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| REAL ESTATE ODDS AND ENDS FROM DICK AND KRIS |
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Articles and Advice |
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| NEW LISTINGS AND SALES INVENTORY GROWING By DICK CLARK, CRS, ABR, CRP The market is still fairly strong despite what you may read or hear. Interest rates are at the lowest point in years. The inventory is growing which may lead to lower prices. The home at 2708 Laramie Gate Circle is still on the market at $800,000. It is a 4 bedroom, three bath Spruce Model. The 4/3/2179 square foot house at 4520 Lin Gate accepted an offer in about a week and was listed at $819,000. It came back on the market at $809,000 it is now priced at $799,000. There are two homes currently listed on Mohr Ave. 4571 Mohr is 3/2/1813 listed at $714,950 while 4618 Mohr is the same model listed at $649,900. The home at 4988 Mohr is currently pending after only 8 days on the market. It was listed at $675,000 and is a 3/2/1592 sf. Many offers are being made and accepted at list price or better. Some do fall through before closing for one reason or another. This is one of the big reasons that you should list with an experienced Realtor team such as Kris and me. We try to limit your liability by keeping the home on the market until contingencies are released. We also strive to make sure the Buyer's of your property are fully approved and have seen all disclosures before making their offer. A fully approved offer includes all financial information and only is dependent on a Clear Title, the Appraisal and a copy of the Purchase Contract. All contingencies should be written in as removed within 10 - 17 days. The mortgage rates are still at their lowest rates in many years. Qualification is tough with credit scores having to be above 650 points. FHA is tightening their requirements by raising the credit scores, allowing a smaller amount of credits back to the buyer and asking for more information about the sale. Please give Kris or me a call if you are wondering about the market, thinking of selling your home or wishing to buy an investment property, second home, just curious as to what is available or wondering about the difference between a foreclosure and a short sale. We do appreciate the business you have given us and the referrals you have pointed our way. Thank you very much. |
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| Loan modification “blackmail” By Benny L. Kass DEAR BENNY: My wife and I received from our lender a repayment agreement for our original mortgage. This was a result of the bank initiating a foreclosure sale, which was temporarily suspended because we agreed to enter the Home Affordable Modification Program. But the bank is asking us "to acknowledge that they are the legal holder and owner of the Note and Security Instrument and further acknowledges that if Lender transfers the Note, as amended by this Agreement, the transferee shall be the 'Lender' as defined by the agreement." It should be noted that this is not the original bank we signed the mortgage with. We obviously won't sign this amendment and supplement to the original mortgage until we have an attorney review the documents. What do you think we should do? --Brian DEAR BRIAN: Your lender is trying to protect itself by having you sign that document. Over the past several years, lenders sold their mortgage loan papers in bulk to such groups as Fannie Mae or Freddie Mac who "securitized" those loans and resold them to investors all over the world. No one knows the whereabouts of the original promissory note that you initially signed.. And many judges throughout the country have told lenders, "If you cannot show me the original note, I will not let you foreclose on the property." So, your lender is basically "blackmailing" you. If you want the loan modification, you have to sign the agreement. You really should get a lawyer to assist you. The lawyer will determine whether judges in your state require the original note. If they do, you may be in stronger bargaining position with your lender. It should be noted that not all courts have adopted this position. The bottom line: You don't want your house to be foreclosed upon. Only you can make the decision, but get some legal advice before you sign that agreement. DEAR BENNY: In 2006, the assessed value of my house had climbed to $756,000 and then dropped to $714,000, trailing the declining market. I filed an abatement based on erroneous information that my town was using, and was successful. My house was reassessed at $531,300, very close to my suggested valuation. About the same time, I refinanced my house based on a bank appraisal of $678,000. Since then, my house valuation has decreased each year and it now has an assessed value of $442,600; our area is being re-evaluated this year. Here is my dilemma: I firmly believe, based on almost daily research, that the market value of my house is somewhere in the low $500,000s. I think by filing this abatement, I shot myself in the foot. I know buyers look at the assessed value, which is easily accessed on our town Web site. In my case, this differs dramatically from two years ago as well as the appraisal I had during the same month my abatement went through. Can I realistically list my house at what I consider to be market value and expect a real estate agent to explain these events to potential