What is earnest money?

Earnest money is money paid to confirm a contract. People who make an offer on a house draw up a purchase agreement and offer earnest money. Earnest money isn’t required but it is often expected and is considered a kind of standard business practice.

The funds are usually in the form of an electronic deposit from a bank account or an old-school paper check. The funds need to be immediately available. They are deposited into a brokers trust account where they are held until the closing.

Usually, the money ends up being used to pay for the house.  If the buyer backs he/she/they may end up forfeiting the earnest money and it will go to the sellers.

There are no hard and fast rules about the amount of money a buyer should offer. Generally, $1000 dollars is a starting point for homes in St. Paul and there is no limit to how much money can be offered. I have had buyers offer $25,000 or more.

The amount of earnest money offered is usually part of the negotiating strategy. It shows the sellers that the buyer is serious. Sometimes sellers will counter an offer and ask for more earnest money. The money forces the buyers to have some skin in the game.

Once a seller accepts an offer the house is tied up for a time. Even though it is usually left on the market until inspections are completed it may be largely ignored by other buyers. Sellers want to know that the buyer will not back out.

Purchase agreements are usually structured in such a way that the buyer gets the earnest money back if he/she/they if they decide not to buy the home because of issues on the inspection or in the case of a condo if they are not comfortable with what is in the association documents and financials.

Buyers may also be able to get their earnest money back if the financing falls through. Again it depends upon how the purchase agreement is written.

Sometimes in multiple offer situations, buyers will offer more earnest money and the contract will allow the sellers to keep it if the financing falls through.

In the end earnest money usually isn’t enough to compensate sellers if the purchase falls through and they have lost time on the market.

Buyers earnest money is safe. There are numerous laws that dictate how the money is kept and accounted for. Real estate is regulated by the state. People who are buying property outside of Minnesota should consult a professional in their state.

Coming soon home listings

I have several buyers who are looking for homes to buy. I regularly contact for sale by owners and I look for “coming soon” listings on Zillow.

I just want to say that some of those “coming soon’ listings were sold long ago. They are kept active because they can be used as bait by real estate agents.

There are also “coming soon” listings that have been coming soon for many months. Coming soon is a vague kind of thing. Soon can mean hours, days, weeks or months.Information on Zillow has gotten a lot more accurate since out MLS feeds data to the service. We are required to keep the information in our MLS up-to-date and people who put bad data in can be fined.

Agents who pay for the service can put “coming soon” homes in Zillow that are not part of the feed.

To be fair I also contact homeowners who have listed their home as for sale by owner in Zillow and have found that some of them are not serious about selling but just want to see what happens.

Most but not all of the homes listed in the MLS are really for sale but sometimes especially over the weekend we do find houses that already have offers on them but have not had their status changed.

bad advice on the internet

Like most people, I like to use Google to do a little research when I want to buy something or get a quick answer to a question.

I use it for recipes and for technical support and occasionally for medical type information. There are articles on most topics.

There are many articles on the internet about how to choose a real estate agent. Most of them are fluff pieces written by people who do not have any expertise in the area.

They do some research . . probably on the internet and use ideas from someone else’s fluff piece or maybe from several fluff pieces.

I disagree with most of the questions people are advised to ask agents.

Why would anyone want to know how many listings an agent has? The better question is to ask them what percentage of their listings get sold.

The real estate market is ever changing. If I am asked how long houses I list are on the market it wouldn’t be the same for one year to the next.

If I am asked what percentage of the asking price I get on average for homes that I list, that really isn’t a fair question unless I get to set the price.

If I did set the price in this market I would go low and consistently get more than the asking price for the home.

Real estate agents are salespeople and finding clients is most of what the job is all about.

Hiring the right real estate agent boils down to three simple questions:

  1. Does the agent have experience? 
  2. Is the agent someone I feel that I can trust and work with?
  3. Am I just a “deal” or will the agent give me the time and attention I deserve?

By experience, I mean at least 5 years and it should include working in your neighborhood or the neighborhood you wish to move to. Personally knowing what I know I wouldn’t work with anyone who has less than ten years of experience. Agents with no experience generally charge as much as agents who have decades of experience.

I have a bias toward full-time agents but I can honestly say I have known some part-time agents who do a better job than most full-time agents.

Trust is a big deal. If you don’t trust an agent do not work with him or her. Choosing someone who is easy to work with is also important. You will have to work closely with the agent that you choose.

Ask the agent if they have time to work with you. Are they going to hand you over to a junior team member? Do they sell zillions of houses? Will they care about your sale or purchase?

