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| Team Overton1 Homeowners Guide |
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Articles and Advice |
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| Reducing the stress of buying or selling a home Buying or selling a home ranks high on the list of stress-provoking situations. Here's some advice for making things a little easier. It's disrupting, uncertain, unsettling and time-consuming, not to mention expensive. Sellers whose homes sell quickly worry that they sold too low. Sellers whose homes take months to sell wonder if they'll ever sell. Buyers agonize over paying too much. And both buyers and sellers complain that the process takes too long. People move for a variety of reasons, sometimes by choice but often not. Frequently a move is forced on a family because of a death, a divorce, a job loss or an unanticipated transfer. So the reason for the move can be stress-provoking. And since most people dislike change, the very act of moving is bound to be stressful. What can you do to ease the pain? Pick your real estate agent carefully. A good agent will go out of his or her way to make the move easier for you. Make sure that your agent will communicate with you regularly, and will be available to consult with you on short notice. The unpredictability of the real estate experience can be unnerving. Your agent should review the buying and selling process with you so that you know what to expect. Buyers moving to a new area should find an agent who has experience working with buyers who are relocating. Your employer can probably provide you with a good recommendation or ask the agent who is helping you sell your home to refer an agent to you. Be sure to ask for a relocation package. It should include information about your new community as well as sample listings of homes for sale. The Internet is a great source of information. For example, Realtor.com (www.realtor.com) lists 1.3 million properties across the country that are for sale. It includes maps, photos and community facts. So it's possible to preview listings long distance. Buyers who are buying locally can also cut down the time they spend looking at new listings by viewing homes on the Internet. Getting your home ready to sell can be a huge task. If you're short on time, consider hiring help if you don't have family or friends who can help you out. Showing your home to prospective buyers is an invasion of your privacy. Furthermore, it's best to leave your house when it's shown. It may make life easier if you plan to eat out when the home is new on the market and is getting a lot of showing activity. FIRST-TIME TIP: If you're buying or selling a home with a partner, divide the workload so that you don't duplicate efforts. Perhaps one of you can preview new listings and the other can arrange the financing. Make good use of modern technology to lighten your load. Use email, voice mail and facsimile rather than lengthy telephone communications to exchange messages. Moving always seems to come at an inconvenient time. But even though you feel pressed for time, don't eliminate stress-reducing activities like jogging or cycling from your schedule. Staying involved in your favorite hobbies and sports will add some semblance of order to your chaotic life, as well as provide needed relaxation. Plan time outs for you and your family. Take day trips or go away for a weekend. If you've been looking for a home for months with no luck, take a break and enjoy yourself. THE CLOSING: There will undoubtedly be times when you feel stressed out or depressed. Understand that these feelings are normal and they will pass. |
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| How much work should you do before selling? By Dian Hymer Recently a couple that owned a home in Berkeley, Calif., decided to move to neighboring Piedmont. They started their search by visiting Sunday open houses. It was quite apparent to them which listings had been prepared for sale and which ones had not. They were invariably drawn to listings that were charming, clean, and uncluttered. Looking at open houses helped this couple realize what they needed to do to their Berkeley home to ensure that it would attract buyers. By the time their home went on the market, it was charming, clean and uncluttered. It sold quickly and the sellers realized a handsome profit. As a seller, you have several options when considering how much work to do before selling. One option is to do relatively little and sell the property in it's "as is" condition. Another is to invest time, effort and money into fixing the property up before you sell. A third option is to do a combination of the first two approaches. In making your decision, keep in mind that in general buyers pay more for homes that are in move-in condition. Most buyers would prefer to buy a turnkey listing that doesn't need a lot of work. A home in great condition will usually attract more buyers than will one that doesn't show well and needs a lot of work. But there is a market for fixer-upper properties, although it is more limited. Fixer buyers will pay more for fixers that have a big upside potential. Fixer listings sell at a discount when compared to listings that are in move-in condition. HOME SELLER TIP: A higher sale price is not the only benefit to be derived from fixing up your home for sale. If you're doing the fix-up work, rather than the buyer, you have control over the improvements. You can shop the repair work for the best price. This can save you as much as 15 to 30 percent. Just make sure you use licensed contractors who will abide by city building permit requirements. Often the decision of how much fix-up for sale work to do will depend on how much time you have before marketing your home. The best approach is to plan ahead so that you have as much time as possible. It can take months to get a house ready to sell, depending on what kind of work needs to be done. No matter what kind of time frame you're working with, consult with your real estate agent before embarking on major fix-up work. Plan to walk through your home with your agent. Make a list of all the items that should be done before you sell. Ask your agent which reports should be ordered and order them as soon as possible. The next step is to get bids from contractors and trades people for the recommended work. Also find out about availability and how long it will take to complete the work. With this information you can fine-tune your fix-up for sale work. Some projects may be too costly and some may not be able to be completed within your time frame. Your agent can help you prioritize if necessary. Other projects, like de-cluttering and cleaning cost practically nothing except your time and effort. THE CLOSING: Even if you decide to sell "as is," it usually helps the sale to present a property that is clean and free of debris. Buyers need to see what you have to sell in an uncluttered state in order to make a decision to buy. |
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| What if I get a bad inspection report? By Dian Hymer June and Fred Black were diligent about getting their home ready for sale. For example, they ordered a pre-sale termite inspection report. The report revealed that their large rear deck was dry-rot infested, so they replaced it before putting their home on the market. The Blacks also called a reputable roofer to examine the roof and issue a report on its condition. The roofer felt that the roof was on its last legs and that it should be replaced. The Blacks didn't want buyers to be put off by a bad roof, so they had the roof replaced and the exterior painted before they marketed the home. The Black's home was attractive, well-maintained and priced right for the market. It received multiple offers the first week it was listed for sale. Unfortunately, the buyers' inspection report indicated that the house was in serious need of drainage work. According to a drainage contractor, the job would cost in excess of $20,000. Fred Black was particularly distraught because he'd paid to have corrective drainage work done several years ago. FIRST-TIME TIP: Don't panic if you receive an alarming inspection report on a home you're buying or selling. Until you see the whole picture clearly, you're not in a position to determine whether you have a major problem to deal with or not. What happened to the Blacks is typical of what can happen over time with older homes. The drainage work that was completed years ago was probably adequate at the time. But since then, there had been unprecedented rains in the area which caused flooding in many basements. Also, in the intervening years, drainage technology advanced. New technology can be more expensive, but often does a better job. The Blacks considered calling in other drainage experts to see if the work could be done for less. However, after studying the buyers' inspection report, the contractor's proposal and the buyers' offer to split the cost of the drainage work 50-50 with the sellers, the Blacks concluded that they had a fair deal. The solution is not always this easy, especially when contractors can't agree. Keep in mind that there is an element of subjectivity involved in the inspection process. For example, two contractors might disagree on the remedy for a dry-rotted window: one calling for repair and the other for replacement. Recently, one roofer recommended a total roof replacement for a cost of $6,000. A second roofer disagreed. His report said that the roof should last another 3-4 years if the owner completed $800 of maintenance work. Based on the two reports, the buyers and sellers were able to negotiate a satisfactory monetary solution to the problem for an amount that was in between the two estimates. It's problematic when inspectors are wrong. But it happens. Inspectors are only human. A home inspector looked at a house in the Oakland hills and issued a report condemning the furnace, which he said needed to be replaced. The sellers called in a heating contractor who declared that the furnace was fit and that it didn't need to be replaced. The buyers were unsure about the furnace, given the difference of opinions. So, the seller called in a representative from the local gas company. The buyers knew that the gas company representative would have to shut the furnace down if it was dangerous. He found nothing wrong with the furnace, and the buyers were satisfied. THE CLOSING: Sometimes finding the right expert to give an opinion on a suspected house problem is the answer. |
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| Bright alternatives for kitchen lighting By Paul Bianchina If you're looking for ways to brighten up your kitchen, there are some interesting alternatives for kitchen lighting that go well beyond the standard ceiling light. To light up specific work areas or to highlight artwork or the contents of a cabinet, there are a number of miniature low-voltage halogen lights on the market. These small, round lights are only about two inches in diameter and can be mounted just about anywhere in the kitchen—inside or under your upper cabinets, over a desk area, mounted to a valance over the sink, or just about anywhere you need some additional concentrated light. For display purposes, you might consider an upper cabinet with glass doors and glass shelves. Mount the lights in the top of the cabinet, and the light will shine down through the shelves and do a beautiful job of highlighting your collection of prized china. There are 10- and 20-watt fixtures available, with trim rings in black, white or polished brass. Operation requires a 12-volt transformer, and one transformer should operate a total of 60 watts—three 20-watt fixtures or six 10-watt units. With the low-voltage lights, there are a number of control options as well, including low-voltage switches that mount anywhere in the cabinet, and low profile micro switches that can be set up to activate the lights whenever a specific cabinet door is opened. These are ideal for display cabinets and china hutches. There are even dimmer wiring kits that connect the fixtures to any metal hinge, knob or pull-tap the hinge or knob with your finger to turn the lights on at 25 percent, 50 percent, or 100 percent, or to turn them off again. Another option is the low-profile strip light, which clips under or inside a cabinet. These unobtrusive fixtures shed a soft, diffused light and are available in 10- and 20-inch lengths in brass, black or white. They operate on standard 120-volt current, and have a built-in switch that is prewired into the cord. The bulbs are not replaceable (you discard the entire fixture when it burns out), but they have a life span of about 40,000 hours. One popular trend for the kitchen or for a variety of other locations throughout the house is the rope light. Rope lights consist of a clear plastic tube with a string of small lights inside and are great for soffits, valances, toe kicks, along steps or railings, around the perimeter of a floor—anywhere your imagination can come up with. The lights are available in clear, red, yellow, green, blue and orange, and can be used both indoors and outdoors in temperatures ranging from -4 to 140 degrees. Rope lights are very easy to install, and can be configured just about any way you want. They are sold in three-foot increments, and can be cut to as short as 18 inches or linked together for up to 150 feet on one circuit. There are a variety of connectors available that allow you to splice the ropes end to end, in a T-shape, or in a Y-shape. If you would like to start a run of rope light, stop it, and then start up again at a different spot, there are also two foot and six foot long unlighted rope-to-rope extension cords. The rope lights are mounted using mounting clips or three-foot long mounting channels, which attach to just about any type of surface using screws or self-adhesive mounting tape. After mounting the clips or channel in the desired area, the rope simply snaps into it. Rope lights work off standard 120-volt power. A power connector plugs into one end of the rope, then a six foot power cord plugs into the other end of the power connector. The power cord ends in a male plug that plugs into any standard electrical outlet, and a plastic end cap is used to seal off the other end. For outdoor use, an optional photocell adapter can be used that simply plugs into an outlet, allowing automatic dusk-to-dawn operation of the lights. All of these fixtures should be available from local lighting stores, electrical supply retailers or home centers. Remember to use only UL-listed fixtures and parts, and always consult with a qualified, licensed electrician for assistance on any wiring project you're not comfortable with. |
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| Fixer-uppers need inspections too Dear Barry, Should we have a home inspection on a house that requires major renovation? Our agent says, "Don't bother, you're going to renovate anyway." On one hand, this sounds like reasonable advice, but we feel uncomfortable buying any home without a full inspection report. What do you recommend? --Andrew Dear Andrew, Buying a "fixer-upper" without a home inspection can have serious financial repercussions. Here is a common scenario: Someone buys a home in need of renovation and repairs, planning to remodel the interior, install new cabinets, replace the flooring, repaint inside and out, upgrade the landscaping and so on. What they fail to consider are other potential problems like major defects in the foundation, seasonal flooding beneath the building, carbon monoxide emanating from a defective heater, rust build-up within the water piping, burnt connections on the aluminum wiring, damaged roof framing because there are too many layers of shingles, substandard fireplace and chimney construction, etc. Surprises of this kind can dramatically alter the outcome of a proposed remodeling project but are easily avoided by way of a professional inspection. The purpose of a home inspection is not to determine whether the house does or does not need repairs. That is a given with every home, especially ones that need major renovation. Rather, it is to compile a complete list of all the repairs that need to be done, especially a list of defects that might be hazardous or which might make the property less attractive as a financial investment. With any home, the decision to buy without an inspection is always ill-advised. With homes that need major renovation, the likelihood of numerous concealed defects is even greater. To assume that remodeling work is all that is needed is a presumptive gamble. To avoid needless risks, the cost of a home inspection is economical insurance. Dear Barry, I tried to install a ceiling fan in my living room but was confused by the color scheme of the wires. Of the three wires coming from the ceiling, I have a gray, a yellow, and a purple, but I haven't been able to figure out which of these wires does what. Your advice would be appreciated. --Rick Dear Rick, The usual color orientation for residential wiring is black for hot, white for neutral and green or bare wire for ground. In the case of unfamiliar wiring, the wise course of action is to employ the services of a licensed electrical contractor. In fact, unless you have professional knowledge and experience regarding electrical wiring, a qualified electrician is the only one who should install your fanlight or perform any manner of electrical work in your home. An electrician won't evaluate your wiring on the basis of coloration. Instead, the lines will be tested to determine which is the hot, the neutral, and the ground. The very fact that your wires are not typically colored may indicate substandard wiring by a nonprofessional, and this would also warrant consideration by a qualified expert. Wiring decisions should not be a matter of guesswork. To ensure against fire, electric shock and damaged equipment, the services of an electrical professional are always advisable. To write to Barry Stone, please visit him on the Web at www.housedetective.com. Copyright 2003 Barry Stone Distributed by Inman News Features |
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| How can I buy if I have a home to sell? By Dian Hymer The recent rise in interest rates is causing many homeowners who have outgrown their current home to seriously consider making a move. Some own a home that's too small; others have school-age children and want to move to a better school district. Whatever prompts the desire to move, the goal is the same: make the move before interest rates increase further. One advantage of making a trade now while rates are still low is that you can afford a bigger or better home than might be possible when rates move higher. Also, lower rates make your home affordable to a larger pool of buyers, which can result in a faster sale and potentially a higher price. When interest rates rise it can dampen home sale activity, sometimes significantly. The rationale for making a trade move now is a good one. Figuring out how to make it work is another matter. The question of whether to buy first or sell first plagues most repeat buyers. There are pros and cons to both approaches. Buyers who sell first know exactly how much money they have for a new home. They also avoid the risk of owning two homes in a changing market. However, they don't know where they're going to live or when they'll find a suitable home to buy. In a worst-case scenario, they won't find a replacement home quickly enough and will have to move to an interim rental, which can be very inconvenient. If you buy first, you know where you're going to live and when you can move. But, the financial risk is higher because you don't know what price you'll get for your old home, or how long it will take to sell. Nevertheless, most repeat buyers prefer to buy first than to sell first. The trick is to figure out how to make it happen if you need the equity from your current home to buy the next one. Recently, a trade-up buyer used the following strategy effectively. She had enough cash in savings to make a $75,000 down payment, which was equal to 10 percent of the $750,000 purchase price. After consulting with her financial advisor she determined that she wanted to have a mortgage on the new place of no more than $450,000. So, she was short $225,000 until she liquidated the equity from her current home. HOUSE HUNTING TIP: To make up for the shortfall, her real estate agent suggested that she apply for a $225,000 second mortgage on the new home that could be paid off as soon as her current home sold. For the second mortgage, her mortgage broker recommended a low-interest-rate adjustable-rate mortgage (ARM) to keep her monthly payment as low as possible for the period of time that she owned two homes. Although she preferred fixed-rate financing, it made sense to take advantage of the lower ARM payments for the short time that she'd keep the second loan. You must be able to qualify financially in order to use this strategy. And, if you do use this approach, make sure that the second mortgage doesn't have a prepayment penalty. Some buy-first buyers put a home equity loan on the home they're selling to generate cash for a down payment if they don't have enough savings for a down payment and closing costs. THE CLOSING: To minimize the risk of buying first, be realistic about the probable selling price of your current home. It's better to estimate on the low side and walk away with more cash than you expected than it is to be caught short of the money you need. |
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| How can I improve my real estate purchase offer? Sweet deals include paying all of seller's transfer taxes By Dian Hymer Few failed endeavors can match the frustration of losing out in a multiple-offer competition. But, almost as disappointing is making the only offer—and a strong one—and having the seller outright reject it. Here are a few tips on how to sweeten your offer without jeopardizing your financial security. A strategy that has been effective for some successful home buyers is to offer to pick up the cost of a fee that is normally paid for by the seller. For example, in some areas sellers pay for title insurance. This can amount to a few thousand dollars on an expensive property. If you pay for this instead of the seller, it increases the seller's net proceeds. Some communities, such as Oakland, Piedmont and Berkeley in California, have hefty transfer taxes. The Berkeley tax is 1.5 percent of the purchase price, which is customarily shared 50-50 by the buyer and seller. Recently, a Berkeley home buyer who was bidding in competition offered to pay for the entire tax. This increased the seller's net by $9,000. The seller chose this offer over the others. Whether in competition or not, it's always a good idea to find out as much as possible about the seller's situation before you make an offer. Many sellers, particularly those who haven't lined up a new home, would like the opportunity to rent their home back from the buyer for a while after closing. If you're renting, or haven't sold your current home yet, you can gain favor with the seller by offering a rent back to accommodate the seller's needs. Under normal circumstances, a seller who rents his home back after closing pays rent to the buyer in an amount that covers the buyer's carrying costs-principal, interest, taxes and insurance (PITI), prorated on a per diem basis. But some buyers in a multiple offer situation offer free rent for a time to make their offer even more enticing to the seller. This effectively puts more money in the seller's pocket. It's never a good idea to waive contingencies if the condition covered by the contingency hasn't been satisfied. For example, it would be risky to buy a home without having it thoroughly inspected by professionals. But, when there are several buyers competing, you may find that your competitors are making offers that don't include an inspection contingency. Although it's also risky for a seller to accept an offer that does not include an inspection contingency, most sellers find a contingency-free offer hard to resist. HOUSE HUNTING TIP: If you're inclined to waive contingencies, make sure you do your due diligence research first. Ask the seller for permission to complete inspections before you make an offer. Or, it the seller has obtained a presale home inspection from a reputable home inspector, make sure you read it carefully and fully understand it before you do make an offer. Call the home inspector to discuss any questions you might have. Better yet, schedule an appointment with the inspector to walk through the property with you to explain the report and answer your questions. But, be sure to ask for the seller's permission first. Home inspections often include recommendations for further inspections. There may not be time to collect all the information you'd like to have before making an offer. In this case, it's best to imagine the worst-case scenario. If the home inspection indicates that the roof is worn, assume you'll need to replace it. Call a roofer for a ballpark estimate. THE CLOSING: You'll be ahead of the game if you later find out the roof only needs a few repairs. |
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| Does home remodeling always pay off? By Dian Hymer Perhaps you've heard stories about homeowners who've greatly improved their net worth by remodeling homes and selling them. But, while remodeling can add value, there's no guarantee that a future buyer will pay you enough to recoup your investment. Consider the example of a homeowner who lost his home in the Oakland Hills, Calif., firestorm of 1991. Rather than rebuild, this fire victim decided to buy an existing replacement home. He invested his insurance proceeds in the purchase and subsequent remodel of the property. When he decided to sell several years later, he barely recouped the money he'd invested in the renovation. He had over-improved the property for the neighborhood. Buyers weren't willing to pay more than the property was worth on the open market. Some homeowners fall into the trap of thinking that their home is worth what they paid for it, plus the money they've invested in remodeling projects. This logic is often faulty, and can result in unwise investments. Replacement cost value is not the same as market value. Market value is the price a ready, willing and able buyer will pay for a property. This is the only value that's relevant when you're selling your home. Replacement cost value is an important consideration when you've evaluating how much insurance coverage you'll need to replace your home if it burns down. But, it may have little bearing on the selling price of your home. Another homeowner made the mistake of completing a major expansion and renovation of a home before doing a thorough investigation of the infrastructure. After years of living in a home that was too small and had an inefficient floor plan, the owners hired an architect to redesign the home to better suit their lifestyle. The renovations indeed added value from a market perspective. When the owners put the home on the market, they received multiple offers. They accepted an offer at a price that more than returned the money they'd invested. However, the sellers ended up giving back a huge chunk of their profits when a termite inspection revealed that there was extensive dry rot in the internal framing. REMODELING TIP: Before tackling a major remodel, make sure to have the property inspected by a structural pest control inspector. It's also a good idea to have an engineer look at the foundation to make sure that you're not investing good money to improve a home that's sitting on a bad foundation. Another reason to inspect the infrastructure before remodeling is that you may be able to upgrade facilities while you're taking care of routine maintenance. Before starting an extensive remodel of the kitchen, another homeowner had a termite inspection done. The report revealed dry rot in the master bathroom. Rather than simply repair the damage, the owners had the kitchen contractors rip out the master bath and redo it at the same time they did the kitchen job. By doing so, they reduced the cost of the bath remodel significantly. Furthermore, instead of a simple repair, the owners ended up with an entirely new bathroom that added considerably to the value of the property. To realize the most from your remodeling efforts, stick to classic designs and finishes. Trendy designs may look outdated five or 10 years from now when you decide to sell. Don't invest in a major renovation if you're planning on selling in the near future. It's highly likely that you won't be repaid for your investment. THE CLOSING: Stick to cosmetic facelifts if the sole purpose of your investment is to fix your home up for sale. |
