Buying A House Or Apartment


Before investing in owning a home or apartment, readers should know what their real estate agent or broker is doing. The possibility for mistakes and dishonesty will always be there, and consumers need to be fully armed to make sure that their dream of owning a house or apartment doesn't become a financial or domestic nightmare. Readers will be much more confident about the sale knowing for themselves how to get the best price for property and mortgage rates, the pros and cons of hiring a broker, how to determine...

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Before investing in owning a home or apartment, readers should know what their real estate agent or broker is doing. The possibility for mistakes and dishonesty will always be there, and consumers need to be fully armed to make sure that their dream of owning a house or apartment doesn't become a financial or domestic nightmare. Readers will be much more confident about the sale knowing for themselves how to get the best price for property and mortgage rates, the pros and cons of hiring a broker, how to determine if property values will rise or fall - and what can be done about it.

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What the "Experts" May Not Tell You About ... Buying a House or Apartment

By Nancy Ramsey

Warner Books

Copyright © 2004 Dan Ramsey
All right reserved.

ISBN: 0-446-69092-9

Chapter One

It All Boils Down to Property Rights

Nobody really owns property. They actually own the right to use property. Some property rights include living on it, using the water on it, owning any minerals or oil under it, and even the right to sell some of these rights to others. And it's these property rights-not the property-that get bought and sold in the marketplace.

Unfortunately, these rights can get confusing as owners sell off some and not others, forget to register (record) a sale, get a loan against the property, or give rights away to heirs. That's where things can get muddy. You come along ready to buy, but you may not be getting the rights you think you bought. That's where understanding property rights is really important to buyers. Most real estate agents know this, too, but some forget-or they assume that you know. A few don't care. So the first thing you need to know before buying real estate is how property rights work and how they are transferred between buyers and sellers.

What Is Property?

Just about anybody can own property, including individuals, groups (couples or corporations), and even governments. Fortunately, property rights are about the same for everyone. These rights are defined by state laws, but most states have similar laws about real estate, so most of the terms used here and by real estate professionals are the same.

Real property, as you now know, isn't really dirt and a residence. It's the right to use a specifically defined piece of real estate.


Real property is the right to use real estate. Real estate is the land and everything attached to it. Personal property is everything not attached to the land. The right of real property extends from the center of the earth to the end of the earth's atmosphere, unless otherwise ruled.

What about the house on the property? Is it real property or personal property? The rule is: If it's attached to the land (typically with a foundation in the ground), it's part of the land and thus part of the real estate and real property.

Insider's Tip

As you start looking at houses, remember that if something isn't permanently attached to the house (refrigerator, wall hangings), it is considered personal property and is not included in the sale unless specifically mentioned.

There are numerous ways that real property can be used. You can buy real estate to build a retail store, a wholesale warehouse, a factory, a rental apartment complex, or even a vacation home. In this book, we're covering residential real estate, the place where you will live most of the time. That can be a single-family residence (SFR) such as a house, a condominium (condo) apartment, a cooperative (co-op) apartment, or a Planned Unit Development (PUD).

What's the difference? How you own it! With a house, you own all rights to the land, residence, and other components yourself.

With a condo, you own the unit in which you live and share ownership of any common areas (entryway, yard, tennis courts, and the like). With a co-op, you own stock in a corporation that owns everything. When it comes to property rights, a PUD is like a house except that there's little or no space between units, and any common area is jointly owned; town houses are usually PUDs. More people buy houses than condos, co-ops, and town houses, but we'll cover buying all of them in this book.

Title and Other Rights

How does someone know who owns what real property rights? The owner is said to hold title to the property. This is very important to you, the buyer, so let's take a quick look at what it means.

Title is evidence of real property rights. Somewhere in a nearby government building, on paper or on a microfiche, is a signed and recorded document declaring who owns each piece of real property in its jurisdiction. They keep track of title-and especially who owes taxes!