buyers, or am I stuck with an asking price closer to the current assessed value? --Karen DEAR KAREN: I don't think you shot yourself in the foot; in fact, you have been paying real estate tax on the lower assessed value. You can list your property for any amount you feel it is worth. Some real estate agents may balk if your valuation is too high, but if you have the research (comparables) showing what other similar houses in your area are selling for, you should be able to convince the agents of the value of your house. From my experience, assessments in many parts of the country are not consistent with a home's true value. Many older homes are not carefully inspected, so the government assessor does not always know what kind of improvements have been made. Keep in mind that based on today's economy we are in a buyer's market. Regardless of the price you set for your house, potential buyers will lowball their offers. Obviously, you do not have to accept any offer and have the absolute right to counter with a higher price. When an offer is made either to a seller or a buyer, the recipient has three alternatives: you can accept it, you can counter, or you can reject it outright. One suggestion: Because most buyers do not pay all cash, they will need to get a mortgage. Lenders will obtain an independent appraisal before committing a loan, and appraisers are coming in very conservatively with their valuations. So, to satisfy yourself, I suggest that you consider obtaining your own appraisal before you sign up with a real estate agent. It will be worth the $300-$500 dollars that most appraisers will charge you. DEAR BENNY: I own a condominium unit in a fairly large association. Over the years with good management, we have amassed a sizable reserve account. Recently, the board announced that because we are earning only a very small amount of interest on this account, it wants to start investing these funds in the stock market. The announcement stated that with interest rates starting to increase, the board believes that the stock market will be a good place to earn more money for our association. Can the board do this? --Charles DEAR CHARLES: If absolutely every owner in your association agrees to go to Las Vegas and gamble with your reserve account, I would reluctantly have to say this would be legal (although clearly inappropriate). Notice that I said that every owner must affirmatively agree. Your board of directors has a fiduciary duty to all of the owners who elected them to their positions on the board. If they want to spend their own money on the stock market -- or in Las Vegas -- that of course is their business. They certainly have the right to spend their own money as they see fit. But your reserve account does not belong to the board; it belongs to every owner in your association. The clear obligation of the board of directors is to invest your money in secure, insured investments -- even if that means that your money may not be earning as much as everyone would like. Reserve accounts are very important to the well-being of any community association. If, for example, your elevator or your roof needs replacement, and if the association does not have enough money in reserve to pay for these matters, each owner -- including you -- may be faced with a special assessment. This may cost you a lot of money. More important in today's market economy, lenders are insisting that a condo association have adequate reserves before they will commit to a mortgage loan. Indeed, the FHA loan -- which today is probably the most important mortgage around -- requires associations to have a minimum reserve requirement of 10 percent of the annual budget. For example, if your association's budget is $400,000, you have to allocate $40,000 annually for future reserves. A reserve simply means that the association should have money set aside "in reserve" to cover the cost of future emergency or major repairs. Reserves are (or should be) an essential part of every community association. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
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| Playing the real estate waiting game By Dian Hymer Buyers often are reluctant to make an offer to buy a home they find early on in their search. After looking for months and not finding anything comparable, some buyers regret not having moved quickly on a listing even though they saw it early on. In most cases, you should consider yourself lucky if you find the home you want to own for years relatively quickly. It's not uncommon in some low-inventory markets for buyers to look for a year or more before they are able to buy. For the last few years, sellers who haven't had a pressing need to sell have been waiting for a better market before putting their homes on the market. In one case, the inventory was so paltry that buyers who purchased in the Upper Rockridge area of Oakland, Calif., looked for four years before finding the house that would work for them in the long term. In high-demand niche markets, there can be a shortage of listings and a lot of buyers waiting for the same kind of home. A couple who purchased in the Oakland Hills looked for more than a year in an area where not much that suited their needs was available. They made two offers during that time and ended up losing in multiple-offer competitions before they were finally able to secure a new home. HOUSE HUNTING TIP: Buyers who find the right