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| Planning your big move By Inman News Planning your move is the last big task to complete before you own the home you're buying. Your purchase contract should specify the date and time that you get the keys and take possession. Usually, this is the day escrow closes, although you and the seller can set another time. Some sellers prefer not to vacate the house until closing day. That means the soonest you can move in is the next day. Before you move in, check the house again for moving damage or uncompleted repairs. (If repairs are uncompleted, your contract should spell out how to resolve this problem.). If the seller needs to occupy the house for a period of time after closing, you should negotiate what is called a seller rent-back in the purchase contract. Most seller rent-backs require the seller to pay the equivalent of the buyer's monthly mortgage payment. Obtain estimates from three licensed movers before you make a choice. Have an estimator from each company visit your house to examine the items you're moving before issuing a quote. Verbal quotes are not binding, so make sure each mover gives you a written estimate. In most cases, you'll want a "not to exceed" or "best price" estimate. This will limit your moving expense to the amount quoted. If the move ultimately costs less than the estimated amount, you will pay the lower price. Ask about discounts. Moving is stressful, even when it goes smoothly. Be wary of a bid significantly below all other estimates. A low bid can indicate that someone is trying to buy your business, or it can be a sign of inexperience. You have to trust a stranger with your personal belongings, so make sure you feel confident that you'll get the level of service you require. Once your move is finished, you can start the process of settling in. But first, here are some ways to make your move an easy one: --Sell, donate or throw away possessions you don't want before you get your estimate. --Request good-credit letters from your utility companies. --You can avoid putting down money for deposits if your utility company will notify the new company of your good credit status, or send you a letter of reference. --Start working on your change of address notices. Send them to creditors, magazines, membership organizations, insurance companies and other regular correspondents. You may also want to send notices to your friends and relatives. --Measure all openings in the house, or space in elevators and stairwells. You want to make sure there's enough clearance to accommodate your possessions. --Prepare your own inventory of important possessions. Include box numbers so you can find these items quickly. --Arrange utilities. Call at least two weeks before your move to have electricity, water, gas or telephone service switched on closing day or the day you move in. --Arrange contractors. If there is time between your closing and move-in dates, you may want to have carpeting and painting done before you move in the furniture. --Make a First Night box. Label it prominently and include towels, sheets, blanket, tissues, paper towels, plastic utensils, paper plates and cups, screw driver, hammer, can opener and other essentials. --Change the locks on your doors. You may or may not choose to do this, but most security experts advise it. --Save your receipts. You may be able to deduct some of your moving expenses. Consult your tax advisor. |
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| Basic questions about home inspection Dear Barry, Now that I'm preparing to buy a home, I have three basic questions regarding home inspection: When should a home inspection be performed? How much time does it take? And how much does an inspection cost? --Bobby Dear Bobby, The time to schedule a home inspection is immediately after the purchase contract is signed. Once you have an accepted offer, the choice to have a professional inspection is your first major decision. If you elect that option, your contractual obligation to complete the purchase is contingent upon your acceptance of the home inspector's findings. From that moment until the inspection contingency is waived, the sellers are holding their breath over this issue, waiting to see if you are committed to the deal. Therefore, time is of the essence. The typical duration for a home inspection is about 2.5 to 4 hours, depending upon the size, complexity, and general condition of the property. A quality inspection will rarely take fewer than 2.5 hours. Exceptions would include moderately sized condominiums and mobile homes. The inspection report should be ready within 24 hours of the inspection, although many inspectors are able to produce a written report on site, at the conclusion of the inspection. Finally, the cost of a quality inspection should be around $250 to $300 for an average size home. For a large residence or a property with additional units, the inspection will take more time, and therefore, the cost will be more. But whatever you do, don't make the mistake of price shopping. Bargain inspections are no bargain. In most cases, they do not provide thorough disclosure and can cost you thousands of dollars in unreported defects. Let your priority be quality. Make sure that you hire the most thorough and experienced home inspector in your area, someone with a reputation for comprehensive detail. Dear Barry, We want to sell our home but are worried about how it will look to a home inspector. The property is in very good conditions, but the house is nearly 100 years old, and we're told that it has a nonreinforced foundation, as well as other conditions that don't meet current standards. Are we sitting on a "white elephant" and will we be able to sell it without spending thousands of dollars for improvements? --Patti Dear Patti, Although upgrades are desirable and might help to market your property, the majority of older homes do not comply with contemporary building codes and structural standards. People who purchase an old home generally understand this, or at least should. If they want a house that complies with the latest building requirements, they should buy one of contemporary vintage. Once you begin to market your home, just price it in accordance with it's appraised market value. If it is in good condition and priced in line with the local market, someone will buy it without demanding major upgrades. Your agent or broker should be able to advise you on a fair and practical asking price. To write to Barry Stone, please visit him on the web at http://www.housedetective.com/. Copyright 2003 Barry Stone Distributed by Inman News Features |
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| What is an "as is" sale? Occasionally, listings are advertised as "as is" sales. To some buyers this signals a potential bargain property. For others, an "as is" sale carries a negative connotation. It suggests that the property might be tainted. Often, neither perception is accurate. It's difficult to know from an advertisement what "as is" means with respect to the sale of a residential property. It can mean that the property is being sold in its present condition and without a warranty. In other words: The seller makes no guarantees about the property's condition. In some states, like California, sellers may provide a general warranty of habitability when they sell a home. Generally, this means that the roof is free of known leaks and the dwelling systems like plumbing and electrical are in working order. With an "as is" sale, such a warranty probably wouldn't apply. Probate, trust and foreclosure sales are often "as is" sales. The sellers of these properties could have acquired them under adverse conditions (either because a relative died or because a buyer defaulted on a mortgage). In these cases, the seller might have little, if any, actual knowledge about the property's condition. In many cases, sellers of probates and foreclosures haven't even seen the properties. FIRST TIME TIP: Before you agree to purchase a property "as is", make sure that you have it thoroughly inspected. If it's a foreclosure, you might not be able to include an inspection contingency in the purchase contract. In this case you'll have to complete inspections before you make an offer. When several buyers are competing for a hot listing, the winner is often the buyer who makes an "as is" offer. Sellers usually prefer an "as is" offer because it relieves them of the responsibility of completing repairs before closing. The buyers take on the burden of repairs which cuts down the hassle factor for the seller. Just make sure that you include an inspection contingency in an "as is" offer unless you've had a chance to complete all necessary inspections before you made the offer. Sometimes purchase contracts are written "as is" for convenience in dealing with the buyer's lender. Let's say that the sellers had a termite inspection done before they put their home on the market. The termite report calls for the shower, floor and tub in the bathroom to be replaced. The cost of this work will run $5,000. The sellers are willing to pay for the repair work but the buyers would prefer to do the work themselves so that they can remodel the bathroom to their own specifications. So rather than asking the sellers to do the termite repairs before closing, the buyers write their purchase contract to be "as is" regarding termite work. And they ask the sellers to credit them $5,000 at closing. Buyers purchasing a property that they intend to renovate extensively often prefer to purchase the property on an "as is" basis. For example, if the house has a $25,000 termite bill and it needs a new $10,000 roof, the buyers might prefer to reduce the purchase price by $35,000 and buy the property "as is". An "as is" sale doesn't necessarily mean the property is a bargain, nor does is mean that the property should be dismissed as unacceptable. Find out the nature of the work required to put the property in good condition. Then decide if you're up for the project. THE CLOSING: If an "as is" property will suit your long-term needs when it's fixed-up, it might be worth considering. Dian Hymer is author of "Starting Out, The Complete Home Buyer's Guide," Chronicle Books. Copyright 1998 Dian Hymer |
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| Should sellers repair defects before selling? After years of living in a home, it's easy to fall into a habit of overlooking home maintenance chores. If there's no urgency, many homeowners procrastinate. Often problems don't get fixed until a major disaster occurs like a roof leak in the middle of a monsoon. Deferred home maintenance can become a problem, however, when you decide to sell. Most buyers want to buy homes they can move right into without having to make a lot of repairs. Sellers need to decide before they put their home on the market whether to fix deferred repairs or leave the work for a future buyer to do. Usually sellers who have the time, money and inclination will do better on the sale of their home if they fix problems before they list their home for sale. A home that is in move-in condition is one that appeals to a broad audience of prospective homebuyers. First-time homebuyers, and buyers with busy lifestyles, often won't consider buying a home that needs a lot of work. They haven't the time or experience to deal with the problems. The listings that are in the best condition are in the highest demand. They can attract serious attention from more than one buyer. If multiple offers occur, the price sometimes gets bid up. Regardless of whether there are multiple offers, a house that is in good condition will usually sell more quickly than one that needs work. And a quick sale often results in a selling price that is close to the list price. Sellers who don't make needed repairs before putting their homes on the market may have difficulty selling, depending on how much work is needed. Because "fixer-upper" homebuyers make up a small portion of the homebuyer market, there will be less overall interest in the property than there would be in a similar property that is fixed up. If your home needs a lot of work, it could take a long time to sell and it might sell for considerably less than it would fixed-up. Usually the longer a listing sits on the market unsold, the lower the ultimate selling price. Selling a home that needs a lot of work could delay the closing if the buyer's lender requires that the work be completed as a condition of granting the mortgage. One homeowner sold a home that needed about $25,000 of termite and dry rot repair. The buyer's lender said the work had to be completed by close. The buyer and seller both wanted a quick close. But the job was so extensive, and combined with intermittent delays due to rain, it took about two months to complete the work. FIRST-TIME TIP: Most sellers can't afford to fix everything that's wrong with their home before listing it for sale. It's important to prioritize to make sure that your money is spent on repairs that will have the most positive impact on prospective buyers. Call a knowledgeable real estate agent in your area for a consultation. Complete a walk-through of your home with the agent, with pen and pad in hand. List all the improvements the agent suggests you complete before selling. Then ask him or her to order the list in terms of most and least important. Then ask how much difference it will make in terms of selling price if you complete none, some or all of the recommended repairs. THE CLOSING: The amount of time and money you have usually determines how much work gets done. Dian Hymer is author of "Starting Out, The Complete Home Buyer's Guide," Chronicle Books, Revised 1998. Copyright 1998 Dian Hymer Distributed by Inman News Features |
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| Are interest-only mortgages a good deal? Borrowers save money in short term, but pay more over 30-year period By Dian Hymer Many home buyers are turning to mortgages with interest-only payment schedules so they can afford to buy a more expensive home. These mortgages have lower monthly payments, which makes qualifying easier. But the lower payments don’t last forever, and interest-only loans aren’t for everyone. Mortgages with an interest-only payment feature come in many varieties. Basically, they work like this. The borrower pays interest-only payments for the first five, 10 or 15 years. The monthly payments are lower than they would be with a fully amortized loan during this initial period. However, at the end of the interest-only payment period, the borrower still owes the entire amount borrowed. With a fully amortized loan, part of each monthly payment pays back a portion of the principal (the amount borrowed). A fully amortized payment schedule pays back the loan in full during the term of the loan, which is usually 30 years. At the end of 30 years, you owe nothing. Interest-only is a bit of a misnomer. You ultimately have to repay the amount you borrow, so you won’t make interest-only payments indefinitely. After the initial interest-only period, the principal is amortized over the remaining loan term. With a 30-year mortgage that has a 5-year interest-only payment plan, the principal will be amortized over the remaining 25 years of the loan. A shorter amortization period requires the borrower to make a higher monthly payment in order to repay the loan more quickly. This means an increase in the monthly payment starting with year six of the loan. For example, if you were to borrow $250,000 at 6 percent, using a 30-year fixed-rate mortgage, your monthly payment would be $1,499. On the other hand, if you borrowed $250,000 at 6 percent, using a 30-year mortgage with a 5-year interest-only payment plan, your monthly payment initially would be $1,250. This saves you $249 per month or $2,987 a year. However, when you reach year six, your monthly payments will jump to $1,611, or $361 more per month. Hopefully, your income will have jumped accordingly to support the higher payments. Mortgages with interest-only payment options may save you money in the short-run, but they actually cost more over the 30-year term of the loan. However, most borrowers repay their mortgages well before the end of the full 30-year loan term. A mortgage with an interest-only payment schedule makes sense for some borrowers and is potentially risky for others. Borrowers who are counting on home-price appreciation to build equity could find themselves in a financial bind if home prices should drop and, for whatever reason, they’re forced to sell. Not all interest-only mortgages have a fixed interest rate. Some have one rate for the initial interest-only period and a higher rate—with a much larger monthly payment—for the remainder of the loan term. Others resemble adjustable-rate mortgages (ARMs). A popular variety has a fixed rate with interest-only payments for the first five years. Then it converts to a 1-year ARM. You could face serious payment shock if interest rates rose significantly during the first five years. Borrowers with sporadic incomes can benefit from interest-only mortgages. This is particularly the case if the mortgage is one that permits the borrower to pay more than interest-only. In this case, the borrower can pay interest-only during lean times and use bonuses or income spurts to pay down the principal. THE CLOSING: If you’re planning to use a mortgage with an interest-only payment plan, and this is the only way you can qualify, make sure you’ll be able to afford to keep your home when the higher monthly payments kick in. |
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| Patching holes in walls Got a hole to patch? Whatever the material in whatever the location, you can rest assured that there is patching material designed specifically for that use. The trick is knowing which filler works best for which application. Here are a few of the more common ones. Spackling compound: For patching small holes in drywall, plaster or wood that you intend to paint – up to about 3/16” in diameter – the material of choice for most painters is spackling compound. Spackle is a soft, white, premixed material that’s about the consistency of soft putty. For small holes, such as those left when you pull a picture hanger out of the wall, you can apply it with your fingertip - larger holes require a flexible putty knife, because your finger will leave a small concave indention that will show up later. One application should be sufficient for most holes, but the spackle may shrink slightly in larger holes, requiring a second application. Excess material can be removed with a light sanding. Spackle will not accept stain, so don’t use it on wood if you intend to stain it. Colored wood putty: For small holes, cracks, joints and other minor defects in wood that will be stained, there are a variety of colored wood putties available. One type is an actual putty, available premixed in jars or in a stick form that resembles a crayon. This type of putty has no structural value and is used strictly for concealing defects. It does not accept stain, but it’s available in dozens of shades – select one that is closest to the finished color of your wood or blend two or more together. For best results, stain the wood first, apply the putty sparingly to the hole, wipe off the excess, then apply your finish coat. The second type of color wood putty is made up of resins and actual wood fiber, so it has some structural value. You can use it, for example, to fill in a hole where you’ve removed a fastener, then drill it and install a new fastener in the same location. These types of fillers are available in cans as a thick, premixed paste – keep the can tightly capped at all times, since it dries out quickly when exposed to air. The filler can be cut, drilled and sanded after it dries, but use it sparingly since it dries hard and takes a little work to remove the excess. Once again, select a color that is close to your project, or select neutral and stain it afterward. A word of caution though – while neutral will accept stain, it has no grain to it, so if you try and use it to make repairs in a large area, it will still show up. Dry-mix fillers: Dry-mix fillers such as FixAll and RockHard have a number of uses around the house. They can be used to fill holes in drywall, plaster, wood and a variety of other materials prior to painting, or to even out irregularities prior to the installation of wallpaper or other finish materials. Dry-mix fillers are a soft powder, and are sold in cans, boxes and bags of various quantities. To use, simply mix with clean, cool water until it forms a smooth paste of the desired consistency. Dry-mix fillers dry quickly and very hard, so only mix up as much as you can use in about 15 minutes and clean up your tools right away. The finished material is hard, smooth and dries with very little shrinkage. Once it’s completely dry, it can be sanded, drilled or cut with normal woodworking tools. Even though it’s hard, however, it is not designed to accept fasteners – screws will not hold well in it and it may crack if you try and drive large nails through it. Epoxy: There are a wide variety of epoxies on the market that are designed for filling holes, resetting fixtures or tiles, anchoring fasteners and other types of patch and repair work. Epoxies are found in both liquid and putty form and have two components, a resin and a hardener, which are mixed together in equal proportions just prior to application. The working time after mixing varies with the product, and can range from as little as five minutes to 24 hours or more – never mix more than you can use within the manufacturer’s stated setup time. Liquid epoxies are excellent for filling cracks in concrete and many other types of masonry. Most manufacturers offer the two components in individual bottles or tubes that connect to a common nozzle – pressing down on a joint plunger forces equal amounts of resin and hardener into a mixing chamber and out the nozzle, ensuring a proper mix. All of these fillers – and more – can be found at home centers, hardware stores, lumberyards and other building material retailers. |
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| Make your home lighter and brighter Domed acrylic skylights are less expensive than glass, and their convex shape tends to let the rain wash accumulated dust and dirt off a little easier. The acrylic dome is mounted in an aluminum frame, which is in turn mounted on a 2x6 box called a "curb." Once the hole is cut in the roof to the manufacturer's specifications, the curb is constructed on-site to raise the skylight above the level of the roof sheathing. Site-built or factory-supplied flashings are used to seal the roofing around the curb. Domed skylights are available in clear, smoked, bronze or other tints. Most are double- or triple-glazed in order to achieve the level of energy efficiency required by the building codes. Several sizes are available, with the most common being 2x2, 2x4 and 4x4 feet. Flat glass skylights come mounted in a wood or integrated rubber and metal framework, and require no additional curb construction. After the hole is cut, the skylight frame is simply attached to the roof sheathing with L-brackets, then the installation is completed using the factory-supplied flashing kit. Ease of installation, superior insulating qualities, less tendency to scratch and a cleaner finished appearance all add to the popularity and somewhat higher cost of glass skylights. Glass skylights also have a greater number of optional accessories. These include tempered, laminated or wire glass; shades and blinds for light control; glass tints for heat retention or to block sunlight; and the ability to open fully or partially for ventilation. At least one company, Velux - a leading manufacturer of quality glass skylights that are available at most local home centers and lumber yards - even offers an electric motor coupled to a rain sensor that automatically shuts the skylight if it detects rain. LIGHT SHAFTS If the room you intend to illuminate with the skylight has an open ceiling with no attic space above, you can install the skylight without needing to construct a light shaft. This is by far the simplest installation, and it offers the maximum amount of light and a view of the sky. Operable units are usually recommended, especially for a second-floor room, since these direct skylights can add a considerable amount of heat to the room on a summer day. For ceilings with an attic space above, a light shaft must be constructed that connects the skylight to the room. Skylight shafts take one of three forms: --Straight, in which the shaft drops vertically from the roof to the ceiling and is the same dimension as the skylight itself. This type is the easiest to construct, but because of its offset angle relative to the skylight, offers the least amount of light. --Angled, where the shaft is parallel to the pitch of the skylight. It, too, is the same dimension as the skylight, but its straight-in angle offers more light than a straight shaft. Angled shafts also are used to connect two locations that cannot otherwise be aligned. This occurs when the skylight must be installed in a particular spot - between two trusses, for example - and the shaft opening is likewise limited to a particular location on the ceiling that is not directly under the skylight. --Splayed, or pyramid, in which the ceiling opening is larger than the skylight opening in width, length or both. This type, although a little harder to construct, is the most popular, simply because it allows a smaller skylight to illuminate a larger area. After the skylight is installed, you'll need to position and mark the opening on the ceiling. Take into consideration the size of the room and the amount of light you wish to bring in, and select the size and position of the hole accordingly. Once the skylight is installed and the ceiling hole is cut, it's then a matter of connecting the two with the shaft, which is constructed from 2x4 or 2x6 lumber. The angles involved typically require some tricky framing, and is probably best left to an experienced carpenter. After the framing is completed, the inside of the shaft is covered with wood or drywall, and the attic side is insulated to at least R-21 to minimize heat loss. To reflect an even greater amount of light into the room, consider painting the inside of the shaft with gloss or semi-gloss white paint. Copyright 2003 Inman News Features Distributed by Inman News Features |
