Find a House

• The Best Time to Look for Houses
• Organizing Your House Search
• Where to Look for Houses
• Use an Agent With Good Technical Skills
• Enlist the Help of Personal Contacts
• Finding a House When You’re New to an Area
• Finding a Newly Built House

6. New Houses, Developments, and Condominiums

• Pitfalls and Pluses of Buying a New House
• Choose the Developer, Then the House
• Using a Real Estate Agent or  Broker
• Financing a New House
• Optional Add-Ons and Upgrades
• Choosing Your Lot
• Restrictions on the Use of Your  Property: CC&Rs
• Dealing With Delays
• Inspect the House Before Closing
• Guarantees and Warranties

7. Financing Your House With a Mortgage Loan

• How Mortgage Lenders Think
• Who Lends Mortgage Money?
• Why Loans Are Standardized: Fannie Mae, Freddie Mac, and the Secondary Mortgage Market
• Mortgage Types: Fixed, Adjustable, and Their Variations
• Is a Fixed Rate Mortgage Right for You?
• Is an Adjustable Rate Mortgage Right for You?
• Or How About a Hybrid ARM?
• Still Trying to Decide Which Mortgage Type Is Best for You?
• Shopping and Applying for a Mortgage Loan
• Getting Preapproved for a Mortgage
• Federal Housing Administration Financing
• California Housing Finance Agency Programs
• CalVet Loans
• Local Down Payment Assistance (DAP) Programs

8. Private Mortgages

• Advantages of Private Mortgages
• Getting a Loan From Friends or Relatives
• Shared Equity Transactions
• Second Mortgages—Financing by Sellers
• Second Mortgages—Financing by Private Parties Other Than the Seller

9. Buying a House When You Already Own One

• Check the Housing Market Carefully
• How to Arrange the Transition Between Two Houses
• Tax Breaks for Selling Your Home

10. What Will You Offer?

• How a Contract Is Formed
• Decide What You Will Offer
• What Is the Advertised Price?
• How Much Can You Afford?
• What Are Prices of Comparable Houses?
• Is the Local Real Estate Market Hot or Cold?
• Is the House Itself Hot or Cold?
• What Are the Seller’s Needs?
• Is the House Uniquely Valuable to You?
• Making the Final Price Decision
• Other Ways to Make Your Offer Attractive

11. Putting Your Offer in Writing

• What Makes a Real Estate Purchase Offer Legally Valid
• How California Offers and Counteroffers Are Made
• What Your Purchase Agreement Should Cover

12. Presenting Your Offer and Negotiating

• Notify the Sellers of Your Offer
• Your Agent Presents Your Offer
• The Sellers’ Response to Your Offer
• Negotiate by Counteroffers
• An Offer Is Accepted—A Contract Is Formed
• Revoking an Offer or Counteroffer
• Making a Backup Offer

13. After the Contract Is Signed: Escrow, Contingencies, and Insurance

• Open Escrow
• Remove Contingencies
• Obtain Homeowners’ Insurance
• Obtain Title Report and Title Insurance
• Conduct Final Physical Inspection of  Property
• Close Escrow

14. Check Out a House’s Condition

• Evolution of California’s Disclosure Requirements
• Real Estate Transfer Disclosure Statement
• Natural Hazard Disclosure Statement
• Earthquake and Seismic Disclosures
• Environmental Hazards
• Lead
• Disclosure of Deaths on the Property
• Home Fire Hardening Disclosure and Advisory
• Disclosure of Military Ordnance
• Local Disclosure Requirements
• Inspecting the Property Yourself
• Arranging Professional Inspections
• Are the Repairs Really Needed?
• Ask for a Home Warranty

15. Legal Ownership: How to Take Title

• One Unmarried Person
• Two or More Unmarried People
• Couple or Domestic Partners Owning Together
• Married Person Owning Alone
• Partnership
• Avoiding Having the Property Go Through Probate

16. If Something Goes Wrong During Escrow

• The Seller Backs Out
• The Seller Refuses to Move Out
• You Back Out
• The Seller Dies
• You Discover a Defect in the Property
• The House Is Destroyed by Natural Disaster (Fire, Earthquake, Flood)
• House-Hungry Martians Take Possession of the House
• Finding a Lawyer

Appendix

• Using the Downloadable Forms
• Editing RTFs
• List of Forms

Index

Chapter One: Describe Your Dream Home

You Know the House You Want to Buy

We’re going to assume you already have a pretty good idea of the type of house you want, whether it’s a rural Victorian or a new townhouse in a major city. But let’s take a closer look at how you’ll choose the actual house.

SKIP AHEAD
Already found the house you want and mainly interested in the ins and outs of financing? Skip ahead to Chapter 2, “How Much House Can You Afford?”