Let me clarify that title and possession are different things. If they weren't, no one could rent property from the owner. The landlord holds title to a rental apartment, but the renters purchase the right of temporary possession. As you start looking at property for sale, you may consider houses that currently have renters in them, so understanding their rights is important to buying.

There are a couple of ways of looking at title. If you get a mortgage, you can say that the lender actually owns the property and lets the buyer live in it; or you can think of it as the buyer owning the property subject to the rights of the lender. Some states see things the first way; some states see them the second. As a result, state laws are built from one of these two viewpoints. If the lender is considered the owner, it's a title-theory state; if the buyer technically owns the property, it's a lien-theory state. It's an issue of law that leads to slight differences in how buyers take title in various states, though most states follow the lien theory. If you're selling a house in a lien-theory state and buying one in a title-theory state, you'll see some differences in the paperwork. Otherwise, the process is about the same.

So let's continue with ways buyers can take title to real property. Most buyers take absolute title to the property-called fee absolute or fee simple. Fee means ownership. The owners can do anything they want with the property as long as it doesn't violate zoning or other laws. (They can't turn a house into a factory, for example.)


Fee absolute or fee simple means that the owner of the real property has absolute ownership, can sell or otherwise dispose of the property during his or her lifetime, and can will the rights of ownership to another upon the owner's demise.

An owner also can say that the property can only be used for a specific purpose, such as an owner who wills land to be a school. That's called fee defeasible, or voidable ownership. Most residential property doesn't have this type of title.

You also can hold title to property for as long as you live, with it transferred to someone else on your demise. That's called a life estate. Some retirement communities sell residences with this type of title. Once the occupants die, the title reverts to the corporation, which can then resell it. This makes sense for those who don't need to purchase absolute rights, because a life estate typically is cheaper.

As mentioned earlier, you can buy the right of possession without purchasing the right of ownership. If that right is for a specified period of time (one, five, twenty years), what you're getting is a lease. It gives you most of the rights of ownership, but only for the stated time. For example, if you're moving to another city for your job and know you will only be there for three years, you can get a three-year lease on a residence and enjoy whatever rights the owner sells you, including decorating and even remodeling to suit your tastes. You might even be required to pay property taxes and other assessments.


Make sure you know exactly what type of title you're getting when you buy real property. If something happens to you or you try to sell the property someday, you may find out that you have nothing to give. This is especially true of apartments (condos, co-ops). If there is any doubt in your mind, ask a real estate attorney or title insurance officer to explain what rights you're buying.

Here's one more thing to think about as you consider property rights. An easement is the right that someone else has to use your property for a specific purpose. Why would you ever consider such a thing? Because you want electrical, sewer, and water service! In order for these services to come onto your property, the utility companies must first ask your permission.

If your title includes specific easements, however, they already have that right and don't have to ask. In fact, the easement was probably added to the title before a residence was built, so you may not have a choice in the matter. When you take title to the property, you accept any prior easements (though they can be changed with the help of an attorney). When you buy property, the title report will include specific information about easements to the property.

Out in front of your residence, the city or county probably has an easement over your property because, in many places, you actually own the property up to about the center of the road. Because title includes a road easement, though, you can't throw up a barricade some fine morning and start charging people to drive over your property. The owner has already agreed to let people pass over it. Conversely, other people are letting you drive over their property. That's an easement.

In addition, someone owns the rights to any and all minerals in your new property. It may be you or it may be someone else. If you find gold on your land, you may not be able to keep it. Chances are, however, that the gold, silver, oil, and just about everything else of great value was removed before the house was ever built; this is a nonissue in most locations. If you are concerned about mineral rights on the property you're buying, speak with an attorney or a title company officer to get an understanding of who owns what rights.

There's one other set of rights that impact residential property: riparian. These are rights you may have-or not have-regarding bodies of water on or adjacent to your property. Is it your water? Can you dump in it? Whom do you share these rights with? These are all property right and title questions that you may need answers to. Again, a title officer or attorney can explain them to you as they pertain to any property you buy.

