Buying property in the US / property tax

42 posts in this topic

4 hours ago, jeba said:

Does that mean there will be two realtors to be paid (the buyer´s and the sellers)? What kind of commission would you have to look at?

Yes. The classic commission structure is 6% of the sales price, which is paid by the seller and split evenly between the two agents. Because of increased competition and the internet making looking easier, many seller’s agents are now offering 5% (with half for the buyer’s agent). At least this is the case I dealt with recently when selling a property in northern Virginia. But that’s an extremely competitive, high price market so what works there might now be true for the whole country. Obviously the more the place sells for, the more money the seller’s agent makes (as well as the buyer’s agent, but they don’t have much influence there). There’s an interesting Freakanomics story about realtor work input vs outcome if you want to know more about that not always transparent relationship. 

 

As Fraufruit mentioned, the commission is baked into the sales prices and paid by the seller. However, a buyer should expect to pay a chunk of money in closing costs. This includes the financing costs, title company fees, deed registration fees (with the local government), etc. The total due depends, but it’s good to plan for about $8-12,000 for your average sized mortgage. 
 

Another main difference in the buying process that I experienced is the Notar function in Germany. There is nothing like that required in the US because we are generally a ‘buyer beware’ contract legal system. Basically the buyer and seller can make any kind of contract they want. In practice most realtors use a standard contract for that location because each locality has specific disclosure requirements. The closing itself is at a title company (rarely a lawyer’s office) and the parties don’t have to go in person. Also, the whole handover is done at once. Meaning, at the closing (or before if you do it by proxy), the documents are signed, the buyer transfers the money to the title company’s escrow, and the keys are handed over. The title company then transfers the money to the seller, minus the fees and the realtor commissions. In Germany it was a multi step process where we waited about 6 weeks from signing at the Notar to paying and being able to move in. But in most cases in the US it’s all done within a few hours on one day. 

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5 hours ago, MollyWolly said:

In practice most realtors use a standard contract

So it´s the realtor who drafts the contract? Not a lawyer?

 

What are ways to help you with your due diligence so that you´re aware of potential impacts on the value of a property? At which authorities or institutions should you inquire about what could potentially impact the value of a property? E. g. that a new refugee detainment camp / motorway / bridge spoiling your view / prison /

whatever will be built next door or that a bridge will be taken down because there is no more money for maintenance (happened twice in my hometown of Würzburg making commuter´s life more difficult)? Are there zonings like in Germany (i. e. regulations that ban commercial activities in residential areas)? Would a seller be under an obligation to reveal existing or potential problems which are hidden even to a building inspector? Could it e. g. happen that your neighbour will build a high-rise tower next to you against your will (currently happening to a home next to the gym I´m using - not only spoiling the view but also putting shade on the solar system of the poor guy who has to live there)?

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Answering each of these questions could take a day.  And the answers to them are highly location specific.  Do you not understand that the US is a HUGE country?  Laws vary from state to state and even within states there are differing local customs and laws.  I grew up in Louisiana and we even have a system called the Napoleanic Code which is unto itself.  

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8 hours ago, MollyWolly said:

The closing itself is at a title company (rarely a lawyer’s office) and the parties don’t have to go in person. 

We have bought and sold in 3 states, CA, KS, and NY.  What we saw was that laws and norms can vary greatly. NY was by far the most tedious experience. 

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16 hours ago, MollyWolly said:

the commission is baked into the sales prices

 

Let's be clear:  the Asking price is usually based on comparable homes sold in and around the neighborhood.  Adding a commission percentage merely increases the Asking price; it does not ensure that will be the final Selling price.  The Selling price is based on the negotiations between the Buyer and Seller.  In some markets the Final Selling price could be higher, lower or the same as the Asking price.  The US real estate market is not a "take it or leave it" market.

 

For example, I recently looked looked at a property.  Six months ago it was listed (asking price) for $500k.  It sold (final selling price) for $460k.  Today's seller has it listed (asking price) for $529k.  When I went to the property's open house, the seller was there and said (without me asking) he would sell it to me for $499k.  Whatever the outcome , the commission will be paid on the final agreed price.

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1 minute ago, catjones said:

 

the Asking price is usually based on comparable homes sold in and around the neighborhood.

 

Which included commission. 

 

Things are negotiable such as the house needs a new roof, etc. The buyer can deduct these costs from their offer. This is why a complete home inspection is crucial including a pest inspection for termites, etc.

 

 

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4 minutes ago, catjones said:

Whatever the outcome , the commission will be paid on the final agreed price.

Of course, but the market adjusts for that fact that commissions exist.  