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| What size mortgage do I qualify for? By Dian Hymer Lenders look at a number of variables when they're considering whether to approve a mortgage. Among those variables is the amount of cash the borrower has available for a down payment and closing costs. Also important are the borrower's employment and credit history, and debt-to-income ratios. If a borrower's debt-to-income levels don't fall within certain guidelines, the mortgage might not be approved. Until recently, a typical qualifying ratio was 28/36. The first number of the equation, called the front-end ratio, is determined by dividing your proposed monthly housing expense (principle, interest, taxes and insurance, also called PITI) by your gross monthly income (income before deducting for income taxes). The second number, called the back-end ratio, is determined by dividing your total monthly debt (including your proposed PITI) by your gross monthly income. A borrower with good credit, a front-end ratio of 28 and a back-end ratio of 36 had no trouble qualifying for a mortgage. But today, if your back-end ratio is less than 50 percent of your gross income, and you have good credit, you'll probably be approved for a mortgage. This liberalization of qualifying ratios makes it easier for borrowers to qualify for larger mortgages, which is good news for buyers who are trying to buy a home in an area where home prices are high. In New York City or San Francisco, for example, it's not uncommon for buyers to pay more than $500,000 for a starter home. First-timers are frequently short of cash. But, if you can scrape together enough cash for a 5 percent down payment plus closing costs, and you have good credit, you can become a homeowner if your front-end ratio is under 45 and your back-end ratio doesn't exceed 50. There is a downside to easy mortgage money and that is that Americans are taking on more and more debt. According to a study by Harvard University's Joint Center for Housing Studies, three in 10 U.S. households are spending 30 percent or more of their income on housing. Many home buyers depend on two incomes to qualify for a mortgage. If one of the partners is laid off, leaving the couple with one income instead of two, the percentage of income that goes to housing can skyrocket. It's not surprising that mortgage delinquencies are on the rise. It may be tempting to mortgage yourself to the hilt. A larger mortgage means a bigger tax write-off because interest paid on a home mortgage is generally tax-deductible. There are also benefits to be derived from using as little of your own money to purchase a valuable asset, called leverage. HOUSE HUNTING TIP: However, before you saddle yourself with the largest mortgage you can get, consider what makes good sense in terms of your quality of life, your overall financial situation and your long-term economic goals. Many buyers are deciding to keep their cost of housing down so that they can diversify their investments, avoid being house-poor and have plenty of cash reserves to handle unexpected emergencies. Deciding on a smaller mortgage will mean buying a less expensive home, unless you have enough cash saved to make up the difference. However, keep in mind that whatever you buy should suit your needs for at least five years. Buying with a shorter time frame in mind is risky because real estate markets tend to be cyclical. THE CLOSING: Don't overlook a condominium as an affordable first investment. Unlike years past when condos were considered a lousy investment in comparison to detached homes, condos are now appreciating at twice the rate of single-family residences. |
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| What don't home inspections cover? By Dian Hymer Most buyers understand the importance of doing inspections before completing a home purchase. Many buyers, however, are not aware that inspections might fail to reveal issues that could affect their use and enjoyment of the property. For example, a home was recently purchased in the Berkeley Hills near San Francisco. An inspection of the title record indicated that there were no easements recorded against the property. An easement grants limited property rights to someone other than the owner of record. Easements can restrict your use of a property, or they can enhance your property rights. A sewer easement across your property is an example of a restrictive easement. Usually the person or entity that benefits from the easement has the right to maintain the easement. If so, you are restricted from building over the easement or doing anything that would preclude the easement holder's maintenance rights. A sewer easement would benefit your property if it enabled you to hook up to the city sewer line by traversing your neighbor's property. This could be particularly beneficial if this is the only way you can hook up. Buyers usually hire a title company or attorney to search the ownership records to determine if there are any recorded documents—such as easements or liens—that affect the property. Title searches usually don't cover easements that aren't recorded against the property. But, such easements do exist and do affect the owner's property rights. This was the situation with the Berkeley Hills property mentioned above. An unrecorded sewer easement turned up when their agent asked the seller where and how the sewer line hooked up to the main city sewer line. The seller said there was a sewer easement along the right-side property line. A check of the city sewer map for the area revealed that the easement did in fact exist. Even though the easement hadn't been recorded against the property, it existed by virtue of being delineated on the city map. HOUSE HUNTING TIP: Due diligence investigations of a property often go beyond simply having the property inspected. You may need to do a little detective work in order to make sure that something critical, such as the existence of an unrecorded easement, is discovered before, and not after, you buy the property. It helps to work with an experienced local real estate agent who can educate you about unique issues affecting properties in the area. Title inspections aren't the only inspections that might give you less than the full picture. Wood pest (also called "termite") inspections only cover wood destroying pests and organisms. These inspections won't necessarily indicate if there are serious defects in the home's major systems or appliances. A home inspection will inform you about these major systems and appliances but usually excludes security and irrigation systems, air conditioning systems, solar and solar-assisted systems, spas and pools. A home inspection also won't tell you whether a component, such as a security system, is leased or owned. You'll need to ask the seller or the security system company for that information. Properties that share a driveway with another or other homeowners should ideally benefit from a maintenance agreement. Often, however, this detail is overlooked. If you're buying a property with a shared driveway and there isn't a recorded maintenance agreement, be sure to research this so that you understand the ramifications. You may need to hire an attorney to get the answers. THE CLOSING: Performing due diligence investigations of a property you're buying can be time consuming and expensive, but well worth it in terms of your financial security and peace of mind. |
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| How can I reduce my closing costs? By Dian Hymer Often it's easier for buyers to qualify for a mortgage than it is for them to scrape together enough cash for the down payment and closing costs. Down payment amounts vary. Usually they're in the range of five to twenty percent of the purchase price. In addition, closing costs can run another $5,000 to $10,000, depending on where you buy and the cost of your loan. Closing costs are fees associated with a home purchase that are paid at closing. Buyers and sellers both pay closing costs. Who pays which costs is often set by local custom, but it can be negotiable. Typical buyer closing costs include such items as: fees associated with getting a mortgage, homeowner's insurance, titles and closing fees, inspection fees, proration of property taxes and transfer taxes (if there are any). FIRST-TIME TIP: One of the easiest ways to lower your closing costs is to get a zero-point mortgage. Points is the term used for the loan origination fee. One point is equal to one percent of the loan amount. A $180,000 mortgage with a 2-point loan fee will cost you $3,600 at closing. A no-point $180,000 loan will save you $3,600 in closing costs. But, expect to pay a higher interest rate on a no-point loan. There's an inverse relationship between the points you pay and your interest rate. Another way to reduce your closing costs is to close late in the month. Lenders usually collect interest for the current month at closing. If you close on the fifth day of the month, you'll owe the lender 25 days of interest at closing. If you close on the twenty-fifth day of the month, the lender will collect 5 days of interest when you close. Closing at the end of the month can reduce your closing costs considerably if your loan balance and interest rate are high. Asking the sellers to credit you money to pay for some of your closing costs is another way to reduce the amount of cash you'll need to close. Keep in mind that when you ask sellers to do this, it's the same as asking them to accept less for their home. For example, if you offer $200,000 with a credit from the sellers of $3,000 for your closing costs, this is the same as a $197,000 offer. In a competitive situation, where multiple buyers are trying to buy the same home, you may have to pay full price or more to be the successful bidder. If you need the closing cost credit to make the deal work, raise your offer price by the amount of cash you need and then ask for the credit. For example, if the list price is $200,000, offer $203,000 with a $3,000 credit for your closing costs. The property must appraise for the higher price for this to work. Also, lenders have restrictions on how much they'll allow sellers to credit for closing costs: often it's 3 to 6 percent of the purchase price. And, most lenders won't allow a credit that exceeds the actual amount of the buyers' non-recurring closing costs (costs paid by the buyers one time only at closing, such as points and title fees). THE CLOSING: If the sellers are renting back from you after closing, ask them to credit you their rent money at closing. Clear this with the lender in advance, otherwise, the lender might require that rent be given to you later, when the sellers vacate. If the rent is credited, it reduces the cash you'll need to close. |
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| Helping your loan chances By Tom Kelly When it comes to mortgage lending, strength is not necessarily in numbers. Bringing more bodies to the deal will not instantly enhance your chances of obtaining a home loan. Although many states offer first-time homebuyer assistance and lenders are willing to stretch on low-downpayment loans for customers with strong employment credentials, credit repair and a little additional savings can work wonders. The key place hopeful homebuyers with awful credit often error is recruiting an upstanding person with flawless credit to cosign your loan. If you are the primary borrower and owner-occupant, take some time to perform genuine damage control on your credit before you lure any partners or attempt to securing financing. Maybe the biggest problem is a credit report that's out of date or incorrect. It's not a bad idea to check your credit every few years. If you are planning to buy a home in the next six months, do it now. There's a difference between a credit agency and a credit bureau. Bureaus are huge companies that collect data from banks, court records, department stores, etc. Agencies typically research what is in the bureaus and report the findings to the client. If an incorrect item appears on a credit report, it's up to the consumer to see that it is corrected. For example, if a courthouse clerk inadvertently punched a summary judgment onto your record, it's your responsibility to see that it is corrected. Merely telling the agency is not enough; you should submit the explanation, or proof, in writing to the bureau. If you finally have your credit looking better and still need an additional push, consider asking the seller to consider "seller financing" or "carrying the paper'" on the house. While most sellers prefer cash, some do not necessarily want to be cashed out. Sellers check credit, but not to the extent that banks do. Typically, a seller will ask to see your tax statements. It's often up to the buyer to start the discussions that result in seller financing. Sellers who need monthly income, perhaps a retiree, sometimes will consider helping to finance the house loan. Young families who are moving up need a lot of cash and are not good candidates for seller financing, but it never hurts to ask. In addition, buyers and sellers also can save some closing fees. The buyer usually gets an interest rate from the seller that is slightly below the market rate. Be as impressive as you can to a seller. It just might get you in the door. Here are some other possibilities: Offer a lease-option -You pay a small payment up front, usually non-refundable, to the seller for the option to buy the home on a specific date for a specific price. This method can be viewed as renting with a huge first and last month's rent and a non-refundable damage deposit. It's a benefit to the buyer because it gives him time (typically a year or two) to improve his job history or clear up credit questions. The method benefits the seller because the option money is not taxed to the seller until either the option is exercised or it expires. In the interim, the seller can depreciate the house. Parents as partners - The method is popular with parents who want to help their children find an alternative to college dormitory living. By taking an ownership share, the parents get some tax benefits by renting their share of the house to their children. Because both are co-owners, both parties share in resale profits and the children establish credit. Keep the seller on the title - You move in, pay as much down as you can, but keep the seller as co-owner to help qualify for a mortgage. Set up an agreement that gives you title on a specific date after you've paid off the seller or refinanced the deal with better credit. Search for an assumable loan – Some Federal Housing Authority and Veterans Administration loans are easily assumable. However, if the seller is to be released of liability on the loan, then a complete loan application with credit check is required. Many homes now have existing adjustable-rate mortgages that are assumable. Typically, lenders are not as tough on assumption qualifications as they are when originating a new loan. |
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| Should I ask the seller for a credit? By Dian Hymer Most purchase contracts include an inspection contingency. Sometimes, the buyers remove this contingency without asking the seller to make any repairs. But if the buyers ask the seller to remedy a defect, the resolution often takes the form of a credit from the seller to the buyer that is applied toward the buyers' nonrecurring closing costs. Closing costs are the miscellaneous fees that buyers pay at closing, such as title insurance, transfer taxes and loan origination fees, to name a few. Nonrecurring closing costs are those fees paid at closing that are paid on a one-time-only basis, such as title insurance and points. Recurring closing costs are paid on an on-going basis, like homeowner's insurance and mortgage interest. You may wonder why the credit is for the buyer's nonrecurring closing costs rather than for repairs. One reason is that if you mention repairs in an addendum to the purchase contract, the buyer's mortgage lender could require that you get the work done by closing. This could be difficult or impossible depending on the type of work and on the amount of time you have to get it done. Lenders used to allow sellers to credit money that was held in an escrow or trust account for work do be done after closing. Few lenders will allow this anymore. Today many lenders sell their loans on the secondary money market soon after the loans are originated. A lender might have difficulty selling the loan with a holdback until the work is complete. If so, the lender loses time and money. Plus, it's an administrative hassle for the lender. Lenders limit the amount a seller can credit to ensure that a credit to the buyer doesn't reduce the amount of the buyer's cash down payment. From the lender's standpoint, the security of a loan is in part determined by the amount of cash the buyer is investing. The more the buyer has invested in a property, the less likely he is to default on the mortgage. A credit for the buyer's nonrecurring closing costs does not change the amount of the buyer's cash down payment. HOUSE HUNTING TIP: Negotiating a nonrecurring closing cost credit from the seller can be tricky. Some sellers are suspicious of buyers who request a monetary credit. They assume that it's just a ploy to get money out of the seller. You may have an easier time negotiating a credit if it's presented to the seller as an option. For example, the buyers of a new home discovered during their home inspection that the home lacked adequate ventilation in the crawl space under the house. The inspector recommended the installation of a mechanical ventilation system. Instead of simply asking for a monetary credit for the recommended work, the buyers gave the seller the option of either installing the ventilation system or crediting them money at closing to be applied toward their nonrecurring closing costs. The seller chose to the credit the money. One advantage of taking a credit rather than having the seller do the work before closing is that you can select your own contractor to do the work. Also, you can oversee the work to make sure that's it's done right. Before asking for a credit for nonrecurring closing costs, check with your lender to see how large a credit the lender will allow. It's often no more than 3 percent of the selling price. Also, the credit usually cannot exceed the actual amount of the buyer's nonrecurring closing costs. THE CLOSING: So, if you're buying a $500,000 house, the lender would theoretically allow a credit of up to $15,000. But, if your nonrecurring closing costs total $11,000, the lender will limit the allowable credit to this amount. |
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| How much is your real estate appreciating? Increase in region's median price not best indicator By Dian Hymer The southern California housing market is hot. So hot, that in January 2004, the median home price in Malibu was up 106.7 percent from a year ago. Did Malibu homeowners actually see the price of their homes double in just one year? Increases and decreases in home prices are usually quoted in terms of changes in the median home price. The median price doesn't measure actual home-price appreciation. Instead, it is the midway point of sale prices in an area for a given period of time, usually one month or one year. This means that half the homes sold during the period sold for more than the median price and half sold for less. Malibu home prices surely increased substantially during the last year. But the magnitude of the increase in median home price in Malibu is indicative of a pickup in the upper-end market. Multiple million-dollar properties, which had languished since the recession of 2000, are back in demand. For years, first-time home buyers, who typically buy less-expensive homes, dominated the home-sale market. When the sale of less-expensive homes outpaces the sale of more-expensive homes, the median home price stays relatively low. In 2003, trade-up buyers accounted for 70 percent of the home sales in California, according to the California Association of Realtors. Trade-up buyers purchase more-expensive homes. When there is an increase in the sales of more-expensive homes relative to the sales of less-expensive homes, the median price increases. A 10 percent increase in the median price doesn't necessarily mean that your home appreciated 10 percent. It could have appreciated more or less than that. It's difficult to measure absolute home-price appreciation. For one thing, you can find different rates of appreciation within one market. For example, from 2000 through 2002, the low end of the market appreciated in most places, while the upper-end market prices actually dropped in some areas during that time. One measure of home-price appreciation uses refinances to gauge price increases and decreases. This measure is inaccurate at best. Last year, an Oakland, Calif., homeowner's home appraised for a refinance at $870,000. This year, the same house appraised for $830,000. The only change during the intervening time period is that homes in the areas appreciated about 10 percent. Refinance appraisals are notorious for being either high or low relative to current market value. The appraiser is merely attempting to justify the home value for the lender. So, if the borrower is taking out a small loan relative to the value of the home, the appraisal tends to come in low. HOMEOWNER'S TIP: The only accurate gauge of your home's current value is the market. However, it would be ludicrous to put your home up for sale simply to find out what it's worth. A simpler approach is to keep an eye on sales of similar homes in your neighborhood. Visiting Sunday open houses, and then following up to find out the ultimate sale price is one way to gather useful pricing information. Another way is to ask your local real estate agent to prepare a comparative market evaluation. In active markets where the inventory of homes for sale is very low, multiple offers can result in a sale at an astronomically high price. A Piedmont, Calif., home buyer recently paid approximately $400,000 over the asking price in a multiple-offer competition. This buyer was desperate after having looked for a home for two years. THE CLOSING: It would be imprudent to base the value of your home on an isolated incidence like this. Fair market value is more accurately defined by the price a willing buyer will pay and the price a willing seller will accept, when neither is under duress. |
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| Home seller credit could save real estate deal By Dian Hymer No one likes to give money away, but a monetary credit from the seller to the buyer can solve a problem that might otherwise derail a home-sale transaction. Here's a typical scenario where a seller credit could save the deal. The buyers are stretching to buy their dream home. Tapped out financially, they panic when they discover during their home inspection that the roof needs replacing. The inspector impresses upon the buyers that the roof must be replaced immediately; it can't wait. But the buyers don't have enough extra cash to cover the cost of a new roof. One option for the buyers is to back out of the deal, and find another less expensive house, or a house with a roof that's in better condition. But this puts the buyers back in the market searching for a new house. And the sellers have no recourse but to put their house back on the market, and search for another buyer. Another option is for the buyers to ask the sellers to credit them enough money to take care of replacing the roof. If the sellers are willing, the transaction stays together. The sellers will net less from the sale, but the sale will close. If more time on the market means less money for the seller, this could be an acceptable solution for both parties. There are other benefits to be derived from this approach to repairing property defects. One is that it relieves the sellers of the burden of having to oversee work while they're in the midst of moving out of the house. Another is that buyers often prefer to oversee the work themselves to make sure that it's done properly. Also, there's often not enough time to have repairs done before closing. HOUSE HUNTING TIP: Before you ask the seller to credit you money at closing, check with your mortgage broker or loan agent to find out what restrictions your lender might have regarding seller credits. Usually, lenders will only allow a credit for up to 3 percent of the purchase price. Also, most lenders limit the amount of money they'll allow a seller to credit to not more than the amount of the buyer's nonrecurring closing costs. Nonrecurring closing costs are one-time-only costs that a buyer pays at closing, such as loan origination fees or transfer taxes. Recurring closing costs are those costs paid at closing that are part of ongoing expenses a buyer will pay, such as homeowner's insurance or mortgage interest. Lenders don't like money to pass from the seller to the buyer if it in some way lowers the amount of the buyer's cash down payment. But they will usually allow a seller credit that offsets the buyer's nonrecurring closing costs. This means that you won't walk away from the closing with a check for the amount of the credit in your pocket. Instead, the seller credit will lower the amount of money you need to bring to the closing. The money you save can be applied toward repairing the property defect. Seller credits can be useful when buyers are short of the cash required to make an offer. Let's say you have enough saved for a 10 percent down payment. But you are shy the money needed for closing costs. Your purchase offer could include a provision for the seller to credit you an amount at closing to be applied toward your nonrecurring closing costs. A credit lowers the seller's net proceeds. So, you may need to increase your asking price to cover the amount of the credit if you're in competition, or if the property is attractively priced. THE CLOSING: Just make sure, before you do this, that the property is likely to appraise at the higher price. |