Don’t Be Talked Into Buying the Wrong House

Many California buyers face an affordability gap between the house they’d like to buy and the one they can afford. “California has been a strong seller’s market for over a decade, but is now shifting to a more balanced market,” says Ira Serkes. Without an organized house-buying approach, you could be talked into compromising on the wrong house by friends, relatives, a real estate agent, or even yourself.

Tips on Searching New Places

Perhaps you’ve heard it said that choosing a house’s location wisely is as important as picking a good house. In a state the size of California, you have no lack of locations to choose from. Chapter 4 discusses working with a local real estate agent to get essential information on neighborhoods. But there’s still no substitute for your own legwork, or online noodling around. Chat with friends and colleagues, walk and drive around neighborhoods, view online videos featuring local projects, check statistics about crime, school quality, and so on, read local newspapers, and do whatever else will help you get a better sense of a neighborhood or city.

 

Here is our method to ensure that you buy a house you’ll enjoy living in:

• Firmly establish your priorities before looking at houses.
• Insist that any house you offer to buy meets at least your most important priorities (even if you must compromise in other areas).

In the following sections, we help you get organized about these tasks.

Identify Your Ideal House Profile

To identify house features most important to you, try completing our Ideal House Profile, a sample of which is shown below.

FORM
You can download a copy of the Ideal House Profile. Go to the companion webpage for this book; you’ll find the URL in the appendix.

If you’re buying with another person, prepare your list of priorities separately, then compare and modify them so that each person’s strong likes and dislikes are respected and you have any arguments before you’re with a real estate agent.

Must Haves: Mandatory Priorities

First, use the Ideal House Profile to name what you must have in a house, such as a particular city or neighborhood. Since price is an obvious consideration, fill in the top section first. For example, under Upper price limit you might note $1.2 million, with a Maximum down payment of $300,000. Then fill in the rest of the form.

TIP
Pay close attention to the School needs category. If you have children, buying a great house at a great price in a lousy school district could mean years of paying for private schools. By contrast, paying more for an okay house in an excellent school district might be a bargain in the long run. And if you plan to move in a few years, it will be easier to sell a house in a good school district, because that feature is important to many potential buyers.

Ideal House Profile
Upper price limit: $1.6 million Maximum down payment: $400,000 Special financing needs: N/A
	Must Have	Hope to Have
Neighborhood or location:
North Berkeley	X
Near Oxford Street		X
School needs:
Berkeley High School	X
Desired neighborhood features:
Quiet street with little traffic	X
Walking distance to Peet’s flagship store, North Berkeley	X
Neighborhood association		X
Lots of trees		X
Length of commute:
Maximum of 15 minutes drive to Berkeley office	X
Access to public transportation:
Walking distance to S.F. express buses	X
Size of house:
Minimum 1,600 square feet	X
Number and type of rooms:
3 bedrooms/2 baths	X
Modern kitchen	X
Family room for kids		X
Eat-in kitchen or breakfast nook		X
Condition, age, and type of house:
Updated home built in the 1920s	X
Type of yard and grounds:
Fenced-in yard	X
Private yard		X
Other desired features:
Easy parking	X
Lots of light		X
Absolute no ways:
House in an active or potential slide zone

 

If you have two kids, you might note that three bedrooms, excellent public schools, and a street with lots of children are must haves. If you plan to live in the house after retirement, a minimal number of stairs and short distances to shops and services might be must haves.

TIP
Plan ahead for climate change. For example, you might focus on homes which have, or can be retrofitted to have, air conditioning, heat pumps, or photovoltaic (PV) solar panels. Consider battery backup, too: It’s an extra expense, but without it, the system goes down when the grid goes down. Ira Serkes installed a PV system with battery backup at the same time he replaced the roof. The system generates almost all the power he uses for his home, home office, and Tesla.

Hope to Haves: Secondary Priorities

Once you’ve compiled your list of must haves, jot down features that you’d like but aren’t crucial to your decision of whether to buy. For example, under Type of yard and grounds, you might note patio and flat backyard in the Hope to Have column. Or under Number and type of rooms, you might list finished basement or master bedroom with bath.

Take a second look at your Must Have column. You might wonder how you will ever afford a house with the features you’ve listed. Don’t despair—at least, not until you understand the strategies (discussed in Chapter 3) to help you buy an affordable house. For now, you might need to change a couple of must haves to hope to haves.

Absolute No Ways

Be sure to list your “absolute no ways” (you will not buy a house that has any of these features) at the bottom of the Ideal House Profile. Avoiding things you’ll always hate—such as a house in a flood or slide zone, poor school district, or high-crime area—can be even more important than finding a house that contains all your mandatory priorities.

