August 31, 2008

Experiences Relocating to the USA (Pt 6) - Buying a House

Some advice and guidance based on my relocation move to the USA in September 2003. Part 6 - Buying a House

Buying a House

Buying a house in the USA is such a different process from the UK that you may actually enjoy the experience!

Buyer's Agents

First thing to know is that there are usually two types of Real Estate agents ("Realtors") involved in process -- a Buyer’s Agent and a Seller's Agent, who share the commission on the sale. As the name suggests, you engage a Buyer's Agent to help you find and purchase a property, and they are there to help you and make the whole process run smoothly for the buyer.

If you are new to an area, a Buyer's Agent is an invaluable resource for advising about where and what to buy, although you will still want to do some research yourself to help narrow down the choice.
When we were relocating in 2003, we worked with a Realtor called Connie Knight as our Buyer's Agent who provided a filtered list of properties based on our preferences, and then helped us tour them to narrow our choice still further.

With the help of our Buyer's Agent, we were able to make the right choice to buy our current house in a great neighborhood -- even though when I look back now I realize how totally naive and green we were at the time!

Property Viewing

Another difference is the process of viewing properties. In the US, the sellers will not be present in the property while you are viewing it, and the property is "shown" by the Seller's Agent. Throughout this whole process, your Buyer's Agent will be with you to discuss any questions or concerns you may have. You are also encouraged to "explore" the house to a much larger extent than you are in the UK - opening cupboards and drawers, or looking in the attic are all considered quite normal when viewing a US house. It is also normal for US properties to be specially "staged" for sale -- including the walls being repainted throughout in a beige / neutral color, new carpets laid specially for the showing, and a large proportion of the contents being removed into storage during the sales period. This is not necessarily a bad thing, although it does tend to mean many properties look very similar on the inside during viewings.

Real Estate Contracts

The other big difference with house purchasing in the USA is the way real estate contracts work.
In England, the house sale is not finalized or binding and no firm closing schedule exists until the very last moment. Arrangements can and frequently do collapse at any time up to that final sale closing.

In the US on the other hand, once a buyer's offer to purchase a property is accepted, the contract and timing is fixed and binding. The closing date of the sale is defined and agreed right from the start of the process, and the buyer is fully committed to completing the purchase by paying an "earnest money" deposit into escrow as part of the contract agreement. The buyer pays this "earnest money" of several thousand dollars (approx 1-3% of the purchase price is typical) into escrow, and the money will be kept by the buyers if the purchaser is unable to complete the sale contact on time.

As part of the sale contract, some well defined "contingencies" are listed which provide some specific points when the buyer can pull out of the transaction -- such as a "Financing Contingency" dependent on the purchaser securing the necessary mortgage funding. The buyer can pull out of the contact at the defined contingency points if they are unable to complete the relevant contingency (for example, if they could not get the mortgage they expected), but pulling out of the contract at any other time or for any other reason will result in the forfeiture of the earnest money.

Needless to say, this process all makes house purchasing in the US much more predictable and more likely to run smoothly to closing.

Again, your Buyer's Agent will explain all the details of this process and help you draw up the right contract contingency clauses for your real estate purchase; which certainly helps those new arrivals who are not familiar with the US process.

Contingencies on the Sale of your UK Property

A situation to watch for is if you need to sell your house in the UK in order to purchase the property you want in the USA. Normally this is handled in the US by making a purchase contract contingent on the sale of the previous property, which gives the buyer the ability to pull out of the sale without penalty if the sale does not close by a specified date (remember -- closing dates for purchase contracts in the US are known up front).

When you need to couple this situation to a house sale in the UK, all bets are basically off! It is almost impossible to get a guaranteed closing date on a UK house sale -- even when both parties want things to close "quickly". Even with the best planning it is quite easy for the process in the UK to progress so slowly that you get to a decision point -- do you exercise you contingency to pull out of the purchase of the property you really wanted, or do you press ahead and risk your earnest money deposit?

We thought we were being conservative setting our US purchase closing date at 1 month after the UK closing date that "everyone was aiming for". But you guessed it; things did not finish on time! All the pieces of work that are required to close a sale in the UK were progressing so slowly -- despite DAILY chasing from both the buyer and my wife in the UK and me from the US!

We actually ended up only getting the deal closed and the outstanding balance paid into our bank account on the morning (UK time) of the day of our US closing! Thankfully the time zones worked in our favor and we were able to initiate the transfer of the money into our US bank account in time to hit the 1pm GMT processing deadline. To our great relief the money arriver in our US account that same day (normal quoted delivery estimate is "3-5 days") so we were able to collect a cashier's check from our US bank late that afternoon (US time) in order to make our closing meeting that evening! If you look carefully at the description of our closing day adventures above, you will realize that we were up all the night and day US time in order to get those two transactions closed and synchronized -- even though we originally thought we had left 4 weeks of contingency time!