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| Time to prepare for those high winter energy bills By Paul Bianchina It happens every year. Summer turns to fall and we're never ready for the change -- and neither are our homes. The coming winter seems to be promising higher fuel costs across the nation, so this year it's really going to pay to grab a weekend and concentrate your efforts on ways to keep your house warmer and your utility bills more affordable. Here's a checklist to help you get started. ___ Check the heating system: A heating system tune-up is always in order this time of year. This should include changing the filter in your furnace; having your ducts cleaned; checking and possibly increasing insulation over ductwork running through the attic or crawlspace; clearing debris and overhanging shrubbery from around outdoor heat pump equipment; and having faulty or inefficient thermostats repaired or replaced. ___ Check insulation levels: Out of sight, out of mind is something that typically applies to insulation, to make it a point to check your insulation levels and improve them wherever you can. Attic insulation should be R-38 – about 12 to 14 inches of blown fiberglass – and can be easily added to by an insulation contractor if needed. Many house do not have any underfloor insulation, so you want to upgrade that area to R-19 to R-25 by installing fiberglass batts between the floor joists. ___ Stop the drafts: A drafty house is not only uncomfortable to live in, it also wastes money. Check all exterior doors, including the one between the house and the garage. Look for daylight between the door and the frame, and especially between the bottom of the door and sill. Replace or adjust any weather-stripping that is damaged, worn, or not making a tight seal. Check the weather-stripping on windows as well, and contact a glass company if you need help with replacement. Now is also the time to freshen up caulking around doors, windows, plumbing penetrations, and anywhere else that heat-robbing drafts can make their way in. ___ Close foundation vents: If you have opened your foundation vents for the summer to allow accumulated moisture to escape, now's the time to close them up again. ___ Check fireplace safety and efficiency: Many people depend on their fireplace or woodstove for supplemental heat, and you want to make sure it's working as well as possible. For conventional fireplaces, give some serious though to installing air-tight glass doors to improve efficiency and reduce drafts. If you already have doors, check and replace the door seals as needed, and adjust door latches and hinges. Now is also a good time to have the chimney cleaned and checked for problems, and to check spark arrestor caps. ___ Check firewood supplies: To get the maximum heat value from your firewood, it needs to be dry. Take the time now to stack your wood on an elevated platform – old pallets work well – and to make sure that the wood is covered and protected from the elements. ___ Pay attention to indoor safety: If you have a gas fireplace, range, water heater, or other appliance that uses propane or natural gas, the possibility of carbon monoxide poisoning from a malfunctioning appliance increases substantially as we close our homes up for the winter. Fall is the ideal time to install a carbon monoxide detector, which are available from many home centers and retailers of heating system supplies. This is also a great time to have your utility company or heating contractor inspect flues, fittings, and other components of your systems for potential problems. ___ Check smoke detectors: Now is the time we start spending a lot more time indoors, and it's the ideal reminder that we need to check smoke detectors. Take the time right now to check the operation of detectors, and to change the batteries. If you have an older house with a limited number of smoke detectors, you also need to install additional detectors outside each bedroom. ___ Check the roof: Examine roofing shingles and flashings, and repair or replace them as needed. A roof that leaks not only has the potential to cause significant structural damage, it also wets insulation, which causes a drop in the insulation's ability to resist heat loss. |
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| Creating a home buying strategy By Inman News If you want to buy a house, start by estimating what you can afford and making a budget to buy. Many prospective buyers find it difficult to accumulate enough cash for a down payment, especially if they are saddled with heavy debt. With some discipline and creative strategies, you can probably come up with more cash than you think. Check your current finances and investigate ways to save and raise extra funds. Here are some guidelines you way want to follow as you move through the process: Write down your monthly income, savings, and spending. If you have a lot of high-interest credit debt, try to move your balances to cheaper cards and plan to spend a year paying off as much of that debt as possible. Identify your long-term financial goals. Owning a house may be one, saving enough for retirement may be another. Make a home-buying savings plan. Open a savings account just for this purpose and make regular deposits, even if you put asidejust $20 a week. Look for other sources of down payment funds, such as a Roth Individual Retirement Account (IRA). First-time buyers now have access to $10,000 of these funds penalty-free under certain conditions. Cut back on non-essential spending. Your friends and relatives will understand that you can't spend $20 to go to dinner and the movies if you say you're saving to buy a house. Your children will understand, too. In fact, saving to buy a house can be a family activity. Make saving for a house fun. Chart your progress on paper and post it somewhere to remind yourself of your goal. Ask your parents, other relatives or friends for help. If they can't give or loan any money, perhaps they'll agree to co-sign the loan. Here are a few more strategies: 1. Sell (or borrow against) other real estate you own. 2. Sell securities you own, or borrow against them through a loan from the stock brokerage. 3. Sell collectibles or heirlooms you own. 4. Cash in (or borrow against) the built-up value of any life insurance you have. 5. Withdraw money from your IRA. If you're a first-time buyer you can pull out $10,000 penalty-free (though you must pay state and federal income tax on it) to put toward your home purchase. If you're not a first-time buyer, pull out the very least amount you must. Otherwise, you will have to pay both the 10 percent penalty and income tax on an early withdrawal. 6. Borrow against your retirement funds. In some cases, the rate on the loan may be as small as 2 percent. If you add too much to your debt burden, however, you may not be approved for a loan. 7. Ask for help from your church, synagogue or other nonprofit organization. Fannie Mae has a "3/2" loan program that allows you to make a 3 percent down payment if a bona fide nonprofit puts down the other 2 percent. 8. Sell a boat, RV or second car you own and use the cash for the down payment. 9. Get a second job. It'll help you raise cash, and the extra income will improve your chances of qualifying for a loan. You can quit later. 10. Look for an investment partner who'll put up some or all of the cash in an equity-sharing partnership. You make the monthly payments and the two of you split the eventual resale profits. 11. Change the withholding taxes, if permitted, on your salary in anticipation of higher deductions when you get a mortgage. Your take-home pay will increase, giving you more funds to put toward a down payment. 12. Look for loan programs such as VA or FHA that require little or nothing down. 14. Use a lease option that lets you rent the house now and buy it after you save. 15. Look for a home with an assumable loan. Instead of buying out the owner's equity, ask the seller to carry back a second mortgage for an equal amount. That way you can buy the home without a down payment. 16. Pawn something you own and use the proceeds for a down payment. You can get the item back after you've moved in and can afford to pay the pawnbroker back. 17. Refinance your car or other vehicles and add the proceeds to your down payment. 18. Offer something other than cash (a car, boat, or collectibles) to the seller in lieu of a cash down payment. 19. Offer your services or expertise to the seller in lieu of a down payment. Some examples include $10,000 worth of auto services if you're a mechanic, dental work if you're a dentist, desktop publishing services if you're a designer, artwork if you're an artist or legal work if you're an attorney. 20. Look for foreclosure properties that require little or no down payment. Some lenders and government agencies will let you buy a foreclosure with no down payment if your credit is good and they're anxious to have the home occupied, or if you have skills (carpentry, landscaping or even painting) that you can use to increase the home's value. |
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| What should I consider before remodeling? By Dian Hymer So, you're thinking about remodeling instead of moving... Before you start knocking down walls, carefully consider the feasibility, practicality and cost of the remodeling venture. It's helpful to hire a design expert to consult with you about the feasibility of the project you have in mind before doing anything else. Initially, try to hire a design professional who will charge on an hourly basis. Many architects want to develop a full set of architectural plans for you right away. This can cost thousands of dollars, which you don't want to spend unless you're definitely going ahead with the project. During the feasibility analysis, you need to find out if your home can be modified to create the kind of space you want and need. You also need to talk with the local building or planning department to find out if there are any restrictions that would preclude you from completing the project. Once you've determined that your remodel project is feasible, then give a good hard look at the practicality of the project. Remodeling is disruptive. It takes time. Can you and your family weather the storm? Anecdotal evidence suggests that a major remodel can put a fatal strain on an already shaky marital relationship. HOMEOWNER TIP: A common mistake homeowners make is assuming that when they sell they will recoup the money they invest in remodeling their home. How much you can recoup will vary depending on local real estate market conditions, the type of remodel project, and the length of time between the project completion and the sale of the property. Generally, it doesn't make sense to tackle a major renovation if you plan to sell in the near future. If this will be a long-term home for you, then it may be worthwhile to invest in a major overhaul. But, keep in mind that design tastes change over time. The beautifully remodeled kitchen that looks fabulous to you today may look dated to prospective buyers when you sell ten years from now. Kitchens are important to most home buyers. However, if you're planning on selling soon, you're likely to recoup more if you do a modest kitchen makeover than you will if you do a major reconstruction. According to Smartmoney.com, a complete kitchen makeover recoups 80 percent of its cost. A modest redo involving new paint, cabinet hardware and floor covering paid back 87 percent of the investment. These figures are based on national averages. Talk to a local real estate agent whose opinion you trust to find out whether your remodel plans are likely to meet with market approval. The point of remodeling is to make your home better suit your lifestyle. But, it's also important to consider the resale potential of your improvements. The value of a remodel project will vary from one place to the next. Even though nationally a major kitchen renovation only returned 80 percent of the investment, in San Francisco it's possible to recoup over 100 percent, depending on the quality of the renovation. Your agent can also help you determine if you will be over-improving your home for your neighborhood. Ask to see comparable sales information on homes like yours and also on homes similar to your hypothetically remodeled home. THE CLOSING: Keep in mind that most remodel projects end up costing more than budget. Factor this in to your cost analysis. |
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| Don't let noncompliance take you down in flames Homes come in all shapes and sizes, as do homeowners and their families. But no matter how big, how old or what architectural style a house is, there is one common denominator between all of them-when there's a fire, everyone in the home needs to be able to get out. Fast. Common sense and concern would dictate that your family's safety is paramount over any architectural design concerns, but to make certain of that every building code has provisions in them for emergency escape exits, which are referred to in the codes as "egress." The codes clearly specify the size and location of egress points, and it can't be emphasized strongly enough that you need to check to make sure your home meets all of these requirements. WHAT THE CODE DICTATES In the 1998 International One- and Two-Family Dwelling Code, which is the standard building code for a number of jurisdictions, you will find the following language: "Emergency escape required. Every sleeping room shall have at least one openable window or exterior door approved for emergency escape of rescue. The units must be operable from the inside to a full clear opening without the use of a key, tool or special knowledge." Let's break that down a little. First of all, there is the term "sleeping room". This obviously refers to bedrooms, but it can also extend to any room where someone regularly sleeps, such a loft, converted basement or other room. Within that sleeping room, there needs to be at least one window or door that opens to the outside. Remember that a door that opens into a hall or into another room before providing access to the exterior of the house does not meet the code-it must open directly to the exterior. Also notice the provision that says the door or window must be able to be opened without a key, tool or special knowledge. That means that the door can't have a deadbolt on it that has to be operated with a key from inside. It also can't have locks or other security devices on the inside of it that require a special tool, a specific combination or any other special knowledge to be able to unlatch and open it in an emergency. If, as is the case with most bedrooms, you are relying on a window as a means of emergency exit, then at least one window in the room needs to meet or exceed some very specific requirements. For most codes, this includes the height of the window and well as its clear opening size. For windows, the 1998 International One- and Two-Family Dwelling Code further requires that the sill height be not more than 44 inches above the floor, and that "emergency escape or rescue windows from sleeping rooms" have a minimum net clear opening of 5.7 square feet, or a minimum of 5 square feet for grade floor windows. Additionally, the minimum net clear openings for that escape window need to be at least 22 inches high and 20 inches wide. Also, look at the term "operable from the inside to a full clear opening." The meaning is obvious, but in reality it may not always be the case. First of all, the window or door needs to operate from the inside. Simply put, one person needs to be able to open it easily from inside, without any assistance from someone on the exterior of the house. Finally, "full clear opening" means that there can't be anything that prevents that window or door from swinging or sliding all the way open. That could include things like landscaping that prevents a casement window from opening all the way, debris or stored items that block the full swing of a door, interior decorations that permanently block part of a window, window air conditioners that are installed in the only egress window, or dozens of other possible scenarios. This also applies to "bars, grills, covers and screens" over egress windows, all of which need to be able to be released from the inside without the use of a key, tool or special knowledge. The code also specifies "the net opening dimensions required by this section shall be obtained by the normal operation of the window from the inside." Note the term "normal operation," which means that you need to be able to slide or swing the window open in the manner that the manufacturer originally intended. It does not include breaking out enough glass or enough of the frame to achieve required opening size. FOLLOW UP This is just a brief overview of some of the key building codes relating to emergency exits. There are other provisions and exceptions in the code, especially as they relate to basement sleeping rooms, and different jurisdictions may use different building code models. For the safety of your family, take a moment to call or visit your local building department and ask them to make you a copy of the relevant codes. Educate yourself and then take an hour or two to inspect your home and make sure you're in compliance. The lives of you and your family could, quite literally, depend on it. Copyright 2003 Inman News Features |
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| Is home defect disclosure really necessary? By: Dian Hymer Only 20 years ago, home buyers were lucky if the seller told them anything about the condition of the property they were purchasing. Now, it's law in most states that sellers must disclose material facts to home buyers that might influence their decision to buy or the price they'd be willing to pay. The National Association of Realtors is in favor of all states enacting seller disclosure laws. Why the big push to require sellers to come clean about property defects when they sell? Put yourself in the buyer's shoes and consider the following. You save for years so that you can afford to buy a home of your own. The first winter after you move into your new home, the roof leaks causing interior damage and the basement floods destroying valuable personal property. You make a claim to your insurance company that pays to repair the damage, but not to correct the cause of the problems. You consult with contractors who inform you that you need a new roof and a drainage system at a cost of more than $30,000. You have no cash reserves to correct the problems. Also, your insurance company might refuse to renew your policy because you submitted a claim for water damage. Buyers usually have a home inspection done before they finalize a purchase. However, sellers often have painting done to get their home ready for sale. When they do so, such things as stains—that indicate a problem exists—disappear. In this case, the buyers would have no way to know they are buying pre-existing problems unless the sellers tell them. HOUSE HUNTING TIP: Sellers can be wary of disclosing defects because they fear their candidness will discourage buyers from buying. In fact, full disclosure rarely keeps a home from selling. Buyers who are told about defects before they buy can factor this information into their decision-making, and budget accordingly. For example, let's say the buyers in the above example knew that the roof was on its last legs. The sellers disclosed this fact, along with an estimate to replace the roof as part of their disclosure package. The buyers had no extra cash to pay for the new roof, but they had several options. They could ask the seller to replace the roof. If the seller said no, they could ask the seller to pay a portion. Or, they could make an offer at a price that covered the cost of a new roof. For instance, instead of offering $350,000, they could offer $360,000 and ask the seller to credit $10,000 to them at closing to cover the cost of a new roof. This way the buyer finances the roof replacement and pays if off over time. The options aren't so great for buyers who don't know about defects before they close on their new home. They can ask the sellers to pay to fix the defects. But, if the sellers refuse, their only recourse may be to sue the sellers. This could end up being a far more costly proposition than it would have been if the sellers had come clean to begin with. Full disclosure is usually in the best interest of both buyers and sellers. Sellers who don't realize the protection full disclosure provides may skimp on their disclosures, which can also lead to problems. In addition to disclosing defects, it's prudent to inform the buyers about routine maintenance that will need attending to in order to avoid future problems. For example, you may have a sewer line that needs to have roots cleared periodically to avoid backups or a skylight that needs routine caulking to avoid leaks. THE CLOSING: When you pass this information along to the buyers, you also transfer responsibility for avoiding future problems to them. Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers," and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books. |
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| What are garbage fees? By Dian Hymer Homebuyers are all too often surprised at the end of the deal when they discover they must pay new, unanticipated fees. Federal law requires lenders and mortgage brokers to disclose fees that will be charged in connection with getting a mortgage. This must be done within 3 days after the borrowers submit a loan application. Often the final settlement statement of fees doesn't match the initial estimate the borrowers received when they applied for the loan. One reason for this is that borrowers often change their minds about which mortgage they want between the time they apply for the loan and closing. Lenders' fees can vary significantly. Some lenders charge underwriting fees and others charge administrative or processing fees. Some charge both. Most lenders charge documentation preparation fees, but these can range anywhere from a few hundred dollars to $700 or more. There are miscellaneous fees that are charged at closing, in addition to customary closing costs like points or title insurance. These are commonly called "garbage fees." Taken one at a time, garbage fees usually don't amount to much. For example, a tax service (to notify the lender that your property taxes are current) costs about $70, a courier fee is about $30. A notary fee might run $40, a wiring fee costs about $30 and a flood certificate (which is often required by the lender) is around $25. Some mortgage brokers charge incidental fees on top of those charged by the lender, such as a processing or document preparation fee. In addition, the escrow or closing officer might add on a few more charges for drawing, recording and notarizing documents, or to cover courier and wiring costs. Add all of these fees together and you could end up owing hundreds of dollars more than you anticipated. FIRST-TIME TIP: To avoid surprises, make sure your loan agent or mortgage broker gives you a complete and accurate accounting of all the fees, including garbage fees. Specifically ask how much the garbage fees will run and get this in writing. If you change loans during the application process, ask for an update of the fees you'll owe. Check with the person handling the closing (attorney, closer or escrow officer) to see if any garbage fees will be charged in addition to those charged by the lender. Ask for an explanation if there seems to be a duplication of the fees charged. Buyers aren't the only ones who pay garbage fees: Sellers pay them too. Sellers should ask their real estate agent, closer or attorney to prepare a closing cost estimate when they accept an offer to sell their home. In addition to customary closing costs like the brokerage commission, the seller's lender will charge for a payoff statement (usually about $50) and a reconveyance fee (could be another $50 or so). Sellers also usually pay document preparation, wiring, courier and notary fees. These can add a few hundred dollars to the closing cost estimate. It's a good idea for both buyers and sellers to ask the person who's handling the closing a copy of the final closing cost estimate as soon as the figures are available. Review this before you sign to make sure that new charges haven't mysteriously appeared. THE CLOSING: Ask your closing agent for an explanation of any new fees. If he or she can't give you a satisfactory explanation for why the fees are being charged, ask that the fees be waived. |
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| Non-recurring closing costs By Dian Hymer Is it really a full-price offer if the buyers ask the sellers to pay for some of their closing costs? Not exactly. Sellers are sometimes miffed when they read through a purchase offer and discover, usually in the "additional terms" section of the contract, that the buyers want them to pay for some of their closing costs. Sellers may see this as a sneaky way to reduce the price. Here's how it looks from the sellers' perspective. Let's say the sellers are asking $200,000 for their home. The buyers offer to pay the sellers their price, but ask for the sellers to credit $5,000 to them at closing for their nonrecurring closing costs. In effect, the buyers are offering to pay only $195,000 for the home, not the $200,000 that appears in the price section of the purchase offer. Although buyers sometimes use a closing cost credit to lower the purchase price, this is not always the case. Many homebuyers, particularly first-time buyers, are short of the cash they need to pay for the down payment and closing costs. One way to generate cash so the buyers can complete a home purchase is for the sellers to assist with some of the costs in the form of a cash credit at closing. Lenders have restrictions on how much sellers can credit to buyers at closing. The amount varies with the lender, but it's usually in the range of 3 to 6 percent of the purchase price, or $6,000 to $12,000 on a $200,000 purchase price. Most lenders will only allow a credit for the buyers' nonrecurring closing costs. Nonrecurring closing costs are paid on a one-time-only basis at closing, like payments for title insurance and loan origination fees. Lenders usually won't permit credits for the buyers' recurring costs, like mortgage interest and hazard insurance. There are some lenders, however, that will allow credits for all closing costs. A credit from the seller to pay for the buyers' nonrecurring closing costs can't exceed the actual amount of those costs. The lender might allow a credit of up to $6,000, but if the buyers' costs only total $5,000, the maximum the sellers can credit is $5,000. FIRST-TIME TIP: The way an offer is presented to a seller can influence its chance of success. To overcome any potential resistance the sellers might have to a request for a credit, explain how the credit works before discussing the offer price. This way the sellers are less likely to be disappointed when they discover the offer is for less than the offer price indicates. Buyers who need a credit in order to buy may find themselves at a disadvantage if they're making an offer in competition against other buyers. To be competitive in this situation, it may be necessary to inflate the offer price to cover the amount of the closing cost credit. For example, let's say the property is listed for $200,000 and you need a credit of $5,000 to help pay for your closing costs. You can increase the offer price to $205,000 and ask the seller to credit $5,000, which is effectively a full-price offer of $200,000. For this strategy to work, the property must appraise for $205,000. THE CLOSING: A credit can also be used to resolve inspection issues that arise during the sale. Although lenders usually don't let sellers credit money to buyers for property improvements, they do allow credits for closing costs. The money the buyers save on closing costs can be used later to make improvements. |