Transferring Title

So now you know what title is all about. But how can you make sure that you are getting good and clear title to property you buy?

First and foremost, make sure that the person selling you the property rights has the right to do so! Fortunately, there are folks who make a living at researching and verifying titles on property: title companies. They use public records as well as their own extensive files on every property in your area to know who owns what rights. Most also will insure title to property, guaranteeing that they will pay for the defense of a property's title in court or even pay a judgment ordered by the court if the title isn't what they say it is. That's title insurance. You'll learn more about title insurance companies in the coming chapters.

As a buyer, there are various ways that you can take title, or own rights to a property. That's important because it indicates your ownership interest (by yourself, or with others) as well as what will happen to the property if an owner dies, called right of survivorship. If, for example, there is a divorce, how the owners hold title will be important. As a buyer, you want to know what title is being offered as well as how you want to hold it. When it's transferred, the way that title is held usually can be changed, so you will want to know your options.


Tenancy is the right of possession of real estate, including the right of ownership and occupancy. There are various forms of tenancy as defined by state laws.

Let's take a quick look at how title can be held. It's a simplified description always subject to state laws, so you may hear slightly different terms. The intent, however, is about the same wherever you buy or sell title.

Tenancy by the entirety gives husband and wife equal right of possession and the right of survivorship (if one dies, the other gets the property). This is sometimes called community property.

Joint tenancy offers two or more people undivided interest in the property with the right of survivorship; it's similar to tenancy by the entirety.

Tenancy in common gives two or more people undivided interest in the property but no right of survivorship (if one dies, the property must be sold).

There are other forms and other names for these forms, but their intent is to define who gets what rights, including the right to the property if one of the owners dies. When property title transfers to you, make sure you know what you're getting.

During the buying process, someone (agent, seller, escrow service, you) will request an abstract of title from a title company. It's a summary of the historical record of title for that specific piece of property, often dating back to when the parcel was part of a larger parcel that was subdivided. If you're using an agent, she or he may get this and review it for you, but, frankly, most don't.

Insider's Tip

Every piece of real estate in your area is defined, and title changes are recorded, at a city or county courthouse. It's public record so you can, at any time, go down and find out about property you're considering buying. It helps if you have the legal description, but even an address can get you basic information. Visit the local property tax office and the local planning office, too.

Once the abstract of title has been reviewed and okayed, the title company issues a binder or insurance policy on the title. If you're dealing with a lender, you'll need that binder to get the money to buy the house.

Escrow Basics

As you can see, there's a ton of paperwork involved in buying a house. There are agreements, title papers, loan papers, and lots of documents to help protect the sellers and agents. Everything must be pulled together for the closing transaction. And someone you all trust has to keep track of the title and money that's changing hands. Who does this?

An escrow agent is a trusted third party that works as a go-between for the seller, buyer, agent, lender, title company, and anyone else involved in a real estate transaction. The agent follows the instructions from the signed and countersigned purchase agreement-who gets what, when, and how-then takes care of all the paperwork, math, and transfers to make it happen.

An escrowagent can be independent or part of the lender's or title company's staff. When buying property, it's typically smarter to use an independent escrow company, though a title company is a qualified third party for most transactions. Lenders should only be used as escrow agents if you are refinancing your mortgage.


You've learned more about real estate transactions in this chapter than some agents know. You've learned about property rights, what title is, how title can be taken, and how real estate transactions are closed. Along the way, I've given you some valuable tips to save time, trouble, and money. Whether you plan to use a real estate agent, have decided to buy property without an agent, or really don't know for sure quite yet, this introductory chapter and this part serve as a solid foundation for buying a house or apartment.