home soon after starting their search need to get a quick education about the local market in order to be able to keep from making a bad decision. You don't want to pass on a house and kick yourself later for doing so. You also don't want to buy a house that doesn't work out for you, particularly in the current market. You'd be unlikely to sell the home again soon and break even. Find out how often a listing like the one you're considering comes on the market. High-quality, well-located homes in coveted locations come on the market infrequently in some areas. Ask your real estate agent how many listings like the one you're interested in came on the market in the last six months or one year. How long did it take them to sell? Were there multiple offers? In other areas that have lots of homes for sale similar to the one you like, you have the luxury of shopping the market awhile. If someone else buys this home, you'll be able to find another in a reasonable period of time. There's no urgency, unless interest rates are rising and locking in a low rate is key to being able to afford the home you want. To ease your concern about buying a home before you've seen many, scour the Internet for other similar homes for sale in the area. Ask your agent to show you any other homes currently on the market that might work for you. This is how to determine the range of housing options in the area as well as understand local pricing. Buyers from out of the area are at a disadvantage if they are not familiar with the housing market in the new location. The Internet helps buyers gain information about what kinds of homes and how many are available in the new location. THE CLOSING: Although no one likes to make an interim move to a rental before buying, it does have the benefit of letting you live in the new community and decide which neighborhood will work best for you. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist. |
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| Pricing to sell in today's market By Dian Hymer Putting yourself in the right mindset to sell is essential. It's the most difficult aspect of selling for most sellers. Your home is worth what a buyer is willing to pay, which may not be what you think it is worth. Detaching yourself emotionally from your home is difficult. Clearing out years of clutter, depersonalizing your home by removing personal memorabilia, and staging your home for sale can help you step back and view the home as a commodity that needs to be sold rather than as your personal sanctuary. Putting your home on the market at a price that reflects what you want and not what the market will bear can cost you time and money as it sits on the market unsold. The home-sale market is a localized phenomenon. The only way to get a clear picture of what your home is likely to sell for is to find out which listings are selling in your neighborhood and for how much. The most recent sales -- those that closed within the last three months -- will be the most informative. Be sure to take a hard look at the list prices of homes that are new on the market. If the list prices are lower than they were two or three months ago, this indicates that prices are declining. This needs to be taken into account when you select a list price. HOUSE HUNTING TIP: Pay close attention to your competition. Don't fall into the trap of pricing your home higher than your neighbor's home because yours is better. If your neighbor's price is too high for the market, neither of your homes will sell. Ask your listing agent to call the listing agents of properties similar to yours to find out what kind of showing activity they are receiving. Have they had offers? If so, why weren't they accepted? Were the offers too high? If so, you should set your sights lower. Some listing agents recommend that you list considerably under market value in order to stimulate multiple offers. In some cases, this can be an effective strategy. For example, in the low-end foreclosure market, this was common practice at the end of 2009. Some listings priced way below market value received more than a dozen offers. However, it can be risky to price significantly lower than market value on a more expensive property for which the demand is lower. You could end up with more than one offer, but you could also receive under-market price offers. Your home needs to be perceived as a good value to a buyer to sell in this market. However, you could shortchange yourself by discounting the price too much. Your home is most marketable when it is new on the market. Buyers wait anxiously for the new crop of listings. Listings that don't sell relatively quickly often languish on the market. Price reductions often follow as the sellers try to find market value. A listing that has been on the market for months is likely to receive a low offer -- if a buyer makes any offer. A listing that receives a lot of showing activity when it first hits the market but gets no offers is probably overpriced for the market. In this case, it's best to lower the price to market value as soon as possible while the listing is still fresh in agents' and buyers' minds, even if this is within two to four weeks of the listing date. THE CLOSING: Listings in neighborhoods where sales activity is slim require a longer marketing period. Even so, pricing right for the market is imperative. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Real estate contingencies make comeback By Dian Hymer During the recession of the early 1980s, when mortgage interest rates hovered near 18 percent, few home buyers could qualify for financing, particularly if they already owned a home that needed to be sold before buying a replacement home. Offers made contingent on the sale of the buyers' current home were popular. Contingent-sale offers are increasing in the current housing market. Most buyers who want or need to make a move to a home that better suits their current lifestyle can't qualify to buy before selling their existing home due to stringent mortgage-qualifying criteria. Sellers don't like offers that are contingent on another property selling because it increases uncertainty. If the buyers don't price their house right for the market and it doesn't sell, the sellers are back to square one searching for another buyer. Most buyers aren't keen on selling their current home before they know where they will be living next. This can limit buyers' prospects because many sellers won't accept contingent-sale offers. The best houses at the best prices usually sell quickly, sometimes with multiple offers. Sellers usually reject contingent-sale offers if there's another qualified buyer who doesn't have to sell a home. As always with homebuying and selling, compromises must be made. In areas where home sales are slow and there are many homes on the market, a contingent-sale offer may be better than no offer. A drawback is that once the sellers accept a contingent-sale offer, this fact must be disclosed to other interested buyers. This can slow the showing activity. Aggressive marketing, like continuing to hold Sunday open houses, can counteract this to some extent. Sellers who accept contingent-sale offers can continue to entertain offers from other buyers for backup position, subject to the collapse of the primary offer. But when there is plenty of inventory for buyers to choose from, there's not much incentive for a buyer to make an offer on a listing that already has an accepted offer -- even though it is contingent on the sale of another property. HOUSE HUNTING TIP: Sellers who accept contingent-sale offers can maximize their chance of selling by including a release or escape clause in the contract. This clause allows the sellers to notify the contingent-sale buyers that they have accepted another offer in backup position and that they are invoking the release clause. The release clause has a time frame -- often 72 hours, but it's negotiable -- within which the primary buyers must remove the contingent-sale contingency and provide evidence that they can close the sale of the replacement home without having their home sold. If they are unable or unwilling to do so, the first contract is canceled and the backup buyers move into primary position. Recently, buyers who were in contract to buy a home contingent on the sale of their home were delivered a 72-hour notification. The buyers who were kicked out of contract had their home on the market but hadn't found a buyer in time. It's tempting for buyers who lose a home they want to another more qualified buyer to pull their home off the market and wait for a better time to sell. However, it's near impossible to buy contingent on the sale of another home in a seller's market when buyer demand is high. THE CLOSING: It's inconvenient for most buyers to move to an interim rental if they sell their home before they find a suitable replacement home. But, with cash in hand, they have the luxury of waiting for the right house. They can make a stronger offer and probably receive a price concession compared to the premium usually paid to entice sellers into accepting a contingent-sale offer. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
| Avoid house-rich, cash-poor pickle By Benny L. Kass DEAR BENNY: I am 58 years old and married. I have 22 years left on my 30-year mortgage, which is at 5 percent. I have a Roth IRA. I have some extra money to invest. In this current economy, what might you suggest? Should I pay money toward the principal on my mortgage? Put it in the Roth? I lost money in the stock market (bank stocks), so please don't suggest that I go back into stocks. Thanks in advance for any knowledge you might share. --Tommy DEAR TOMMY: Your question is perhaps one of the most difficult ones I have received. I have two crystal balls on my desk and, unfortunately, both are cloudy. I don't recommend paying off your mortgage, but you may want to consider sending in extra money every month. This will dramatically reduce your loan balance and shorten the paydown period. If you decide to send in additional money, please make sure that you write "extra payment toward principal" on your check as well as on the payment statement you send to the bank. I know that readers will challenge me on this; many homeowners believe firmly that it makes a lot of sense to pay off the mortgage so that you do not have to pay all of the interest that accrues. I understand this position, but too many of my clients end up "house rich and cash poor" at age 65 or older. I believe it makes sense to invest your extra cash rather than pay off the mortgage. Keep in mind that mortgage interest is tax deductible, so the "bite" is not a dramatic as the monthly payment. OK! Now readers will send me e-mails asking "Where can I invest?" Banks are currently paying less than 1 percent on most deposits. That's true, but I