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| How to profit from home appreciation By Liz Poppens There are many ways to save money, but taking advantage of a run-up in home prices isn’t usually on any financial planner’s list. However, appreciating property values can offer at least two ways to save money. Many homebuyers today, especially first-timers, purchase homes with less than 20 percent down payments. In such situations, lenders require buyers to buy private mortgage insurance, or PMI, and to set up an escrow account to pay homeowners insurance and property taxes until you have more than 20 percent equity in the house. It can take up to 10 years to reach the 20 percent equity point on a standard 30-year loan. However, when home values are appreciating, as they are in most markets nationwide, that point can be reached much sooner. Dropping PMI and the escrow account could save hundreds of dollars a year in insurance premiums and interest earnings. On average, PMI adds $50 to $100 to monthly mortgage costs, about $5,000 to $10,000 over the life of the loan. As for interest earnings, some lenders do pay modest interest on escrow accounts, but not as much as homeowners could earn by saving money for property taxes and insurance themselves. Because of new federal legislation requiring lenders to be more vigilant about canceling PMI on loans of 80 percent or less, most lenders have set up guidelines for consumers. In most cases, a property must be reappraised to prove its new higher value. Appraisals cost between $300 and $400. Still, that cost is minimal relative to the long-term cost of PMI, especially if appreciating property values make it unnecessary. Canceling an escrow account may take more time, depending on the lender. However, it is worth pursuing while property values are on the upswing. Once the account is canceled, it is wise to set up an automated monthly withdrawal of funds for future property taxes and homeowners insurance into some kind of interest-bearing account. Property taxes usually come due twice a year while homeowners insurance premiums vary. Until those bills are due, the funds could be earning interest. Over the course of a standard 30-year loan, the interest could total thousands of dollars of extra savings. Not only could such savings pay for a child’s college or a terrific vacation, but some could be put toward paying off the mortgage early, too. |
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| Are you ready to be a do-it-yourself-er? By Paul Bianchina While relaxing in the yard, sipping a cold one, your mind may start to visualize that big new deck you've been wanting, or an addition to the family room... Do-it-yourself projects, large and small, can indeed save you money and bring you a lot of pleasure. They are a wonderful way of adding both value and a deep sense of personal pride to your home. But before you grab your tool belt, it pays to ask yourself some honest questions about your ability to undertake the project. This is not designed to intimidate you or dissuade you from undertaking the work – it's just a little honest assessment to guide you toward those things you can comfortably do, and those things that are best left to others. Do you have the knowledge? First and foremost, you need to ask yourself if you know how – or can learn how – to do the tasks involved in project. You need to break down the steps -- to build a deck, for example, you will typically need to design and lay out the deck structure, pour some concrete, cut and fasten a lot of lumber, apply paint or stain, and perhaps do some electrical wiring – and then decide what is involved with each step, which of them you can and want to do, what additional knowledge you might have to acquire, and how you would acquire it. Do you have the skills? Theoretical knowledge is one thing, and practical application is something else – otherwise everyone who studies golf magazines could be Tiger Woods. Once you've started doing your homework about what's involved in a project of the type you're considering – studying plans, looking at books and magazines, viewing similar completed projects, or visiting home shows or home tours – then take the time to understand the techniques involved and decide if you have those skills or are interested in learning them. Do you have the time? This is definitely one of the most often overlooked – or miscalculated – areas of any home improvement project. Building takes time, and even the most experienced carpenter can underestimate just how long something may take. That deck, for example, may chew up a good part of your summer weekends or all of your vacation time, so be sure that's how you want to spend your hard-earned leisure hours. Also, ask yourself how the time frame for the project – and try and be realistic with yourself about how long it will take -- will affect the rest of the family. You may, for example, be perfectly willing to undertake that bathroom remodel, but living for three months with a portable toilet and a garden hose for a shower may lead to a serious mutiny in the house. Do you have the interest? Another often-overlooked element of home improvement projects is whether or not you have the interest. Perhaps you've done some painting in the past and are very comfortable with both your knowledge and your ability in that area. That doesn't necessarily mean you have the desire to spend the next two months painting the outside of your house. Lack of interest or desire for a particular task can lead to a lot of frustration, and a job that is rushed or done poorly can actually detract from the value of your home. Do you have the physical ability? Many building tasks involve a lot of physical labor, so you should also be honest with yourself about your physical capability to undertake the work. Other questions to consider might include whether you're afraid of heights, or uncomfortable on a roof; can you climb and work on a ladder; are you willing to crawl under the house or into the attic if necessary; even whether or not you mind getting dirty. These may seem like silly concerns, but for your own safety you really need to be comfortable with your own abilities and limitations. Do you have the necessary help? Here again, the physical reality of building is that many tasks require more than one person. From simple tasks like stretching a string over a 35-foot foundation to physical labor such as wrestling a 250-pound beam into place, do you have access to assistance if – and when – you need it? Do you have the tools? Finally – tools and equipment. Construction projects often require a wide variety of quality tools, many of which you may not have. As part of your planning, you should consider what tools will be needed to do the work, then look at what you already have, what you might be willing to acquire, and what you could rent or borrow if necessary. |
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| Sell first, then buy - Tips for a smooth home purchase Most homeowners need the equity from their current home to use for a down payment on the next home. Even when the cash down payment isn't an issue, many homeowners wouldn't dream of owning two homes at the same time. In today's heated real estate market, well-priced homes are selling briskly. But markets can change quickly. One couple from Oakland bought their San Francisco dream home when the market was active. Then the real estate market stalled and they had difficulty selling the Oakland home. After numerous price reductions, the Oakland house sold but for much less than anticipated due to changed market conditions. Why, you might ask, didn't this couple make their offer contingent on the sale of their Oakland home? In active real estate markets--where there are more buyers than there are sellers--this is usually not an option. However, you can often find sellers who will accept an offer that is contingent on the closing of a sale that is already in progress. So, if you need to sell first in order to buy, and you can't risk owning two homes, here's a game plan that works. First, find yourself a good agent to represent you in the sale of your current home, and a good agent to find you a new home. Also, hook up with a good mortgage broker who can get you pre-approved for the mortgage you'll need to buy the new home. Pre-approval is a formal procedure that gets you fully lender-qualified for a mortgage. The approval is contingent on you finding a home. Sellers are more receptive to offers from pre-approved buyers because there's no concern about whether the buyers will qualify. Then meet with your listing agent and determine what you need to do to get your home ready to put on the market. Also ask your agent to prepare a comparative market evaluation to establish a reasonable list price. At the same time, find out from the mortgage broker what price range home you can afford. Then have the agent who's helping you find the new home show you some listings of homes for sale that suit your needs. This will give you confidence that you'll find the kind of replacement home you want when you're ready to make an offer. When the fix-up work is done, list your home for sale with a provision that you may need a long closing or a rent back option. A rent back option entitles you to rent your home back from the buyers for a period after closing. This gives you more time to find and buy the next home without having to make a move to an interim rental. FIRST-TIME TIP: The best time to make an offer on a new home is after you have found a buyer for your home, and after the buyer's inspection contingency has been satisfied. Inspections often reveal defects that need to be corrected. Sometimes buyers and sellers renegotiate these repairs; sometimes sellers pay for items, like a new roof, that they hadn't figured into their budget. After the inspection contingency is removed, you know precisely how much you'll net from the sale of your home. THE CLOSING: When you negotiate the sale of your current home, make sure that your buyers get pre-approved within 5-10 days of acceptance. Then when you make an offer to buy your new home, you can represent that your home is sold and that the financing and inspection contingencies have been satisfied. Dian Hymer is author of "Starting Out, The Complete Home Buyer's Guide," Chronicle Books, Revised 1998. Copyright 1998 Dian Hymer Distributed by Inman News Features |
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| Contingent sale offers: how to keep everyone happy A look at release clauses, time limits By Dian Hymer As the home sale market turns from a strong seller's market to a more normal market, we're bound to see an increase in offers that are contingent on the sale of another property. This is good news for buyers who must sell first before they can afford to buy another home or who just don't want to own two homes at once. Keep in mind that an offer made contingent upon the sale of another home still is unlikely to work in markets where the inventory of homes for sale is low and where buyer demand remains high. Prime candidates for a contingent sale offer are listings that have been on the market for a while or listings in areas that are bloated with inventory. Here's how a contingent sale offer works. The buyers include a contingency in their purchase offer that says the purchase is subject to their existing home. If the buyers' property sells, the sale goes through. But, if it does not, the sale is off and the buyers' deposit is usually returned. Given the choice, most sellers would prefer a non-contingent offer. It's less risky. However, there are ways to structure a contingent sale offer to make it appealing. HOUSE HUNTING TIP: One way is to include a release clause in the contract. A release, or kick-out, clause allows sellers to continue to market their home in the hopes of finding a better offer. If such an offer comes along, the sellers notify the buyers that they must remove their contingent sale contingency by a certain date and show that they are able to close. Otherwise, they must withdraw from the contract. The sellers are then free to proceed with the other offer. A release clause usually includes a time period--often 72 hours. But, it can be any time period that the buyers and sellers agree to. If you're dealing with obstinate sellers, you might shorten the time period to 48 or 24 hours. This means that you'd have to move quickly if the sellers exercise the release clause. You may want to line up interim financing if you're confident that your home will sell and if you don't want to lose the new home to another buyer. This way, you would be prepared to remove your sale contingency and provide proof of your ability to close. A contingent sale offer should include a time period of the buyer's home to sell. Some contingent sale contingencies are structured so that the time period runs until the closing date. This is advantageous to the buyer, but it ties up the sellers' home without giving them certainty that the sale will close. Sellers might be more receptive if you structure your offer with two deadlines: one for the sale of your home and another for the closing of the new home purchase. This gives the sellers the option to cancel the deal if your home is not sold within a certain time. Ideally, the release clause would expire as soon as you have an accepted offer on your home. This will preclude the seller from selling to another buyer after you've sold your home. Buyers who have already entered into contract to sell their home are in a better position to negotiate. This is particularly so if the contingencies in this offer have been removed. In this case, you can make your offer contingent on the close of that sale. This is a stronger offer than one made contingent on the sale of your home. THE CLOSING: Sellers who are entertaining an offer that's contingent on the close of the buyer's home sale should make sure that this sale is not contingent upon the sale of yet another property. Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers," and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books. |
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| How to choose the right contractor By Paul Bianchina For anyone who owns a home, do-it-yourself projects are a fact of life. Being able to undertake a project with your own two hands has a number of advantages. You have the feeling of pride that’s associated with your own accomplishments. You know the work is being done exactly the way you’d envisioned it, with the exact materials you want. You can schedule the work – and any resulting inconvenience – around your family’s schedule. And, of course, you can save some money. But there are some projects that, due to time constraints, your own skill level, or simply the overall size of the project, you don’t want to undertake on your own, so you make the decision to hire a professional contractor. And the first question that arises is almost always "how do I find the right one?" Know what you want – know what you need Before you even start looking for the right contractor, you need to know as much about what you want to have done as possible. That sounds simple enough, but a surprising number of people have only a vague idea of what they want to do, and that can result in lots of disappointments and misunderstandings. The more details you have ready to give the contractor – from room sizes and intended uses to colors and types of appliances and trim – the better your chances will be of getting the finished product you’re hoping for. You also need to know what types of companies perform the types of services you’re looking for. As the saying goes, you don’t hire a proctologist to do brain surgery - even though they’re both doctors, they have different specialties. If you want a contractor to repair your fire-damaged home, look for someone who specializes in fire damage, not a firm that only builds new homes. There are also times when you need a general contractor, and times when you don’t. If you want to have a new toilet installed, you need a plumber, not a general contractor. But if you want to have a room addition built, you want to employ the services of a general contractor with specific remodeling and room addition experience, as opposed to hiring five or ten individual subcontractors. Referrals The single best way to find a contractor is to get a referral from someone you trust. If you have a friend or a relative who had some work done on their home that they were pleased with, that’s a great starting point. You can get some honest feedback about the contractor’s skill level, price, scheduling, level of cooperation, and much more. There are a lot of contractors out there to choose from, and like most businesses, they succeed or fail mostly by their reputation, so a good referral is very helpful. There are other sources of referrals as well. If you see a room addition being built down the street and it seems like it’s going well, stop and talk to the homeowner. Most people are more than willing to share their experiences – good and bad – about the contractor they’ve hired, and here again you can get some great first-hand information. Material suppliers are also great sources. Ask the people where you buy your lumber or your plumbing supplies if they know of anyone who’s particularly good at the type of project you have in mind. Retailers have a reputation to protect as well – they want to keep you happy and coming back as a customer – so they will typically only refer contractors whom they know are honest and will do a quality job. Ask questions, then follow up When you have a referral or two, call the contractors to set up an appointment. Ask the following four questions: Do they do the specific type of work you’re looking for? It could be they no longer do kitchens or room additions, or they now do remodeling and have stopped building new homes. Clarify that up front. What is their schedule like? If you have a project that has to be done within the next month and the contractor can’t even start until then, there’s no point in wasting your time or theirs. Can they provide you with referrals? Most companies are more than willing to provide you with names and phone numbers for past clients - if they can’t or won’t provide you with referrals, don’t hire them! Between the time you call the contractor and the time they come out to your home, be sure and follow up on a couple of the referrals and get some feedback from the homeowners. For larger projects, you may even ask if you can come out and view the contractor’s work. What is their name and license number? Get the contractor’s full business name, address and business phone number, as well as their contractor’s license number. Immediately follow up on this information, and call the proper state or local licensing agency to verify the status of the license and that any required bonds and insurance policies are in place. |
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| Proper exits are essential for a safe home By Paul Bianchina Homes come in all shapes and sizes, as do homeowners and their families. But no matter how big, how old or what architectural style a house is, there is one common denominator between all of them—when there's a fire, everyone in the home needs to be able to get out. Fast. Common sense and concern would dictate that your family's safety is paramount over any architectural design concerns, but to make certain of that every building code has provisions in them for emergency escape exits, which are referred to in the codes as "egress." The codes clearly specify the size and location of egress points, and it can't be emphasized strongly enough that you need to check to make sure your home meets all of these requirements. WHAT THE CODE DICTATES In the 1998 International One- and Two-Family Dwelling Code, which is the standard building code for a number of jurisdictions, you will find the following language: "Emergency escape required. Every sleeping room shall have at least one openable window or exterior door approved for emergency escape of rescue. The units must be operable from the inside to a full clear opening without the use of a key, tool or special knowledge." Let's break that down a little. First of all, there is the term "sleeping room". This obviously refers to bedrooms, but it can also extend to any room where someone regularly sleeps, such a loft, converted basement or other room. Within that sleeping room, there needs to be at least one window or door that opens to the outside. Remember that a door that opens into a hall or into another room before providing access to the exterior of the house does not meet the code—it must open directly to the exterior. Also notice the provision that says the door or window must be able to be opened without a key, tool or special knowledge. That means that the door can't have a deadbolt on it that has to be operated with a key from inside. It also can't have locks or other security devices on the inside of it that require a special tool, a specific combination or any other special knowledge to be able to unlatch and open it in an emergency. If, as is the case with most bedrooms, you are relying on a window as a means of emergency exit, then at least one window in the room needs to meet or exceed some very specific requirements. For most codes, this includes the height of the window and well as its clear opening size. For windows, the 1998 International One- and Two-Family Dwelling Code further requires that the sill height be not more than 44 inches above the floor, and that "emergency escape or rescue windows from sleeping rooms" have a minimum net clear opening of 5.7 square feet, or a minimum of 5 square feet for grade floor windows. Additionally, the minimum net clear openings for that escape window need to be at least 22 inches high and 20 inches wide. Also, look at the term "operable from the inside to a full clear opening." The meaning is obvious, but in reality it may not always be the case. First of all, the window or door needs to operate from the inside. Simply put, one person needs to be able to open it easily from inside, without any assistance from someone on the exterior of the house. Finally, "full clear opening" means that there can't be anything that prevents that window or door from swinging or sliding all the way open. That could include things like landscaping that prevents a casement window from opening all the way, debris or stored items that block the full swing of a door, interior decorations that permanently block part of a window, window air conditioners that are installed in the only egress window, or dozens of other possible scenarios. This also applies to "bars, grills, covers and screens" over egress windows, all of which need to be able to be released from the inside without the use of a key, tool or special knowledge. The code also specifies "the net opening dimensions required by this section shall be obtained by the normal operation of the window from the inside." Note the term "normal operation," which means that you need to be able to slide or swing the window open in the manner that the manufacturer originally intended. It does not include breaking out enough glass or enough of the frame to achieve required opening size. FOLLOW UP This is just a brief overview of some of the key building codes relating to emergency exits. There are other provisions and exceptions in the code, especially as they relate to basement sleeping rooms, and different jurisdictions may use different building code models. For the safety of your family, take a moment to call or visit your local building department and ask them to make you a copy of the relevant codes. Educate yourself and then take an hour or two to inspect your home and make sure you're in compliance. The lives of you and your family could, quite literally, depend on it. |
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| Pre-approval vs. pre-qualification By Inman News Is pre-approval a general endorsement by a bank? No, when you are pre-approved, it is for a specific loan program from a specific lender. Not all lenders offer all loan programs. You may need to get approved with a different lender or for a different loan program with the same lender, depending on your financing options at the time you buy a house. Check with the agent or broker who helped you gain loan pre-approval before you write an offer. If you think you will need to get re-approved for a loan, make sure to allow enough time for this in the purchase contract. Is the pre-qualification a guarantee that I will get the loan? No. The lender or mortgage broker is under no obligation to grant you a loan. Most pre-qualification letters state that a buyer appears to be qualified for a certain loan amount. There is usually a disclaimer to protect the lender or broker in case you fail to qualify. Before a lender will actually loan money, you must complete a loan application. Is there anything official about a pre-qualification? No, loan pre-qualification is an informal process. After a review of your financial status, a loan agent or broker will issue a letter stating that if the information provided is accurate you should be able to qualify for a loan of a certain amount. Often, these letters are form letters. Even if a pre-qualification letter is personalized, it usually contains disclaimers to protect the loan agent. Consequently, some real estate agents feel that pre-qualification letters are worth little more than the paper they're written on. |