One of the best ways to find an amazing real estate agent is to ask friends, family, neighbors, and co-workers who they worked with and if they would recommend that person.

The only downside to that approach is people who have had only one experience buying or selling a home might not even realize their agent wasn’t up to par because he or she was so “nice”.

If you think choosing an agent is tough you should try choosing clients. When I mess up it can make my life miserable for weeks or months. I can end up spending money to market a home before I figure out that the owners are not committed to selling.

Also see: REALTOR is not an occupation

Is this house a good investment?

blue house
small house

Is this house a good investment is a great question and the answer has more to do with the situation of the person buying the house than it does with the house.

First, let’s assume that the real estate buyer is smart and savvy and pays fair market value or less for the property. We don’t know for sure if the value of the home will go up or down. Historically Minnesota real estate has appreciated . . . except for that one time when it dropped like a rock.

Buying real estate is a long-term investment. When compared with renting long-term homeownership builds wealth and renting does not.

However, if a person has a choice between buying a home or using the money to start and build a business the business might be a better investment. Right now the tax breaks for businesses are bigger than tax breaks for homeowners too.

Owning a home for a short period of time can be more expensive than renting. Buying a home might not be a good investment for someone who needs to move often to take advantage of job opportunities.

For my family buying a house has been a great investment but we took a risk. We bought a house in an area that was experiencing some urban decay. Interest rates were sky high and people had trouble selling their homes.

The neighborhood has turned around and I guess we are on the way to gentrification. We bought low and yes it has been a very good investment. It wasn’t easy in the early days.

The question should be: Is this house a good investment for me at this time? Do I want to invest in a house or is there a better use of my hard earned money? Do I want to spend my money on stuff or on experiences or both?

searching for a decent neighborhood

On the river bluff – Cherokee Heights neighborhood

Home buyers are out in full force looking for that perfect home in a “decent” neighborhood. I St. Paul we have seventeen neighborhoods to choose from. Within those 17 neighborhoods, there are more than 100 sub-neighborhoods. Each neighborhood has a district council. One way to learn about the neighborhoods is to visit the district council website for the neighborhood.

If a decent neighborhood is an area with a low crime rate the best place to learn about crime in St. Paul is from the Saint Paul Police Department’s website.

The idea of a decency in a neighborhood is vague and subjective, yet most home buyers are looking for a “decent” neighborhood. In addition, to “decent”, the neighborhood needs to be “safe”.

This year we are celebrating the 50th anniversary of the passage of the 1968 Federal Fair Housing Act.

As a real estate agent and broker, I can not recommend a neighborhood or even state that a neighborhood is decent or safe. I can not steer anyone into a particular neighborhood because that violates fair housing laws. Fair housing discrimination does not need to be intentional to be illegal. To learn more about fair housing rules and laws in Minnesota, visit the Fair housing basics web site.

For most people, it is the amount of money they have that will determine where they live. The most expensive homes are near the best schools. Great schools drive property values up. Higher property values mean property higher taxes which in turn means more money is spent on education.

There are private schools in St. Paul and public magnet schools. Parents have choices. To learn more about St. Paul Public Schools.

When choosing a neighborhood write a list of what is important and do some research. Drive through the neighborhood or walk through it when the weather is nice and people are outside again.

When is the house yours?

Moving Day

When will you get possession of the house you bought?

It isn’t unusual for someone to buy a house and sell on the same day. Sometimes the movers are moving everything out of one house during a closing and moving into another home after a closing.

Possession immediately after the closing is a popular option. That means if the closing is at 11:00 AM and lasts until 11:45 AM the buyers can move in at 11:45. It also means that the sellers have until 11:45 AM to get the house ready.

The important thing to remember is that possession immediately after the closing is not automatic it is spelled out in the purchase agreement.

Buyers and sellers have other options. Occasionally buyers negotiate for an early move-in and pay rent to the seller up until the closing. There is usually a damage deposit. A contract is drawn up to protect both parties.

Sometimes homeowners need an extra day or two of possession to move out. In that case, the sellers rent their former home after the closing. We call that a “rent back”.  The rent back is also put on a special separate contract.

Sellers sometimes just need an extra hour or two after the closing.

There are a few other options. Movers have all sorts of services they can offer to store items in pods or trucks with the movers or at the new home.

It is important to remember that whatever your moving situation is chances are your real estate agent and movers have seen it all before and will help you make it work and may even have an idea that you have not thought of.

Also see Final walkthrough

How clean is clean?