Excerpted from What the "Experts" May Not Tell You About ... Buying a House or Apartment by Nancy Ramsey Copyright © 2004 by Dan Ramsey. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Introduction xiii
Why Experts Won't Tell You xiii
Why I Will Tell You xv
How to Use This Book xvi
Part 1 What You Need to Know Before Buying Real Estate 1
Chapter 1 It All Boils Down to Property Rights 3
What Is Property? 3
Title and Other Rights 5
Transferring Title 8
Escrow Basics 10
Summary 11
Chapter 2 It's a Buyer's Market 12
The Marketplace 12
The Buyer 15
The Seller 17
The Players 20
Summary 22
Chapter 3 Lenders Hold the Keys 23
The Money Market 23
How Lenders Lend 25
Mortgages 27
Fannie and Freddie 29
Summary 31
Chapter 4 Getting the Home You Really Want 32
Determining Your Needs and Wants 32
Studying the Marketplace 33
Looking at Neighborhoods 36
Learning What You Don't Want 37
Making Decisions You Can Live With 38
Summary 40
Part 2 Getting the Most from a Real Estate Agent 41
Chapter 5 How Agents Are Supposed to Work for You 43
Understanding Agency 43
Brokers and Agents 45
Comparative Market Analysis 48
Seller's Listing 49
Marketing the Listing 51
Helping with Financing 52
Summary 52
Chapter 6 Selecting a Gem from Among the Duds 54
Gathering Duds 54
Culling 56
Selecting the Best 58
Hiring the Best 61
Summary 62
Chapter 7 Helping Your Agent Work Harder 63
Knowing Your Agent 63
Letting Your Agent Know You 64
Working with Your Agent 65
When and How to Ask 67
When and How to Tell 68
Relieving Buyer's Anxiety 69
Summary 70
Chapter 8 Getting the Money First 71
Getting Smarter About Real Estate Finance 71
Your Financial Options 73
Prequalifying 74
Checking Your Credit 77
Summary 80
Chapter 9 Interviewing Property 81
Getting the Facts 81
Sizing Up Drive-Bys 83
Walking Through 84
Reinspecting Choices 87
Summary 89
Chapter 10 Making the Offer 90
Offer to Purchase 90
Including Contingencies 92
Making the Offer to Buy 93
Handling Counteroffers 96
Accepting Your Offer 97
Summary 98
Chapter 11 Getting to Closing 99
Getting into Escrow 99
How Long Until Closing? 102
Keeping Everything Moving 103
Preclosing 105
Closing 106
Moving Out, In, and On 107
Summary 108
Part 3 Buying a Home Without an Agent 109
Chapter 12 Building Your Support Team 111
Hiring the Team 111
Lender 112
Attorney 114
Appraiser 115
Inspectors 116
Title 117
Escrow 117
Summary 118
Chapter 13 Finding Property for Sale 119
What Are You Looking For? 119
Where Should You Look? 120
Finding Flowers Among the Weeds 122
Buying a Foreclosure 124
What Not to Buy 125
Avoiding Common Problems 126
Working Around Renters 128
Summary 128
Chapter 14 Buying from Builders 130
Advantages and Disadvantages 130
About Building Contractors 132
Buying from Spec Builders 133
Working with Custom Builders 134
Negotiating with a Builder 136
Closing on a New Home 137
Summary 138
Chapter 15 Doing Your Own Homework 139
Checking Public Records 139
Researching Title 141
Inspecting a Property 143
Getting an Appraisal 145
Getting a Home Warranty 147
Summary 148
Chapter 16 Pulling the Money Together 149
Funding the Purchase 149
Preparing Other Assets 153
Creating Financing 154
Estimating Closing Costs 156
Estimating Time 157
Summary 158
Chapter 17 Making an Offer and Making It Stick 159
Setting the Price and Terms 159
Writing the Offer 161
Presenting the Offer 163
Handling Counteroffers 165
Escrowing the Sale 166
Summary 168
Chapter 18 Closing on Your Castle 169
Planning for a Smooth Closing 169
Early Occupancy and Other Challenges 170
Preclosing Review 172
Signing Your Life Away 175
Recording and Disbursement 177
Moving In 177
Moving On 178
Summary 178
Appendices 179
Appendix A Real Estate Glossary 179
Appendix B Real Estate Resources 184
Index 199
About the Author 213
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