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| How do I decide which purchase offer is best? By Dian Hymer The home-sale market picked up recently following a hike in mortgage interest rates. This typically happens as buyers accelerate their home-buying activity in hopes of buying before rates climb further. Some sellers—in certain areas, and in certain price ranges—are receiving more than one offer. Multiple offers often result in higher prices. But, the highest priced offer is not always the best one. Recently, sellers of an Oakland, Calif., home received several offers. Two offers, that were $10,000 apart, topped the others. The sellers decided to go with the higher of the two offers. Several weeks later, the buyers withdrew due to issues discovered during inspections. In this case, the highest offer was clearly not the best offer because the deal never closed. Although these buyers were sincere in their desire to buy, there were indications when their offer was presented that they were only marginally qualified to buy the home in question. Their deposit amount was low for a house in the price range, and they made a minimal cash down payment. It turns out that the buyers didn't have much cash of their own. They were borrowing from relatives for part of the down payment. And, they were raiding their 401K retirement plan for the balance. The property they were hoping to buy was being sold "as is," and it needed work. The buyers didn't have the financial means to correct the property defects, so they had to withdraw. HOME SELLER TIP: It's tempting to choose the highest-priced offer. However, the buyers' financial capabilities are more important than the price they offer. Furthermore, a preapproval letter may not give you all the information you need to make an informed decision. In competitive offer situations, most buyers are preapproved for the financing they need to complete the purchase. A preapproval letter from the buyer's lender or mortgage broker usually states that the buyers have been formally approved for a mortgage. It might also indicate that the buyer's funds necessary for the down payment and closing costs have been verified. But, the preapproval letter doesn't give you the nitty-gritty about how the buyers are going to come up with the cash. It's always a good idea to ask where the buyer's money is coming from. If you have any concerns about the buyer's financial capability, include a short contingency—say five days—for the buyer to provide you with verification of the funds needed to close. This could take the form of a copy of a bank statement, or a letter from the buyer's banker indicating that there are sufficient funds on deposit in the buyer's account. It's understandable that buyers wouldn't want to reveal more than is necessary about their finances, nor should they have to. The point is to determine with certainty that the buyer has enough cash to close the deal. Also be sure to carefully consider the buyers' financial capabilities relative to the condition of the property you're selling. Cash-strapped buyers making an offer to purchase a fixer with a 5 percent or 10 percent down payment is a red flag. Where do the buyers get the fix-up money? They may be hoping that you'll pay for it. Another seller decided not to go with the highest offer because he was afraid that the property might not appraise for the inflated price. The buyer with the highest offer had only 10 percent cash to put down. If the property didn't appraise, the buyer could withdraw if he couldn't come up with more money. THE CLOSING: The seller wisely chose a slightly lower offer from a buyer with 40 percent cash down. |
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| Should I remodel or move? By Dian Hymer Most homeowners will sooner or later give serious thought to remodeling. Recently, a homeowner contemplated doing a costly renovation to a small, two-bedroom home. The major expense was the kitchen, which was only marginally functional. For more space, walls had to be knocked out. The engineering that was required to do this ran the cost of the kitchen up to $100,000. Does it make sense to make such costly renovations if you don't increase the square footage of the house in the process? Before you can make a decision, you need to know the approximate current value of your home. The easiest way to get this information is to call your real estate agent and ask for a current market evaluation of your property. One quick phone call to your agent may be all it takes to decide whether or not to proceed with your plans. For instance, one Oakland, Calif., homeowner paid $350,000 for his home six years ago. Without doing anything to the house, it would probably fetch $600,000 in the current market. If he were to proceed with the renovations at a cost of $150,000, he'd have $500,000 invested in the property—well below the current market value of the home in its present condition. The property will no doubt be worth quite a bit more after it's remodeled. A general rule-of-thumb for remodeling is to make sure that you don't over-improve your home for the neighborhood. If the renovation tab in the above example were to escalate to $300,000, you could risk over-improving for the neighborhood. It's not a good idea, from an investment standpoint, to improve your home to the point that it's best house on the block. Market price is held back somewhat by the lower-priced homes on the block. Your real estate agent can help you to determine if you will be over-improving for the neighborhood. Ask for comparable sales information for listings in the neighborhood that you foresee will be similar to your home after it's remodeled. If the comparables sold for less than the amount of the current value of your home plus the cost of the renovation, you may be spending too much on the remodel. HOME SELLER TIP: Keep in mind that you usually don't recoup 100 percent on a major renovation if you sell immediately after the work is done. Just as it's risky to buy a home if you plan on moving again soon, it's also better to postpone a major remodel if you're personal life or financial situation is uncertain. The disruption of remodeling can be murderous on relationships. If the construction will take the kitchen and baths out of commission, consider moving to an interim rental for the duration. The cost of maintaining two homes should be factored into your budget. Before embarking on a big remodeling project, find out what kind of home you can buy for the same investment. You may find that for the same amount you plan to invest in remodeling, you can buy a larger, more comfortable home that will provide more appreciation potential in the long run. For instance, let's say you own a two-bedroom home that's worth $600,000. If you invest $100,000 in a kitchen remodel, you'll still only have a two-bedroom house. If you can find a suitable three-bedroom replacement home for $700,000, you might be better off selling your home and buying the larger one. THE CLOSING: Don't forget to take resale value into account when you remodel. It's important to please yourself. But, from an investment standpoint, you should make sure that potential buyers will also think your improvements add value. |
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| How do I decide which home to buy? By Dian Hymer Finding a home to buy is rarely easy. Some buyers look for months, even years, before finding the right house. When you do find the right house, a mixed bag of emotions can cloud your good judgment. You'll probably wonder if you're making the right decision. Recently, one buyer who'd been looking for months decided that she was ready to buy. She was intent on making one of several new listings work for her and her family. When she previewed a new listing in her favorite neighborhood, she was sure she'd found the home she was going to buy. The listing showed beautifully. It had been nicely renovated. It has the right number of bedrooms and baths. There was a family room and a lovely yard. Then she visited another new listing that she also liked. In fact, she liked the living space better. While this house didn't have a remodeled kitchen and nice family room like the other house, it was bigger. The yard wasn't as nice as the one at the first house and the school district wasn't as good. But, the house worked better for the life style of her growing family. To complicate matters, her husband preferred a listing that was larger than either of the other two and it was located in the better neighborhood. However, it was on a busy street and it needed a lot of work. HOUSE HUNTING TIP: Compromise is a necessary part of the home buying process. The perfect house doesn't exist, no matter what your price range. But before you give up on finding a home that has absolutely everything you want, reexamine your wish list carefully. Most buyers create a home shopping wish list before they embark on their house-hunting mission. If you haven't done so, you should, especially if you're having difficulty deciding which property to buy. After you've created your list, prioritize it. It's helpful to divide the list into three sections. The first section is for those features in a home that you must have—the non-negotiable items, such as the number of bedrooms and baths. The second are those features that you'd like to have, but that you can live without if necessary. For example, you might like to have a view, but you'd take a home without a view as long as it had a good yard. Lastly, list the items that you absolutely don't want, like a home that's up a lot of stairs or too close to a freeway. If you're short on time, a home that needs a lot of work might be on your no list. Some buyers find it useful to create a grid on a sheet of paper, or on the computer. Across the top of the grid, create a column for the each item on your wish list. Group the columns according to the three categories: must have, want to have, don't want. Then create rows that crosscut the grid of columns—one row for each home you're considering. Fill in the grid with the features of each home. This will help you to visualize how close each home is to your ideal. It's easy to get sidetracked when you're looking at listings, particularly if they have been staged for sale. Staging can disguise defects. When a listing looks good, it tends to make buyers feel at home. This is an emotional feeling that can interfere somewhat with a rational home buying decision. THE CLOSING: That's why it's important to step back and rationally analyze how well the listing will work for your needs before you make an offer. |
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| Strategies for changing real estate markets By Dian Hymer It appears that the home sale market in some areas may be changing from a hot seller's market to a more balanced market. A balanced market is one in which neither the buyer nor the seller has the upper hand. When this sort of shift in home sale market occurs, you usually find a larger inventory of homes of sale. Therefore, it generally takes longer for homes to sell, there are fewer multiple offers and fewer listings sell for more than the asking price. As the inventory of homes on the market increases, buyers have more to choose from. Given more choice, buyers tend to be pickier. For instance, a home with freeway noise—that might have sold quickly, maybe even with multiple offers in a strong sellers market—could take longer to sell in a more balanced market. Sellers should tone down their expectations as the market shifts. With more inventory on the market, pricing your home for sale will be critical. Why should a buyer pay more if there are other more reasonably priced listings to choose from? HOUSE HUNTING TIP: Buyers that are contemplating trading up to a larger home or down to a smaller home should carefully consider whether it's better to buy the new home or sell the old one first. In a hot seller's market, there's less likelihood that your home would sit on the market unsold for long. When the market shifts, and it starts taking longer to sell, it may make more sense to sell first, particularly if you're stretching financially to afford the next home. You never know exactly how much your home will sell for until you've found a buyer and you've worked through any inspection contingencies. In a market that's racing higher price wise, this is less of a concern. When the market slows, you may not be able to count on a quick sale and numerous over-list price offers to choose from. If you need every dime out of your house to make the move, you should carefully consider selling first. Then you'll know exactly how much money you have to invest in the next home. In general, buyers should find less competition. This doesn't necessarily mean there will be no competition. This will depend on where you're buying and in what price range. Usually, there are fewer buyers in the higher price ranges. Recently, buyers who had looked for months for a home were the successful bidders on an attractive listing. There was only one other offer. Months earlier, when the inventory was scant, these same buyers lost out in a multiple offer competition. Six other buyers bid on the same property. The recent increase in interest rates has been a major factor in the changing market. When rates first started up, buyers rushed into the market. A buying frenzy ensued. This pushed prices up to record highs in some places. As sellers became convinced that the good times wouldn't last forever, many decided to sell. And, the inventory of homes for sale grew. A dilemma for many buyers is this. Since more listings are coming on the market, do you wait to buy until something you like better comes along? Or do you buy now to lock in an interest rate that is likely to be lower than it will be in the future? THE CLOSING: The best strategy is to buy when you find the right house. And beware of unrealistic sellers who are only interested in selling if they can get an astronomical price. |
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| Why an accurate value is so important By Dian Hymer Before the torrid real estate market of recent years, a common pricing strategy was to list your home for between 2.5 to 5 percent more than the expected sale price. This way, you would have room to negotiate with the buyer. If you used this approach today, you'd be lucky to receive any offers. Recently, listings that were priced at or under market value received offer--sometimes multiple offers. Over-priced listings sat on the market unsold. One risk of pricing too high for the market is that you won't receive offers. Sellers often find this hard to believe. Why won't buyers just make an offer if they think a listing is priced too high? The answer is two-fold. First of all, if a listing is priced too high in a market where well-priced listings are selling, this may indicate that the seller has unrealistic expectations. Making an offer involves a big emotional commitment and it takes a lot of time. Most buyers don't want to waste their time offering on a listing that's over-priced for the market, particularly when there are other listings to choose from. Secondly, even though buyers might prefer to buy without competition, the fact that a listing is popular is a stamp of approval. A property that is in high-demand is one that is likely to have good resale value. Another risk of over-pricing is that you could end up in downward price spiral. Here’s how this can happen: You bring your home on the market listed at a price that you're sure is right. After all, your home is better--in your estimation--than anything else on the market. Your agent cautions against this, but you're intent on getting your price. After a month or two, you aren't even getting a nibble from an interested buyer. Even so, other listings similar to yours are coming on the market and selling. In fact, buyer's agents are using your over-priced listing to help them sell the well-priced listings that come on the market. The longer your home stays on the market unsold, the bigger the risk that it will develop a negative stigma. Your home becomes the white elephant on the market. Buyers wonder if there's something wrong with the property. In most cases, the only thing wrong is the price. So, you reluctantly agree to lower the price. Your efforts could be fruitless if you reduce too little, too late. Meanwhile, more well-priced listings come on the market and sell. If the market softens, as it has in many areas around the country, you might have to make further price reductions. Buyers tend to gravitate to the newer listings, not the ones that have been on the market for months. You'll have to offer a cut-rate price to be competitive. HOME SELLER TIP: It's difficult for sellers to be objective about the value of their home. Although most sellers estimate high, some sellers, who can't believe how much their home has appreciated, underestimate the value. For best results, rely on a real estate professional for a realistic price assessment. The dynamic is changing in many real estate markets around the country. Sellers, in many cases, are no longer in the driver's seat. Keep this in mind when you select a list price for your home. Comparable sales from a few months ago may be out of date for the current market. Even though your neighbor's home sold for an exceptional price, it may have been the only game in town at the time. THE CLOSING: Today, you're much more likely to find competition from other sellers who want to cash in on the recent extraordinary home price appreciation. |
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| How can I protect myself selling a home? Here are a few guidelines for protecting yourself when you sell your home. First, pick the right agent. Your listing agent will represent you in interactions with other agents, prospective buyers, lenders, inspectors, and various professionals associated with the real estate business. Be sure to select a trustworthy agent with whom you are compatible, one who will represent you honestly and fairly in your dealings with others during the sale. Next, be fastidious about preparing your property for sale. This will not only facilitate the sale and bring you a higher price, it could prevent after closing disputes with the buyers. Make a list of all the elements of your home that need repair or replacement. Your agent can help you with this. If you're uncertain about the condition of a major system, like the roof or furnace, you might want to hire a professional to inspect and issue a report. Determine how much it will cost to repair or replace defective items. If you can't afford to repair everything on the list, ask your agent to help you prioritize. Disclose any defects that you're aware of that you don't fix before selling. HOME SELLER TIP: Sellers often fear that if they disclose defects to buyers it will impede the sale of the property. This rarely happens. In fact, buyers appreciate knowing about property defects before they buy. Problems can develop when buyers discover defects after closing that they know the sellers were aware of, but failed to disclose. A California home seller answered no when he was asked if he had any drainage or flooding problems. He had remodeled his home to create a family room in the lower level that had previously been a basement. During the first heavy rain after the buyers moved in, the family room was flooded with water. The buyers sued the sellers in court and won. It's natural to feel proud of your home. But, avoid over-selling your home to prospective buyers. Be particularly careful about rooms that were added without required building permits. Let's say your home has four bedrooms, plus a room that was added without permits that could also be used as a bedroom. From a marketing and legal standpoint, you'd be better off marketing your home as a four bedroom, not a five bedroom, home. Interested buyers will discover when they look at your home that it has an extra room that could be used for a bedroom. They'll be pleasantly surprised to find more than they anticipated. If you market the home as having five bedrooms, buyers will be disappointed to find that the fifth bedroom isn't a legal bedroom. If this information isn't discovered until after closing, you could have a legal problem. Many after-closing claims involve misrepresentation of square footage. When a property is passed from one owner to the next, the square footage is often rounded up to a higher number. For instance, a 2900 square foot home might be represented as approximately 3000 square feet. The next owner might say the house has about 3000 square feet, perhaps a little more. Never guess about square footage. Square footage claims can involve substantial monetary damages. THE CLOSING: Check with your agent or real estate attorney if you have any questions about your disclosure obligations. |
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| Questions every buyer should ask Take this checklist along when you visit a home and talk to the listing agent. Make note of your own observations, watch for defects, and ask about anything you may not see on your own. § What is the visible condition of the property? Poor exterior condition may spell problems inside. § Does the house require major repairs or replacements? Major repairs, such as a new roof, can be costly. Consider these costs if you decide to make an offer. § How old are the mechanical systems? Consider the cost of replacing older systems if you decide to make an offer. § Has the house been well maintained? Ask if the sellers have kept any maintenance records. § Where is the house located on the block? Corner lots can be spacious, but exposed to more traffic and noise. Interior lots can be quieter but too close to neighbors. § How is the house sited on the lot? Be sure the area around the house is graded properly to provide good drainage. § Are there noteworthy architectural features? Front porches, gables or other details add value to the property. § Are there noteworthy landscaping features? Established trees, shrubbery and perennials add value to the property. § What is the condition of the houses on either side and across the street? If neighboring properties are too run-down, they may affect your resale value. § What is the surrounding neighborhood like? Look for evidence of a sense of identity, and pride of ownership in the other homes. § How close is it to shopping and schools? Nearby services can also add value. § Are there community amenities nearby? Parks or recreation centers can add value to the property. § How long has the house been on the market? A long time on the market may indicate problems with the house or neighborhood that you need to know. § Why does the seller want to sell? If there's a problem with the house or the neighborhood, assess the situation carefully. |
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| Pros, cons of contingent sale offers By: Dian Hymer For years, sellers flat out rejected contingent sale offers. Now, some buyers are finding sellers more receptive to offers that are made contingent on the sale of another property. Sellers don't like contingent sale offers because they tend to be riskier than offers that aren't dependent on another home selling. One fear is that buyers might ask too much for their home and it might not sell at all. In this event, the sellers could waste time while their home is off the market and then find themselves back at square one looking for a new buyer. In a real estate market that's moving full steam ahead, there's little room for contingent sale offers. When the demand for listings outstrips supply, sellers can easily find non-contingent buyers with whom to negotiate. Why accept a less-than-certain offer if you don't have to? However, when the market slows, as it has in some areas and in some price ranges, sellers can't afford to be as choosy. Recently, a seller of a home in Piedmont, Calif., decided to take a chance on a contingent sale offer. The seller had previously received two offers, both for less than the asking price. She rejected both offers. Eventually, a full-price offer appeared. The seller accepted it, even though it was contingent on the sale of the buyer's home. In this case, the seller was willing to accept higher risk in return for a higher price. This is often the case. Another property in a desirable neighborhood of Oakland, Calif., recently sold to a contingent sale buyer. The property was priced well-over $1 million, which is a slower price range in this area. After months on the market with no action, the seller decided to give a contingent sale buyer a chance. So, a benefit to a seller of accepting a contingent sale offer is that you might receive a higher price than you would from a buyer who doesn't have to sell in order to buy. On the buyer's side of the equation, you may have to pay more to entice a seller into accepting a contingent sale offer. It may be worth it to the buyers to pay more for the security of knowing that they won't end up owning two homes at the same time. With a contingent sale offer, if your home doesn't sell, you aren't obliged to buy the other home. However, if the sellers insist that your contingent sale offer include a release clause, you risk losing the house to another buyer if your home doesn't sell in time. A release clause allows the sellers to continue marketing their home until you remove your sale contingency from the contract. Suppose the sellers accept an offer in backup position. If there's a release clause in the contract, the sellers can notify you that you must remove your contingency within a certain time frame (often 72 hours). Otherwise, you will have to withdraw and the home will go to the backup buyers. Another drawback to contingent sale buyers is that they may feel pressed to sell quickly in order to keep from losing the home they want to buy. This could mean accepting a lower price. Sellers who accept contingent sale offers should make sure that the buyers' home is salable and that it will be listed at a reasonable price. In some areas, the lower priced market is selling much more quickly than the $1 million-plus market. THE CLOSING: In this case, it may be worth it to a seller to accept a contingent sale offer form a motivated and realistic buyer who has a house to sell that's in a more desirable price range. |