believe that by the end of the year, banks will start paying more for long-term CDs (certificates of deposit). In the meantime, I would: 1) Start sending in extra money every month to your mortgage lender. Take your monthly payment (only for principal and interest and not for any escrows) and divide it by 12, and that number should be the minimum of any additional payment; 2) Yes, you should consider increasing your Roth investments, but first you should talk with a financial advisor to get assistance as to how much to invest; 3) Have you considered buying real estate for long-term investment? Prices are low, and while investment money is hard to locate, it's not impossible, especially if you can put up a sizable downpayment. If you are not interested in real estate, invest the balance of your additional cash in laddered CDs. This means that you open several accounts with staggered due dates. As the date approaches for each account, you roll over that CD for another period of time. And try to get CDs that allow you to withdraw without penalty at any time. DEAR BENNY: My husband purchased a condominium 20 years ago as an investment and has rented it continually during the course of ownership. A few years back the condominium board voted successfully to eliminate all renters. They gave all rental units five years to cease renting. Additionally, they voted that all condominiums must be occupied by the legal owner only. I can understand the desire to eliminate rentals for all new purchases. Can the association force us to cease renting -- thereby affecting our income -- and force us to sell in a down market? --Susan DEAR SUSAN: This is a very serious issue facing condominium associations and unit owners throughout the country. There is the perception among associations as well as mortgage lenders that somehow tenants are going to create problems within the community. Lenders such as Fannie Mae, Freddie Mac and even the Federal Housing Administration (FHA) impose caps on the percentage of absentee owners. Perhaps there is some truth to this perception, but from my experience some tenants make better "owners" than the owners themselves. Be that as it may, however, this issue has been litigated in many states. The courts have been fairly unanimous in holding that if the association follows the proper rules and requirements, the courts will uphold rental restrictions. What are these proper procedures? First, the restriction must be done by an amendment to the association bylaws; it cannot be accomplished merely by a rule promulgated by the board. Why an amendment? Because to amend your legal documents, it requires a super-majority vote of all unit owners. Second, the amendment process spelled out in your legal documents must be carefully followed. Was there proper notice? Was there a quorum at the meeting when the amendment was approved? Is the language of the amendment the same as was provided in the notice of the meeting? While these are technicalities, they are important. You and your husband should review the process by which the rental restriction was adopted. If, however, it was done properly, you have no case. Condominium law is very clear that all owners are legally bound not only by the rules and regulations as they were when the unit was first purchased, but by any future amendments properly enacted. Here's a thought, however. Talk to your board about getting an extension based on market conditions. But if they don't agree, discuss your situation with your attorney. You may want to consider doing a Starker (Section 1031) exchange and swap that condo for some other real estate investment. DEAR BENNY: For medical reasons, I anticipate outliving my wife. If I remarry (or get involved in a long-term relationship), how do I keep my new bride (or significant other) from inheriting the house when I die? --Thomas DEAR THOMAS: You are an optimist, but I wish you good health and a long life. Although your question sounds simple, the answer is somewhat complex. You should have a last will and testament, which would spell out your intentions with regard to the house on your death. But a will is not necessarily the controlling factor. For example, if you and your new bride (or significant other) hold title as joint tenants with rights of survivorship (or in many states as tenants by the entireties), then your house will pass automatically on your death to the other person on title. This is true even if your will states some other disposition. If, for example, you want to leave your house to a child, you can add that child to your title as "joint tenants." But caution: There are tax consequences to this and you should consult a local attorney for more details. Alternatively, you can keep the house in your name only, and the will you create will be effective. However, in many states, a spouse has rights to take property -- even against the clear intentions stated in the will. Again, you have to consult your attorney about the laws in your state. Finally -- and this is always a touchy topic -- you can have your new spouse (or friend) sign a "prenuptial agreement" whereby she states in writing that she will make no claim to your house on your death. DEAR BENNY: We are planning to sell our vacation home in Virginia and then purchase another one as soon as possible. How long do we have between the sale of the first vacation home and the purchase of the second vacation home to avoid paying