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11 hours ago, fraufruit said:

The buyer can deduct these costs from their offer.

 

for the sake of jeba; the seller can reject any and all deductions.  in some cases, major repair work might already be in the price.

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Is it common to try to avoid the realtor´s commission by advertising privately? If so, where to find those advertisements and are there standard contracts you could use?

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It's called "for sale by owner"

 

Real estate? Anywhere within commuting distance of NYC? Looking for a hidden deal? Good luck with that.

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5 hours ago, catjones said:

 

for the sake of jeba; the seller can reject any and all deductions.  in some cases, major repair work might already be in the price.

Yeah it's completely customary to price a house with its condition factored in. In a seller's market especially, there will be no substantial additional concessions.

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I said you can ask for deductions for things found during inspection. I did not say that you will get them. We usually did when the properties had been on the market for a while.

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11 hours ago, jeba said:

Is it common to try to avoid the realtor´s commission by advertising privately? If so, where to find those advertisements and are there standard contracts you could use?

It's not common.  The realtor does provide a service.  Not only do they advertise the house, but they also take photos.  When a potential buyer wants to see the property, the realtor set up the appointment and shows it.  The realtor also acts as a middleman in the negotiations (the seller and buyer rarely have a personal contact), may help with finding financing, an inspector and final contracts, title searches to make sure there are no liens and final title transfers to either the buyer (all cash) or to the mortgage company. 

Many real estate sites will have a "for sale by owner" selection.  But don't be under the impression that a sale by owner means the price is lower or that there will be no commission.  If the buyer uses a realtor and that realtor finds a 'for sale by owner" property, the realtor will be paid for his/her work.

Standard legal contracts: legalzoom.com.  

 

Buying/selling real estate is not like an automobile.  I've done my share of both, but would never consider doing it myself.  Someone with zero experience (much less from another country) would be a fool to try it.

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Catjones is spot on!  Also keep in mind that the Realtor, since he is paid by the seller, works only for the seller.  He may help the buyer with the purchase but his legal responsibility is only to the seller.  The Realtor is like the Makler in Germany and will also take advantage of every "slight of hand" that he can so like the saying goes "Buyer Beware"  When you are referred to an attorney, a title company, building inspector, etc by the Realtor you can count on him getting a "referral fee"  from the company.  I usually never used the Realtors recommendation without thoroughly checking it out myself first.

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2 hours ago, garyh911 said:

The Realtor is like the Makler in Germany and will also take advantage of every "slight of hand" that he can so like the saying goes "Buyer Beware"  When you are referred to an attorney, a title company, building inspector, etc by the Realtor you can count on him getting a "referral fee"  from the company.  I usually never used the Realtors recommendation without thoroughly checking it out myself first.


Agree for the most part. However, real estate agents in most states are licensed and do have certain legal obligations to follow. When I hired someone to sell my property last year, he said he was required to inform me of any/all offers and required to carry out my decision. In my locality at least it was entirely the buyer’s choice on title company etc. 
 

Also, a realtor hired by the buyer represents the buyer’s interest, not the seller’s. That is why usually both parties have their own.

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On 1.1.2020, 07:39:32, jeba said:

My daughter and her husband are looking to buy a property near New York (as he works in Manhattan). There seem to be areas with surprisingly low prices (given that they´re near NYC). E. g. this one costs only $ 220000.- and that seems to be the going rate for the neighbourhood. However, property tax is $ 7774/year although on the agent´s website the monthly tax burden is given as $ 381 only. And this discrepancy can be found on all the properties I´ve found online. Is there some explanation for it? Can you maybe offset (part of) property tax against your income tax? As a rule of thumb it seems property tax is up to 5 % of the value of a property. What am I missing here? Is it just me who thinks that is insane?

Any tips on what to keep in mind when buying US property?

Also check out the neighborhood data.  Neighborhoods can vary quite a bit in the US.  Especially in urban areas.

 

http://www.city-data.com/zips/07666.html

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On 5.1.2020, 23:43:31, MollyWolly said:

Also, a realtor hired by the buyer represents the buyer’s interest, not the seller’s. That is why usually both parties have their own.

Be careful that the agent in the end is out for themselves.  We had a seller's agent that I felt was working more towards making a fast sale and doing as little work as possible rather than looking out for our best interests. This can also be true for buyers agents. Buyer beware.

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Are there alternatives to financing a home via bank loans? Is it possible to get loans e. g. from insurance companies or "Bausparkassen"?

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Go to the restaurant on the corner and ask for 'da big guy'.

 

You may have to take a few trips to Mexico, so make sure your passports are valid. 

 

Your family is in danger if you don't keep up the payments.

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