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| Should I hold out for a higher price? Some sellers learn that's not always the best strategy By Dian Hymer It's not unusual for sellers to have an over-inflated opinion of the value of their home. Often this comes from pride of ownership, which is not a bad thing. Homeowners who take pride in their homes usually keep them well maintained. This preserves the value of the property. Sometimes, however, pride of ownership can get in the way of making a rational business decision. Recently homeowners put their Oakland Hills, Calif., property on the market with expectations of a high selling price. To encourage competition, they listed it for $759,000, which was a price that was lower than they were willing to accept. They received an offer soon after they listed for $785,000. The sellers rejected the offer because they wanted more than $800,000. Subsequently, the property languished on the market. Finally, it sold, after the price was reduced to $739,000. Another seller countered an excellent offer that he received soon after listing. He was also hoping for a higher price. Months later he ended up selling for $50,000 less than he would have if he'd accepted the first offer. It has often been said that the first offer you receive is likely to be the best one you'll receive. While this saying doesn't hold every time, it does contain a kernel of truth. Your best chance of selling your home for the highest price is when it's new on the market. If a property is priced right for the market, and the market is active, you might receive an offer, or offers, within the first several weeks of marketing. Buyers tend to make aggressive bids for high-demand listings in order to beat the competition. After your home has been on the market for a period of time with no offers, you are less likely to receive aggressive bids, unless the market changes in your favor over time. However, if the market is steady or slows, you could find the appeal of your home diminishing over time. This usually equates to fewer offers at lower prices. Buyers typically ask how long a listing has been on the market and discount their offer prices accordingly. HOME SELLER TIP: You're taking a gamble when you turn down a strong offer from a well-qualified buyer. If you wait, you might not see as good an offer later. If word gets out that you rejected a good offer, this could discourage other buyers from making offers. They may wonder if you're serious about selling. Just as it's risky to turn down a good offer in hopes of something better, it's also risky to accept an offer before your home has been exposed to the market. If your home is priced at or under its market value and it hasn't been adequately marketed, you could shortchange yourself. Before you sign a listing agreement make sure that your real estate agent will provide you with an aggressive marketing program. You want as much exposure for your home as possible, as quickly as possible. If your home is priced right for the market, and it receives comprehensive marketing, you should feel confident that the offers you receive reflect the current market value of your home. If after professional marketing exposure, you receive an offer or offers that are less than you had hoped for, you may need a reality check. Your pride of ownership could be clouding your judgment of current market conditions. THE CLOSING: Your home is only worth what a willing and able buyer will pay for it in the current market. |
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| Should I fix up my home or just sell it? By Paul Bianchina Making the decision to sell your home is always a tough one. There are financial and emotional decisions to make, and any number of factors that can tip the balance one way or the other. The emotional decisions are ones that only you can answer, but as to the financial side of things, there are some common sense questions that may make the decision a little easier. What Is Your Home's Condition? If you are faced with large home improvement repairs such as a new roof, dryrot repairs, or major plumbing or electrical system overhauls, you need to weigh that carefully. If your home has substantially appreciated in value over the years and the needed repairs would create a financial burden for you, it may be wise to consider selling – you'll have to ask a little less than you would if those repairs weren't necessary, but you may still make a sizeable profit on the sale. On the other hand, perhaps the housing market is down, or you haven't had the house that long and your equity is not substantial. It may be wise to refinance or secure other funding, and make the repairs now before the situation worsens. Can You Expand? Quite often, the reason people want to move is because the house is simply too small to meet their current needs. If that's the case, and if you like the neighborhood and like the house in general, you might want to consider adding on. Room additions can make a huge difference in the size, layout and livability of any home, provided they are done correctly. Take a good look at your needs, and what you have to do to meet them. Do you have the room to add onto the side or rear of the house? Can you add a second story? Are their city, county or homeowner's association restrictions that will limit your ability to expend sufficiently? Remember that as much as you love a house and a neighborhood, and as much as you would like to stay in it, remodeling is not always the answer. No matter how good your contractor is, remodeling will not increase the size of a small lot, it won't add a wood shop in a neighborhood that doesn't allow them, and it probably won't be able to alleviate major flaws in room layout. Beware Of Overbuilding Suppose you are considering adding 500 square feet to your 1,000-square-foot home. If your entire neighborhood consists of 1,000-square-foot homes, you may be overbuilding for that neighborhood. For some people, overbuilding is a serious consideration, since part of the reason for the improvement is to make the house more valuable, and to hopefully see a return on your home improvement investment. For others who are primarily interested in creating a home that meets their needs and that have no plans to sell the house in the foreseeable future, overbuilding may be very much a secondary consideration. Overbuilding is not limited to additions – it can apply to everything from upgraded roofing materials to kitchen remodels to extensive landscaping. You need to take the neighborhood into consideration, the general housing market, your future plans, and even your relationship with your neighbors. Get That Homework Done If the time seems to be drawing near for making the decision to move or improve, do your homework first. Look at what your neighborhood is doing, and what housing prices are. Talk with a trusted real estate agent, and consider an independent market appraisal of your home. Consider paying a general contractor a consultation fee to discuss your home's general condition, and the cost of potential improvements. And be sure you don't ignore municipal and homeowner's association requirements and restrictions as part of your fact-finding. |
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| Building permits pay off for sellers By Dian Hymer Curing deferred maintenance before selling usually improves a home's overall appeal, which can attract more buyers for a quicker sale at a higher price. Sellers typically do pre-sale fix-up as quickly and inexpensively as possible. This can lead to cost-cutting measures, some of which trigger unwelcome consequences. For example, one way to keep costs down and shorten the time it takes to get work done is to bypass the permit process. Some contractors charge less if they don't have to apply for permits, pay the permit fees and wait for building inspectors to sign off on the work when it's done. But, consider the downside. A homeowner in the Oakland Hills in Oakland, Calif., expanded his home to increase its market value. He used a licensed contactor but did not take out the required building permits. The house sold for a good price. But when the appraiser evaluated the property for the buyer's lender, he reduced the valuation on the addition because it hadn't been done with permits. Because of this, the house did not appraise for the price the buyer offered. To save the deal, the seller applied for permits after the fact. He not only had to pay the permit fees he'd hoped to avoid, he also had to pay penalties. In addition, walls had to be opened so that the inspector could confirm that the plumbing and electrical were properly installed. It might have taken a little more time to do the job right the first time, but it definitely would have cost less. Other issues come into play when sellers sidestep the permit process. Some municipalities won't issue a final approval for work done with permit if there is a building code violation. For instance, an Oakland homeowner obtained a permit to replace and relocate a gas furnace. When the city building inspector visited the property to inspect the furnace installation, he noticed electrical wiring near the furnace that didn't meet code. A contractor from Hayward, Calif., who didn't apply for a permit, had done the wiring years before and obviously wasn't well informed on Oakland code requirements. The homeowner had to have the electrical wiring corrected before the city inspector would issue a final clearance for the furnace installation. HOUSE HUNTING TIP: If you buy a home where work was done without required permits and you take out a permit to do additional work, you could find yourself paying to correct the past owner's misdeeds. To guard against this, visit the local planning or building department and ask to see a copy of the permit history on the property. Make sure that you do this before you remove your inspection contingency from the purchase contract so that you'll have an opportunity to negotiate a satisfactory resolution if there's a problem. Another issue is that -- depending on where you live -- you might not be granted a new permit if there is an outstanding permit that has not received final approval. Recently, the buyer of a Piedmont, Calif., home discovered that the seller had taken out a permit to replace the roof, but the job was never done. The roof either had to replaced and approved or the roofing permit had to be voided by the city building inspector before a new permit would be granted. In California, home sellers are required to disclose if they are aware of work that was done without required building permits. If you're buying in a state that doesn't require this disclosure, it's even more important to check the permit history before you buy. Be aware that sellers often think that permits were obtained when they weren't. THE CLOSING: To find out if a project requires a permit, consult with your local building or planning department. |
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| When is the right time to buy? By Dian Hymer Some buyers will tell you that the best time to buy is during the winter holiday season. Is this good advice? There are fewer buyers looking then, so there is less competition from other buyers. Also, although the selection of homes for sale may be lower than at other times of year, those who are selling are usually motivated. An added benefit of buying during the winter months is that you may have a chance to see listings while it's raining. This makes it easier to spot a leaky roof or a serious drainage problem. Other buyers, however, prefer to do their home buying in the middle of summer. There's often a seasonal slowdown in home buying activity during July and August. Prospective buyers, as well as agents, take vacations. So, this too can be a time when the competition from other buyers might wane temporarily. And, if you want to relocate before school starts, this is the last opportunity you have to make the move. The reality is that homes sell all year long. While, there is some fluctuation from one quarter to the next, it's less than you might imagine. Other factors, such as interest rates and general economic conditions can have more effect on a buyer's decision to buy than the time of year. Most buyers prefer to buy when interest rates are low. Low interest rates make housing more affordable. The lower the monthly payments, the easier it is for buyers to qualify for mortgages. All other factors being equal, you can afford to buy a more expensive house when rates are low. A more expensive house usually means a larger house. If low interest rates enable you to buy a home that will suit your long-term needs, you'll probably stay put longer. Moving less often is one way to save money. Interest rates are currently at a 40-year low. Today's low rates are responsible in part for the strong housing market. Nationally, inflation-adjusted home prices increased 5.7 percent in 2001 over the previous year. This was the seventh year in a row that prices increased. Last year, homes sales hit a record high, which could be surpassed this year. The strong housing market has caused many to wonder whether the housing market is a bubble poised to pop. If so, is now a good time to buy? Usually, it's best to buy when prices are low. In many places around the country prices are at an all-time high. A recent study by the Joint Center for Housing Studies of Harvard University suggests that housing will remain strong. This will primarily be due to a shortfall of sufficient housing to keep pace with the high rate of household creation expected over the next 20 years. The study did not rule out a temporary drop in home prices. But, if there is a decline in prices, it will probably be short-lived. HOUSE HUNTING TIP: The best time to buy is when you have the financial wherewithal, when you find the right home, and when you have a high degree of certainty that you won't need to sell soon. Buying for the short-term is risky because prices could level off, or even decline, as the housing market slows, which it will at some point. THE CLOSING: hould you wait for a better time to buy? It's almost impossible to time markets. Also, it's often not easy to find the right place to buy. So, if your finances are in order, and you're buying for the long run, plan to buy when you find the right home at an affordable price. |
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| A purchase contract primer It's important to ask questions when you're drafting the terms and conditions of your offer in the purchase contract, whether you do it yourself or with an agent or attorney. Not sure about contingencies? Wondering about fixtures? Just ask. You don't have to become a real estate expert to craft a good contract, but the more you know about how a contract works, the more effectively you can tailor it to your specifications. You'll also be a much savvier negotiator when the seller comes back with a counteroffer. Read the Fine (Pre)print Many residential purchase contracts include standard real estate boilerplate text. Many firms, in fact, use preprinted forms. While preprinted or computerized forms have improved efficiency, they sometimes do so at the expense of the buyer. It pays to get a copy early on of the contract you're likely to use. Read it and don't hesitate to rewrite or delete anything you don't like. If you plan to work with a preprint, get a copy when you start looking for a house and highlight terms or conditions you like or may want to modify when you make an offer. Circle what you dislike, too. This is a good way to catch buyer-unfriendly fine print. After that, you're ready to sit down and write an offer. Elements Every Contract Should Have Whether you write your own contract or using a preprinted form, you should always include between 10 and 20 basic elements, such as the address of the property, contingencies, financing terms, purchase price, closing date and others. Also include: ü Time to respond. Specify how much time the seller has to answer your offer. Contingencies should also include time limits. ü Seller's responsibilities. Include passing clear title to the property, maintaining the property in its present condition until closing, making any agreed-upon repairs and delivering the property clean and free of personal possessions and debris. ü Disposition of deposit. Specify who gets your good-faith deposit if the contract is terminated. This can vary. In cases such as failure to get loan approval, the seller should get the deposit. In the case of an unsatisfactory home inspection, the buyer should get the deposit. ü What stays. Specify fixtures and personal property to be included in the sale. Make a detailed list. Verbal agreements aren't binding. ü Terms of withdrawal. Spell out conditions that allow you or the seller to withdraw from the agreement. You may not think you'll need them, but it's good protection. ü Final walk-through. This is your chance to make sure the house is in order just before you close. Your contract should specify the seller's responsibility if the walk-through is unsatisfactory. ü Problem solving. As much as possible, your purchase contract should help you and the seller resolve any issues that crop up. For example, if your lender only guarantees your locked-in interest rate for 60 days and the seller isn't able to close in that time, one solution is to include a provision in your contract that sets a firm closing date and allows the seller to rent back to you at a cost equal to your monthly payment. ü Sellers' Contingencies Occasionally, sellers make the sale of their house contingent on their purchase of another house. If the sellers fail to complete the purchase of the other house, they can cancel the sale. It's much less risky for you to enter into contract with sellers who are already in contract to buy another home. Be sure to include a kick-out clause in your purchase contract that allows you to withdraw from the contract at some point. A kick-out clause can be structured in several ways. You may give the sellers a time limit to find another home, after which you can void the contract at your option. You may also structure the kick-out clause to let you withdraw from the contract any time until the sellers notify you that they have found another house and will remove their contingency for finding a replacement home. If the sellers' house has been on the market a long time with no offers, you may be able to convince them to waive their contingency. |
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| Shopping for a good home deal By Dian Hymer Everyone wants a good deal. But, good deals are few and far between in the many low-inventory markets around the country. Recently a couple was trying to buy a starter home in El Cerrito, a hot housing market in the San Francisco Bay area. They lost out over and over again in multiple offer competitions. So they decided to try a new strategy. Rather than continue making offers on hot new listings in their price range, they made an offer on an over-priced listing that had been on the market awhile and hadn't sold. The seller had lowered the list price just as the buyers made their offer. The buyers had no competition and were successful in buying the property. Their good fortune was that they were the first to hear that the seller was willing to accept less than his list price. HOUSE HUNTING TIP: If you're having troubles finding a home to buy—or a home to buy at the right price—consider listings that aren't drawing a lot of attention from other buyers. Well-located listings at the best price and in the best condition are the ones that sell the fastest, and for the most money. To find a good deal, you have to be willing to go against the herd. There is a certain comfort, however, in buying a property that everyone else wants. A listing that's in high demand is likely to be desirable when you want to sell it. Buying a prime listing can be a good investment, as long as you don't over-pay. But, in a multiple offer competition, you may have to pay a premium to be the successful bidder. You don't want to buy just any listing that's not selling. If the property has defects that can't be fixed—like too many levels or a chopped up floor plan—you may have a difficult time selling it later. Also, if the sellers are unrealistic about the price or condition of their property, you may not want to waste your time. Before you make an offer on an over-priced listing, have your agent talk with the listing agent and try to determine the seller's motivation. Find out if there have been any offers. If there have, why didn't the property sell? If the seller is obstinate about his price, go on to another property. However, if the seller is considering a price reduction, give it a go. If the listing agent thinks the seller is not ready to negotiate, ask to be informed when the seller has a change of heart. The best time to make an offer on an over-priced listing is usually just before the seller drops the price. Otherwise, you could face competition. Most buyers gravitate to the most attractive listings. Buyers who can see past a dowdy décor may pick up a property at a bargain price. The trick is to know a house with potential when you see it. Looking at a lot of listings and analyzing what you see can help. Often it's the paint colors, updated finishes and attractive furnishings that make a listing desirable. With a little imagination, you could create an appealing ambience yourself, after you buy. Listings that are back on the market because a deal fell apart present another opportunity. These listings often sell for less the second time around. Find out why the deal fell apart. But remember to buy a house with good bones, not one with serious problems. THE CLOSING: Homes with good appreciation potential are always a good deal. Look in areas that are adjacent to neighborhoods that have already experienced a significant run-up in prices. These areas could be the next hot markets. |
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| Plan ahead for closing day By Dian Hymer Finding a home to buy and negotiating the purchase contract are the toughest parts of the home buying process for most people. But, if you don't plan ahead, and carefully monitor your home purchases transaction, you could find could find trouble ahead. The first thing you should do after your offer is accepted is review the contract and make a list of important dates. These will include such things as the contract contingency deadlines and the actual closing date. If you and the seller countered back and forth before arriving at a mutually acceptable contract, these dates may have changed from the original draft of the contract. Most home purchase contracts include an inspection contingency. It's wise to complete a home inspection as soon as you can. This way you'll have time to order further inspections if necessary. When the real estate market is active, you may have difficulty lining up an inspector quickly. It helps if you're working with a real estate agent who has established relationships with local inspectors. Homeowner's insurance can be difficult to obtain in some areas, so you should start working on this right away. This used to be one of the last items on a buyer's closing checklist. But, these days, it should be at the top of the list. In some, like California and Texas, some big insurance companies are not currently writing new homeowner's policies. But, a mortgage lender will require that you have a homeowner's policy before they will commit the money to close the sale. Insurance companies scrutinize both the buyer and the property. The buyer must have good credit. The insurer would also like the buyer to be someone who does not have a history of submitting a lot of insurance claims. Ideally, the property should have had no insurance claims made against it in the last five years. Insurers are particularly sensitive to claims that have been made for water damage. It's recommended that you investigate the insurability of the property during your inspection contingency time frame. This way, if you find out that it's going to cost more than you expected to insure the property because of the seller's past insurance claims, you will have the opportunity to try to negotiate some form of compensation from the seller. Even if the seller won't give a dime, at least you have full knowledge of what the purchase will cost before you proceed. When a closing is delayed, it usually has something to do with the buyer's mortgage. In order to ensure that this doesn't happen to you, be diligent about providing your lender with all the documentation needed to give you final loan approval. A lender won't prepare the loan documents for you to sign until all the lender's conditions for approval have been satisfied. As the closing date approaches, you'll need to arrange for the transfer of any remaining funds that are necessary to close the sale. Many buyers wire closing funds to the closing agent. This may be an escrow office or an attorney depending on where you're buying. It's a good idea to schedule a final walk-through of the property to make sure that it is in substantially the same condition as it was when the seller accepted your offer. If possible, ask the seller to do an informal walk-through with you to show you all the idiosyncrasies of the house. It might take your to discover these on your own. THE CLOSING: Ask the closing agent to provide you with a copy of all the documents that you will need to sign in advance of your signing appointment. This may not be possible due to time constraints. But, if you can review the documents in advance, the signing will go more smoothly. |
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| What title issues should I be concerned with? Home purchase contracts often include a clause that requires the seller to provide clear title to the property. Generally, this means that when the buyers take title to the property, there aren't any defects that might impair their ability to resell the property to another buyer. To make sure that title to a property is free of defects, it's necessary to have a title expert examine the title record. How title is checked varies from one location to another. In some states, attorneys are entrusted with the task. In other states, like California, title companies usually do the title search. The first issue to be concerned with is who currently has title to the property. Ideally, the person in title is the same person who signed your purchase agreement. But, this is not always the case. With a probate or trust sale, for example, the owner of record could be someone who has died. The person currently selling the property might be an heir, estate administrator or trustee. This shouldn't pose a problem as long as he or she has the power to sell the property. But, if the person who signed the contract doesn't have the power of sale, this could delay the closing, perhaps indefinitely, depending on the circumstances. The title report should list all liens that are secured against the property. Most homeowners have mortgages. These will be listed as liens against the property. Sellers usually pay off their mortgages at closing. Make sure that the property is not over-encumbered with loans that exceed the purchase price. When a property is over-encumbered, either the sellers need to come up with enough cash to pay off the loans or they have to convince their lender to accept less than the amount owed. Even if a lender will accept a short payoff -- and some lender's won't -- the process can be tedious and time-consuming. Other liens can show up in a title search as well -- delinquent property taxes, refuse liens and mechanics liens, to name a few. Make sure that the sellers pay these, and any other liens that you aren't willing to take on, at closing. Property taxes are also a lien against the property. Property taxes are brought current by the sellers at closing but the new owner takes over this responsibility in the future. This perpetual lien transfers with the property, although the amount you pay in the future may be different from the amount the seller currently pays. FIRST-TIME TIP: Pay special attention to easements. An easement is the right to use another's property for a specific purpose. Easements are usually written and they usually run with the land. In most cases, the easements listed in a title report will transfer to you when you become the new owner. There are basically two kinds of easements. One benefits the property in question and the other affects the property in question. For example, a sewer easement that permits your sewer line to run across a neighbor's property is an easement that benefits your property. A sewer easement on your property that benefits your neighbors is an example of an easement that affects your property. The title report may only list easements. If so, ask whoever is searching the title record for you for a complete description of the easement. You may also want to ask for the easement to be located on a plat map of the property. THE CLOSING: Building over easements is usually restricted so it's important to know what parts of the property they affect. Dian Hymer is author of "Starting Out, The Complete Home Buyer's Guide," Chronicle Books. Copyright 1998 Dian Hymer Distributed by Inman News Features |