taxes on the profit from the sale of the first? Is it necessary to strive for a "double-closing"? --Colin DEAR COLIN: Unfortunately, unless you do a Starker (Section 1031) "like-kind" exchange, where you literally swap one investment property for another, you will have to pay capital gains tax. Your vacation home is not your principal residence, and the up-to-$500,000 exclusion of gain (for married couples, or $250,000 if you file a single tax return) applies only to your main home. If you want to do a Starker exchange with your vacation home, there are a number of specific rules that you must follow. First, you must own the property for at least 24 months before the exchange. Next, during the two years before the exchange, you have to rent the property to another person at a fair rental price for 14 days or more. More important, your personal use during each of the two years before the exchange cannot exceed the greater of 14 days or 10 percent of the number of days the property is rented. And finally, the exchanged property, which we call the "replacement" property," must similarly be used the same way. In other words, it must be investment property instead of merely a second, vacation home. Accordingly, in your case, since you call it your "vacation" home, you will not qualify for the 1031 exchange. You will have to pay capital gains tax on the sale of the first property, and it makes no difference when you settle on the second home. Benny L. Kass is a practicing attorney in Washington, D.C. and Maryland. No legal relationship is created by this column. |
| A simple guide to home seller disclosure By Dian Hymer How would you like to find out after you've closed and moved into your new home that the basement is rat-infested? You call a local pest company and discover that the sellers hired the company to treat the house for rat intrusion. Pest infestation might not be a material fact to all buyers. A material fact is one that would affect whether or not buyers would buy a property or the price they'd be willing to pay. However, most buyers would be annoyed at the least that the sellers hadn't informed them in advance that the property had a condition that required routine maintenance. It could also make the buyers suspicious that the sellers may have withheld other information. Home-seller disclosure laws vary from state to state, although most states require disclosure of material facts. Check with your real estate broker or attorney for information about disclosure requirements before you put your home on the market. Sellers often fear that if they disclose too much, buyers won't buy their home. Generally, the opposite is the case. Buyers appreciate knowing as much about a property as possible before they close the sale. When buyers discover conditions affecting the property that they didn't know before closing -- ones that the sellers had to have known about -- they could use legal channels to remedy the situation. The goal in selling your home should be to sell for the highest price possible in the current market, and to keep as much of the proceeds as you can. Getting involved in a claim, mediation, arbitration or lawsuit over lack of disclosure or concealment can be time-consuming, stressful and very expensive. In today's environment of economic uncertainty, buyers who feel they were duped are more likely to pursue a claim against less-than-forthright sellers than they might have when home prices were appreciating at such a fast clip that it was often easier to fix the problem themselves than get into a legal battle with the sellers. HOUSE HUNTING TIP: Here's a guideline to help you decide what should be disclosed. If you're asking yourself whether something should be disclosed, it's probably material to someone, so disclose it. Keep in mind that it's often not clear whether a fact is material. There's a certain amount of subjectivity involved. For example, a woman was raped in a home in a trendy area of Oakland, Calif. This happened before the current owners bought the house. To err on the safe side, the current sellers disclosed this fact, figuring that it might be significant to someone interested in the property. It was also common knowledge in the neighborhood that the event had occurred. If the sellers hadn't disclosed it, the buyers would surely have found out about it later. A single woman who was interested in the house decided not to buy. The house had a detached garage, which gave her cause for concern even before she learned about the crime that occurred at the property. Another buyer had no concern at all about the past incident. The house sold. There was no discount in price due to the disclosure. It takes time to make complete and accurate disclosures. Some sellers take their disclosure obligations less than seriously. It's foolish to shortchange yourself, literally, by failing to make accurate and forthcoming disclosures about property defects. It could significantly affect your net proceeds. The burden of disclosure doesn't rest entirely on the sellers. Real estate agents are required to disclosure material facts. And buyers have a responsibility to protect themselves by thoroughly inspecting the property before deciding to proceed. THE CLOSING: A well-inspected property, complete with sellers' disclosures, protects all parties involved. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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