If you’re moving into a new-house development or condominium, think about what rules you can and can’t cope with. The community’s covenants, conditions, and restrictions (CC&Rs) might be quite detailed and restrict everything from the color of your house to your choice of pets and landscaping. (CC&Rs are discussed in more detail in Chapter 6.)

Create a House Priorities Worksheet

Now use the information collected in your Ideal House Profile to create a master House Priorities Worksheet. Enter the relevant information under each major category—Must Have, Hope to Have, and Absolute No Ways. A sample is shown below.

FORM
You can download a copy of the House Priorities Worksheet. Go to the companion webpage for this book; you’ll find the URL in the appendix.

Once you have completed your House Priorities Worksheet to your (and your partner’s) satisfaction, make several copies to carry with you on home visits. If you look at a lot of houses, filling these out and taking notes will help make sure you don’t forget important information. Don’t forget to make notes next to features that can be changed to meet your needs (for example, an okay kitchen that could be modernized for $45,000).

You should seriously consider only those houses with all or most of your must haves and none of your no ways. If you visit a nice, reasonably priced house that doesn’t come close to matching your list and can’t be easily changed to do so, say no. Take the time to find a more suitable house; you’ll be glad you did.

TIP
Set up a good information filing system. See “Organizing Your House Search” in Chapter 5.

Don’t Be Fooled by Staged Homes

House “staging” is now a regular practice in home sales. The right paint, furniture, music, and smells can create illusions that would make Martha Stewart and Houdini jealous. The point is to optimize the charms of a house. As Carol Serkes says, “There’s never a television in a staged home.” Also, notes Ira Serkes, “Your first impression of the home is likely to come from online photos; but keep in mind that one reason sellers stage their homes is that photos of staged homes look far better than those of vacant ones.” So if you visit a house that just reeks of charm—look behind, above, and below. Imagine it empty, or with your own furniture, office equipment, kids’ toys, and toothbrushes.

Prepare a House Comparison Worksheet

If, like many people, you look at a considerable number of houses over an extended period of time—or even in the space of a week—you might soon have trouble distinguishing or comparing their features. That’s where our House Comparison Worksheet comes in.

Across the top of the form, list the addresses of the three or four houses you like best. In the left column, fill in your list of priorities and no ways from your Ideal House Profile and House Priorities Worksheet. Then put a check mark on the line under each house that has that feature to allow for a quick comparison. A sample is shown below.

House Comparison Worksheet
House 1: 257 Loving Avenue, Berkeley House 2: 1415 Gaylord Street, Berkeley House 3: 999 Spruce Street, Berkeley House 4: 5 Marin Way, Berkeley
	1	2	3	4
Must have:
North Berkeley neighborhood	X	X	X	X
Berkeley High School	X	X	X	X
Quiet street with little traffic	X	X
Walking distance to Solano Avenue		X	X	X
Maximum of 15 minutes drive to Berkeley office	X		X	X
Walking distance to S.F. express buses	X			X
Minimum 1,600 square feet	X	X		X
3 bedrooms/2 baths	X	X		X
Modern kitchen			X
Good shape, less than 100 years old		X		X
Fenced-in yard	X	X	X
Easy parking			X	X
Hope to have:
Oxford or Spruce Street		X
Neighborhood association		X	X
Lots of trees	X		X	X
Family room for kids	X
Eat-in kitchen or breakfast nook	X	X	X
Private yard	X	X	X
Lots of light		X	X	X
Absolute no ways:
House in an active or potential slide zone	X	X	X

 

True Story
Ellen: How Not to Buy a House
I was a first-time buyer on a relatively tight budget when I set out to buy an older, attached row house in San Francisco. I wanted two bedrooms, no (or a very small) yard, proximity to a downtown bus route, and walking access to a neighborhood market and bookstore. I looked for many months at houses that were completely unsuitable, far too expensive, or, with depressing regularity, both. So I broadened my search, and I saw that prices were more reasonable in the suburbs. I spent a sunny Sunday afternoon browsing in Contra Costa County. At the first open house I visited, I met an energetic real estate agent who spun a wonderful word picture of the joys of suburban life: lots of sun, room for a tomato garden, and friendly neighbors. She showed me a split-level house with an apple tree in full bloom in my price range. Almost before I realized what I was doing, I signed on the bottom line. That was the fun part. Soon I was getting up at 6:00 a.m., driving to the train station, and standing for the 40-minute ride to San Francisco. My fantasy about the joy of suburban life was just that. I seemed to have temporarily overlooked the fact that I’m allergic to direct sun, detest tomatoes, and moved out of the suburbs to get away from overly involved neighbors. Fortunately, I sold the house six months later, at a small profit. I went in with a friend and together we bought a house in San Francisco that meets my needs perfectly.

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