After that adventure, I have vowed never to buy or sell a home in the UK ever again. I have to say I hate the UK real estate system -- it is so completely inefficient and broken that it is a miracle any houses get sold!

I do hope your experiences turn out better than ours were, but placing a contingency on the completion of a UK sale is a particular problem to watch out for when moving to the USA from UK.

Which Property to Buy?

While a lot of the decisions about which property to purchase will be driven by personal preferences, there are also a few important general factors to consider too:

To Neighborhood or Not?

Should you buy a home in a recognized neighborhood (subdivision), or separate?
There are pro's and con's at either end of the spectrum, so it is important to apply a filter when selecting potential properties based on where on that scale you are most comfortable.

A neighborhood tends to provide closer community due to the close proximity of other houses and people with mutual interest in the area. Of course, some people value their privacy and isolation over community, so they may actually prefer not being in a big neighborhood.

A neighborhood will have an impact on all the properties in that area. A good neighborhood will tend to directly increase the value of all the nearby properties. Like a rising tide lifting all boats, the appreciation of individual properties will boost the value of all equivalent properties in the neighborhood. Similarly, a bad neighborhood will reduce the value of all the houses in it. Individual houses or small groups of properties do not provide the same uplift effect on property values.

Individual homes tend to be exactly that -- "individual" and custom-built for the original owner. That means they can have more "character" then neighborhood homes - which many people often slightly unfairly describe as cookie-cutter "McMansions". In my experience there is usually some reasonable variation among property at the medium to high end of the market, but some will no doubt disagree.

Some of the most frequent objections to living in a neighborhood are the dreaded Homeowners Associations (HOAs). HOAs bring with them Covenants, Conditions, and Restrictions (CC&Rs), which are extra rules that homeowners are required to comply with if they live in that neighborhood. Some of these CC&Rs can be inconvenient (for example, do not store boats or RVs on the property) and some can be arguably just plain anal-retentive (for example, 2" maximum lawn grass length, needing approval of the paint color before repainting your house, or not allowing cars to be parked outside the property).
One survey found that two-thirds of people living in homeowners associations found the HOA "annoying" or worse and at least 19 percent had been in a "war" with their HOA.

Many people deliberately avoid living in a neighborhood just to avoid the HOAs and CC&Rs!
Needless to say, one of the key questions when considering purchasing a property is to understand what CC&R rules exist, and whether you can live with them.

The Garage-Door Count Principle of Property Assessment

One of the quickest ways to get a rough assessment of the prosperity and valuation of a neighborhood or property is what I call the "garage-count" principle. If all the houses in a neighborhood have 3-door garages, then you can be sure it is a better area than properties with 2-door garages.
This usually is not apparent at first to most people from the UK where most houses only have one-car garages, so even 2-car garages can seem like luxury.

Don't Forget the Property Overhead Costs

When looking at properties, there are several additional expenses and upkeep costs that it is worth considering before making your choice.

First and foremost is Real Estate Property Tax, which is levied each year by cities and counties in most States. This can result in very significant bill each year, but the amount is usually declared on the listing details for a property.

Second are any Homeowners Association fees or other shared maintenance / management costs. These can take the form of both annual fees and one-off assessments for specific projects. Some HOAs budget for periodic maintenance items (such as renewing the fence around a neighborhood), but some just out of the blue hit the property owners with a big bill of several thousand dollars each.
At the very least, try to find out whether any big maintenance costs are imminent for a property before buying.

Last but not least are property maintenance and upkeep costs. Houses in the US are generally considerably larger than in the UK -- which means more time/costs required for cleaning, repairing and painting. Similarly, gardens ("yards" in US parlance) also can be much larger than in the UK, which means more mowing, weeding and fertilizing cost/time.
Do not underestimate the amount of time you will need to understand the local growing conditions or the skills you may need to deal with the local fauna and flora. In the Pacific North West, we have some completely different plants and weeds than I have ever encountered in the UK!

I have talked mostly about single-family houses here because that is how my situation worked out, but these principles should be equally applicable to apartments and condos too.

Do not let the above put you off buying a house in the US though -- just make sure you make an informed choice so you will not be unpleasantly surprised later on.

Owning your own home remains one of the best long term investments you can make in any country.

Next: Part 7 - Learning to Shop

Experiences Relocating to the USA from the UK

  1. Experiences Relocating to the USA - Part 1 - A New Beginning
  2. Experiences Relocating to the USA - Part 2 - Moving All Your Worldly Goods Half Way Round the World
  3. Experiences Relocating to the USA - Part 3 - The One-Way Ticket
  4. Experiences Relocating to the USA - Part 4 - Culture Shock - Two Nations Separated by a Common Language!
  5. Experiences Relocating to the USA - Part 5 - Building a US Credit History
  6. Experiences Relocating to the USA - Part 6- Buying a House
  7. Experiences Relocating to the USA - Part 7 - Learning to Shop
  8. Experiences Relocating to the USA - Part 8 - Was The Move Worth It?
Entry categories: General
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