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| Realty Tax Tips Everything you need to know about the $250,000 home sale tax exemption By Robert J. Bruss It's difficult for most of us to get very excited about income taxes. But when it comes to earning up to $250,000 tax-free (up to $500,000 for a qualified married couple), have I got your attention yet? EASY QUALIFICATIONS FOR THIS TAX BREAK. Of course I'm referring to the Internal Revenue Code 121 principal residence sale tax exemption. To qualify, you must have owned and occupied your primary home at least 24 of the 60 months before its sale. Only one spouse's name need be on the title but each spouse can qualify for up to $250,000 ($500,000 total) tax-free profits if both meet the 24-month occupancy test and file a joint tax return in the year of sale. The method of holding title doesn't matter even if title is held in a living trust. Of course, if two individuals not married to each other both hold title and each owns and occupies the principal residence at least 24 of the 60 months before its sale, then each co-owner qualifies for up to $250,000 tax-free capital gains. If you are in the military or Foreign Service, special rules apply and your 24-month home occupancy can be as far back as 15 years from the date of sale. Your 24-month principal residence occupancy need not be continuous. However, if you bought and occupied your primary home as recently as 24 months ago before selling it, you meet the 24 out of the last 60-month ownership and occupancy test. Watch out if you acquired your home in an Internal Revenue Code 1031 tax-deferred exchange. The reason is for such home sales after October 22, 2004 you must have owned the property at least 60 months although you only need 24 months of principal residence occupancy during that time. The property need not be your principal residence on the date of sale. For example, if you occupied your home for at least 24 months during the 60 months before sale, you could rent the house to tenants as long as 36 months before losing your entitlement. Home sellers of any age can qualify. There is no need to buy a replacement principal residence. This generous tax break can be used over and over without limit. However, it cannot be used more frequently than once every 24 months. WHERE IS YOUR PRINCIPAL RESIDENCE? If you own and personally use more than one home, such as a Florida winter home and a summer Michigan home, this tax break only applies when you sell your "main home" as the IRS calls it. Occupancy time alone doesn't determine your principal residence. For example, in the tax case of Guinan v. U.S. (2003-1 USTC 50475) the Guinans sold their Green Bay, Wis., home where they spent more time than at their other homes. Although they met the 24 out of last 60-month occupancy test, and kept a bank account and automobile in Wisconsin, the U.S. District Court said it wasn't their primary residence because the Guinans never filed their income tax returns from Wisconsin. The sad tax result for them was paying a $45,009 capital gain tax on the sale. In addition to meeting the occupancy test, the IRS says principal residence indicators (when you own more than one home) include (1) place of employment; (2) principal place of abode for the taxpayer's family members; (3) address on taxpayer's federal and state tax returns; (4) location of taxpayer's banks; (5) location of automobile and driver's license registrations; and (6) civic affiliations, such as taxpayer's religious organizations and recreational clubs. CONFUSION ABOUT SALE OF HOME IN YEAR OF SPOUSE'S DEATH. When a principal residence is sold in the year of a spouse's death, IRC 121(b)(2) permits full use of the tax exemption up to $500,000, if qualified. The tax reason is a surviving spouse can file a joint tax return with the deceased spouse in the tax year of that death but not in future tax years. However, surviving spouses should not rush to sell their principal residence within the same year as the spouse's death. The reason is when the surviving spouse inherits the deceased spouse's share of the home, the surviving spouse receives a new "stepped-up basis" for at least 50 percent of the home's market value on the date of death. In community property states, the surviving spouse usually receives a new 100 percent stepped-up basis to market value. LITTLE KNOWN TAX BREAK FOR DIVORCED AND SEPARATED HOME SELLERS. Most divorced and separated couples are not aware they can still qualify for up to $500,000 total tax-free principal residence sale profits. In a little-known provision of IRC 121, if one divorced or separated spouse (called the "in spouse") qualifies for the $250,000 tax break by owning and living in the residence at least 24 months, the other spouse (called the "out spouse") can also qualify for up to $250,000 tax-free profits when the home is sold. This tax break is frequently used when one spouse stays in the home until the children become 18 or 21 and the home is sold. Even the non-resident co-owner ex-spouse can then qualify for up to $250,000 tax-free home sale profits. SALE OF ADJOINING VACANT LAND CAN ALSO QUALIFY. Another little-known provision in IRC 121 permits the sale of an adjoining vacant lot to qualify for the exemption. However, this special tax benefit is only available if the adjacent principal residence is sold within 24 months before or after the lot sale. PARTIAL EXEMPTION IF YOU DON'T MEET THE 24-MONTH OCCUPANCY TEST. Even if you don't fully meet the 24-month occupancy test within the last 60 months before the principal residence sale, you may qualify for a partial exemption. Acceptable reasons for the home sale include (1) change of employment location qualifying for the moving cost tax deduction; (2) health reasons; and (3) unforeseen circumstances. The change of work location and health reasons exceptions haven't caused problems. But "unforeseen circumstances" are more difficult as acceptable reasons are still evolving. The IRS says these reasons are acceptable: (1) divorce or legal separation; (2) death in the immediate family; (3) unemployment; (4) decreased income leaving the taxpayer unable to pay the mortgage or basic living expenses; (5) multiple births from the same pregnancy; (6) damage to the home from a natural or man-made disaster or terrorism; and (7) condemnation, seizure or other involuntary conversion of the property. If you meet the partial exemption test with one of the above reasons for the home sale, a percentage of your $250,000 or $500,000 exemption is available. For example, suppose you owned and occupied your primary residence for 12 months before you moved due to a qualifying change of employment location. You would therefore be entitled to a partial exemption of 12/24 or 50 percent of $250,000 or $500,000. HOW TO AVOID TAX ON MORE THAN $250,000 OR $500,000 HOME SALE CAPITAL GAIN. Thanks to large recent increases in market values, many home sellers have the nice problem that their home sale capital gains exceed the IRC 121 tax exemptions. The only way to make a fully tax-exempt property sale in that situation is to make an Internal Revenue Code 1031 tax-deferred exchange. To do this, the home seller must (1) move out of their home and rent it to tenants (most tax advisers suggest at least six to 12 months); (2) then sell your former home rental property, and (3) use the sales proceeds to acquire another rental or investment property of equal or greater cost and equity. Be sure to comply with IRC 1031(a)(3) (known as a Starker exchange) which requires designating the replacement property within 45 days after the sale and taking title within 180 days. Meanwhile, the sales proceeds must be held by a qualified intermediary exchange accommodator beyond the trader's "constructive receipt." CONCLUSION. Internal Revenue Code is a very generous tax exemption allowing principal residence sellers to earn up to $250,000 (up to $500,000 for a married couple) tax-free every 24 months. But the easy qualification rules must be followed. For full details, please consult your tax adviser. |
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| How will I know what to offer? You want your offer to be good enough to attract the seller's attention, but not so high that you overpay for the property. What's the magic number? Different markets require different strategies. In a buyer's market, you often have the luxury of offering below the list price. You and the seller can then negotiate until you reach a mutually acceptable price. A seller's market, as we are now seeing in many areas, is a different story. If you're in a multiple offer competition with other buyers, you may not have a chance to negotiate with the sellers. In this situation, your first price may have to be your very best offer. Regardless of the market conditions, you need to understand local market value to feel comfortable with your offer price. The best way to learn market value is to look at a lot of listings of the kind of home you hope to buy. These might be homes you see at Sunday open houses, or listings that you see with your real estate agent. Let your agent know the addresses of any listing you see that might work for you. Ask the agent to let you know the sale prices when the transactions close. Keep a record of these listing and sale prices. You can refer back to this data when you decide to make an offer. House hunting tip: It's useful to look at the relationship between the list price and the selling price of listings you've seen. For example, if homes are selling, on average, for 97 percent of the list price, you might use this percentage as a gauge. If you think a property is well priced, you could offer 4-5 percent below the asking price and plan to negotiate a price that's approximately 3 percent below the list price. Your agent can provide you with additional comparable sales information for sold listings that you didn't see. What do you do when there aren't any guidelines? In a hot seller's market, properties often sell for considerably more than the list price. A seller in Arlington, Va., recently listed his home for $399,000. He received 12 offers and the home sold for $472,000. A Berkeley, Calif., home seller recently received 6 offers on a home listed for $659,000. The property sold for $810,000. It was hard to predict in advance how high either of these properties would sell. In both of the above examples, the winning buyers made relative bids. With a relative bid, the buyers agree to pay an additional amount over the highest offer the seller receives. For example, you might include a clause in the purchase contract that states that the buyer is willing to accept a counteroffer from the seller for a price that is $10,000 above the highest offer. To be safe, the clause should include the highest price you'd be willing to pay. Some buyers and sellers don't like relative bids. A disadvantage to the seller is that it requires a counteroffer. A seller might not want to risk countering a lower offer when he already has a bona fide offer from another buyer for a higher price. A disadvantage for the buyer is that you reveal that you'll be willing to pay a higher price. The closing: There's an element of guesswork involved in multiple offer bidding. It helps to work with a trustworthy agent who knows local market value and who can advise you how much to offer. |
| What kind of insurance is required when buying a home? By Dian Hymer Before you can close your home purchase, your lender will require that you take out a hazard insurance policy. Most buyers get a comprehensive homeowner's insurance policy. In addition to covering the home in case of fire, a homeowner's policy will cover such things as personal possessions, personal liability, vandalism, theft, water damage (but, not if the cause was flooding), and loss of the use of the dwelling. The "cadillac" policy is a guaranteed replacement cost policy which will pay to rebuild your home even if the cost to rebuild exceeds your policy limit. This kind of coverage is not available everywhere, nor for all kinds of properties. Some companies limit the amount they will pay on a claim to 125 or 150 percent of the policy's face value. Some insurance companies won't issue a guaranteed replacement cost policy on an older home. You may only be able to get replacement cost coverage. This will pay to rebuild your house if it's destroyed, but coverage will be limited to the policy amount. If you have replacement cost coverage you must make sure that you're insured for enough to rebuild. FIRST-TIME TIP: Some insurance agents estimate low on the cost to rebuild. This may save you on premiums, but it could leave you under-insured. Do your homework and make sure that you have enough coverage. Ask a local builder, or knowledgeable real estate agent how much it costs per square foot to rebuild in your area. This figure can vary significantly from one location to the next. Then, find out the approximate square footage of the home you're buying (your appraisal will include the square footage). Multiply the two figures to arrive at the amount of dwelling coverage you'll need. You can save money on homeowner's insurance by increasing the deductible amount on the policy. The deductible is the amount the homeowner pays on any given claim. Also, discounts are usually available for new homes, and for any home with a security system, dead bolt locks and smoke alarms. Be prepared when you shop for insurance. Insurance representatives will want certain information about you and the property before they can tell you if they will write a policy and how much it will cost. They'll want to know your social security number, whether you have made insurance claims recently, the age and location of the home, and the age and condition of the plumbing and electrical systems. Some insurance carriers won't insure homes that have shake roofs, old electrical systems, or that are built on a slope. The insurance company will also want to make sure that you're a good risk. If you've made claims against insurance companies, or you're frequently late paying your bills, you may be denied coverage. Many buyers wait until the last minute to line up insurance. This can be a mistake if the insurance carrier you have in mind refuses to insure you. If you're buying in an area where homeowner's insurance is difficult to obtain, make your purchase contract contingent on finding acceptable insurance coverage. THE CLOSING: If you're having trouble finding homeowner's insurance, see if your auto insurance carrier will insure your home. If not, you may be able to get homeowner's insurance with another company if you move your car insurance coverage to the new carrier. Buyers who have homeowner's or renter's insurance can often get coverage for the new home from their current carrier. Local real estate agents, real estate attorneys, and title and escrow officers often know who's writing new homeowner's |
| Gas heater a great addition for garage or shop By Paul Bianchina Frozen fingers and numb toes don't make for the most pleasant experience while you're in your shop hand-crafting that cherry bookcase, or in the garage rebuilding a carburetor. It might be time to consider adding some heat to those spaces, and making life a little more comfortable. Natural gas and propane heaters can offer clean and safe heat for your garage, woodshop, barn, or other work areas. Portable and permanently installed models are available, both vented and non-vented. SHOPPING FOR A HEATER The first decision is what type of fuel to use. If natural gas is already available at the property, it makes sense to power your shop heater with gas as well. If not, propane models are available that are supplied by a propane tank that is placed above or below-ground on your property. DO NOT try to operate a natural gas heater with propane, or vice-versa. Fuel-fired shop heaters are rated in BTUs of heat output. To decide on the right heater for your shop, the ideal way to do it is to perform a heat-loss calculation first. Heat-loss calculations take insulation, weather-stripping, windows, and several other factors into consideration, with the end result of all the calculations telling you how many BTUs the heater would need to put out to heat that space. If you have a large shop, barn, or other space, it makes sense to talk with your local natural gas or propane supplier or with a heating contractor to have the necessary calculations done. For the average garage or small shop, however, the manufacturers of most shop heaters will tell you that a particular heater is capable of heating a space of a particular square footage. Those numbers tend to be a little optimistic and assume fairly ideal circumstances, so it's best to use them only as a rough guide. If your shop has tall ceilings, lots of air leakage, poor insulation, or other factors that make it harder to heat, you need to decrease the recommended square footage accordingly (and also take some steps to plug the leaks and beef up the insulation). Permanently mounted heaters are available for mounting on both the wall and the ceiling, and typically come with all of the necessary hardware for installation. Each heater will have manufacturer-specified clearances that must be maintained between the heater and any combustible surface or material, so be sure you read and understand all of the heater's clearance specifications, and be sure the unit is installed properly. Heaters are also available in both vented and non-vented models. Vented heaters utilize a specific type of double-wall flue pipe, and here again specific clearances need to be maintained between the pipe and combustible materials. Also, remember that the vent needs to be taken all the way to the outside of the building -- not into an attic or crawlspace – and needs to have the proper termination cap on top. SAFETY FIRST Burning natural gas or propane requires oxygen, and during the combustion process, air is drawn from the room for use in the heater. This air needs to be replaced or the room will become dangerously depleted of oxygen, so makeup air is a consideration with the installation of any fuel-fired heater. Makeup air can come from many difference sources. If the shop is large enough, a sufficient amount of air is present to fuel the combustion process without causing any safety concerns. In smaller shops, it may be necessary to install a small outside air intake vent in the wall or floor to provide the needed air. If makeup air specifications are not included with the heater's installation instructions, check with the manufacturer, dealer, or your local building officials for recommendations. To ensure safe operation, some heaters now come equipped with a low-oxygen shutoff valve. The valve senses how much oxygen is present in the air, and should that oxygen level fall below a certain point, the valve will shut the fuel off to the heater. Another safety precaution is the installation of a carbon monoxide detector. Carbon monoxide is a byproduct of the combustion process, and a detector installed in the same room as the heater will warn you if the levels of this potentially deadly gas exceed certain preset safe limits. Shop heaters are available through many larger home centers, utility companies, farm and garden suppliers, greenhouse and nursery suppliers, and on the web through manufacturers such as Mr. Heater (www.mrheater.com). |
| How to maximize tax savings on second home By Robert J. Bruss If you or someone you know is among the millions of taxpayers who own a secondary residence, you can maximize tax savings from your vacation or second home. Depending on your personal use time, a bit of advance tax planning can result in saving hundreds or even thousands of tax dollars. FOUR TAX CATEGORIES FOR SECOND HOMES. Although your second-home mortgage interest and property taxes are always tax deductible if you itemize deductions, the amount of your personal use time determines additional income tax deduction savings: 1.) LESS THAN 14 DAYS OF ANNUAL RENTAL. Personally, my second home falls into this category. The tax result is that I can deduct only my mortgage interest, property taxes, and any uninsured casualty loss cost. But other expenses such as insurance and repairs are not deductible. If I rent my second home up to 14 days per year, I don't have to report that rental income to Uncle Sam. However, if I rent to tenants for greater than 14 days annually, then my second home will fall into one of the following categories. 2.) ANNUAL PERSONAL USE EXCEEDING 14 DAYS OR 10 PERCENT OF THE RENTAL DAYS (IF RENTED OVER 14 DAYS IN 2005). In this category of heavy personal use and modest rental time, second-home owners must report their rental income on Schedule E of their tax returns, along with applicable expenses. But in this category any resulting tax loss when rental expenses exceed rent collected cannot be deducted against ordinary income from other sources, such as job salary. However, unused losses are "suspended" for future tax deduction benefits so it pays to keep track of such losses. The correct order for deducting second or vacation home expenses in this category is mortgage interest, property taxes, uninsured casualty loss expenses, operating expenses such as insurance and repairs, and depreciation for the rental period. However, when the mortgage interest, property taxes, and uninsured casualty loss expenses exceed the rental income, they become itemized deductions on Schedule A. 3.) ANNUAL PERSONAL USE BELOW 15 DAYS OR 10 PERCENT OF THE RENTAL DAYS. This is the most desirable tax category for a second home. The reason is there is no limit to your tax loss deductions against your ordinary taxable income, (except for the $25,000 annual passive loss limit explained below). Rental income and deductible expenses are reported on Schedule E of your tax returns. Let's suppose you personally occupied your second home for 10 days in 2005 and you rented it for four months. Because your personal use time is below 15 days per year and under 10 percent of the rental days, you can deduct up to $25,000 of qualifying expense losses, including depreciation, against your ordinary income. However, Internal Revenue Code 183 says you must show a rental activity at least three of every five years in this category. 4.) NO PERSONAL USE TIME. If you didn't personally use your second home during 2005, other than a few days while making repairs, and it was rented or available for rent the entire year, then your second home falls into this rental property category. The tax result is that all your income and expenses, including depreciation, are reported on Schedule E of your tax returns. Virtually every applicable expense is deductible on Schedule E, such as mortgage interest, property taxes, insurance, homeowner association fees, utilities you paid, repairs, and depreciation. In addition, you can deduct reasonable "ordinary and necessary" travel expenses to inspect (but not occupy) your rental property, even if it is in Hawaii, Puerto Rico, or the U.S. Virgin Islands. In this category, you are very likely to have a "tax loss," primarily due to the non-cash rental depreciation deduction. However, even if you select the tenants and collect the rents, rentals are a considered "passive activity" taxwise. That means if your 2005 adjusted gross income is $100,000 or less, you can deduct up to $25,000 tax loss from your rental passive activity. But any rental tax loss exceeding $25,000 must be "suspended" for use in a future year, or when you sell the property to offset capital gains. However, if you qualify as a "real estate professional," such as a full-time sales agent, then the $25,000 passive activity loss limit does not apply. To deduct "passive activity" rental property losses against your ordinary income, subject to the limits explained above, you must have "materially participated" in managing your second home. This means you must own at least a 10 percent interest in the property and others cannot manage it in a "rental pool." Without material participation, your rental tax loss is not deductible from ordinary taxable income and it must be "suspended" or saved for use in a future tax year. SUMMARY: Although second or vacation homes are not great tax shelters, they can save tax dollars while usually appreciating in market value for future resale profits. An additional possible future benefit, when you get ready to sell, is to move into your second home to make it your full-time principal residence for at least 24 of the 60 months before its sale. Then up to $250,000 principal residence sale capital gains will be tax-free (up to $500,000 for a married couple filing joint tax returns). For full details, please consult your tax adviser. |
| Homebuyer Checklist Important questions you should be asking what you should ask the seller or the listing agent when you're interested in a home? If you know why a seller wants to sell, it can help you negotiate a better offer. The more motivated the seller, the more you can negotiate. It may take some finesse, but see if you can work these questions into conversation with the seller or the listing agent. Which of these reasons apply to the seller? These can go either way. You will have to get a sense from your conversation how quickly they want to sell the house if they: ___ Need more space ___ Need less space ___ Want to relocate ___ Are unhappy with neighbors or the neighborhood You may be able to negotiate to have the seller finance part of your purchase. Explore this possibility if they: ___ Have lived there a long time ___ Owe little or nothing on the house ___ Are retiring You may have some leverage when negotiating if the seller needs to sell the house quickly because of: ___ Relocating involuntarily (for example, a job transfer) ___ Changing marital status ___ Financial reasons ___ Health reasons ___ A death in family ___ Is the seller highly motivated to sell? A highly motivated seller MUST sell soon. Job transfer, divorce and financial difficulties put pressure on the seller, which can benefit you when you make an offer. ___ Has the seller bought another house that has yet to close? The seller will be more anxious to facilitate your purchase if the seller needs to complete the purchase of another house soon. ___ Is the seller trying to cash in on this investment? If so, you will have trouble negotiating too many concessions. ___ Has the seller lived there a long time? If a seller has been in a home a long time and accumulated a lot of equity, you may be able to negotiate to have the seller finance part of your purchase. |
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