Real Estate Consumer News

Buying House? Think Long Term

Sat, 04 Jul 2009 15:48:33 +0000

Now would seem like a rotten time to sell. The economy is in recession and many housing markets around the country have suffered serious downturns.

However, if you're a seller who will also be a buyer in a market where prices have declined, it could be a good time to both sell your current home and buy a new one. You sell for less than you would have in 2004, but you also pay less than you would have then.

To be successful selling in this market, your home needs to be in good condition. Most buyers are bidding on a home they can move into without having to do a lot of work. Also, your home must be priced for the market.

If you've been transferred and need to relocate, there are a couple of options. One is to sell your current home and buy in the new location. Some employers offer relocation assistance that covers many of the selling and moving expenses.

Another option is to rent your current home to a tenant and rent another one in the new location. There are benefits to renting in a new area before buying. It gives you an opportunity to learn about the neighborhoods before committing to a long-term investment.

Transferees who think they could return to their current location within a year or two might be better off renting their current home. However, renting your home can have its drawbacks. Tenants usually won't care for your home the way you would.

Set aside a fund for making improvements after the tenant leaves. Also, retain a gardener to care for the landscaping and make sure you have a property manager or handyman locally who can take care of problems when they arise.

HOUSE HUNTING TIP: Buyers are at an advantage in many marketplaces today. Generally, prices are lower than they were several years ago. And, interest rates are low.

Jumbo financing is pricier. Five-year fixed-rate jumbo mortgages cost less. At some point interest rates will go up, particularly if inflation takes hold following the recession. If you buy using short-term fixed-rate financing, look for a good time to refinance before interest rates go up.

It's not a good time to buy if you think you might be transferred or if your marriage is on the rocks. Buying a new house usually won't solve marital problems unless you're living in a house that's much too small to provide suitable living space.

The unknown factor that keeps many buyers on the sidelines is that prices could drop further before they stabilize or turnaround. So, the house or condo you buy today could be worth less in six months. But, it could be worth more in a few years. However, if you had to sell between now and then, you'd take a loss.

It's impossible to time the market. You'll either buy before or after the market bottoms out. Some people get lucky and buy at the bottom. But, you'll know that only through hindsight. If you buy after the market hits bottom, you'll be faced with more competition from other buyers and probably pay more.

Don't buy unless you know you won't have to move again soon. This includes making sure you buy a home that will accommodate your needs for years to come. Home buying always involves compromises. It's better to buy a home that's too big than one that's too small.

THE CLOSING: Buy for the long term.

Multiple Offers Making A Comeback

Sat, 04 Jul 2009 15:47:43 +0000

By Dian Hymer

In the current home sale market, it might seem ludicrous to make an offer on a listing if it means competing with another buyer. However, multiple offers are on the rise in some markets. But, it doesn't always mean that you need to pay a lot more than the asking price.
Sellers are ever hopeful of receiving multiple offers. These days, this is usually an unrealistic expectation. That is, unless the listing is a prime property in a high-demand neighborhood where few homes are being offered for sale.

Price is a critical part of the equation. Some sellers price their homes low because they need a quick sale. If the price is below market, multiple buyers could step forward with offers. Sometimes an overpriced listing is reduced to market price or below and results in offers from more than one buyer.

Most multiple offers today are on low-end foreclosure properties. Investors make up a large part of the buyers in this segment of the market. In some areas of California and Florida, prices have fallen 40 percent since the market peaked in 2006.

HOUSE HUNTING TIP: Don't shy away from making an offer just because there is more than one offer. In some cases, a dozen or more buyers make offers on foreclosure properties that are listed at bargain prices. But, the highest bidder is not always the winner.

Even in non-distressed-sale situations, multiple offers in today's market don't always result in an overinflated sale price. For instance, a charming older home on a sought-after street in the Crocker Highlands neighborhood of Oakland, Calif., sold after only two weeks on the market with multiple offers. The property was listed for $1.3 million, and sold for $5,000 above that price.

There are far fewer financially qualified buyers in the home-buying market today than there were two years ago due to credit tightening, more rigorous financial qualification requirements and recent stock market losses. In some areas, as many as one-third of home sale transactions fail to close, often due to the inability of buyers to obtain the financing they need.

Sellers who receive more than one offer should carefully consider all aspects of the offers, not merely the offer price. An offer from an all-cash buyer who doesn't need a mortgage to finance the purchase, and who can close quickly, should be taken seriously even if the price is lower than the other offer(s). However, some all-cash buyers -- who are fully aware of their strong position in this market -- feel they are entitled to a major price discount.

Whether or not you'll have success countering for a higher price will depend a lot on the profile of the buyer. Buyers who intend to occupy the property for the long term are more likely to pay more than will investors who base their purchase decisions on the numbers, not their emotions.

THE CLOSING: Sellers should try to keep greed out of their decision when faced with multiple offers. Today's buyers are willing to walk away from a negotiation rather than pay over market value, or it they think the sellers are unreasonable.

Homeowners Find it Pays to Go Green

Sun, 31 May 2009 21:48:26 +0000

By Dian Hymer

The green revolution is spreading as the public becomes aware of the need to reduce dependence on foreign oil and improve the environment through conservation and recycling. Today's recession-wary homeowners are reluctant to spend a penny on home improvements. However, some effective energy-saving home improvements don't cost much and can save you money in the long run.

For example, a tight house prevents heat loss. To keep your home from leaking, weatherstrip by sealing voids around windows, doors, vents, cables, electrical outlets, and switches and electrical wires.

HOUSE HUNTING TIP: Some utility companies offer rebates for weatherstripping. Visit the Database of State Incentives for Renewables and Efficiency on line at www.dsireusa.org. Then click on your state to find a list of incentives offered in your area. Be aware that incentives may be taxable.

Another inexpensive way to save money by adding green features to your home is by changing light bulbs from incandescent to fluorescent. Replacing five heavy-use bulbs will save you about $100 per year on your electric bill, according to the U.S. Green Building Council.

Using a programmable thermostat and setting it to reduce output when you are sleeping or are out of the house will save another $100 or more per year. Have your furnace and cooling system checked regularly to keep it running efficiently. Insulate your hot water heater. When you buy new appliances, buy ENERGY STAR appliances that meet high-level energy efficiency. Rebates are available for purchasing some energy-efficient appliances.

It will cost you nothing, just discipline, to break old habits that will save you money and conserve resources. Take shorter showers. Wash only full loads of dishes and clothes. Turn off lights when you leave a room.

According to Kerry Mitchell, Green Real Estate Education, you can reduce your energy bill by 9-10 percent by unplugging electronics when they're not in use. A TV uses 25 percent of its energy when it's plugged in but not on, according to Mitchell. Plug infrequently used electronics into a power strip. Leave the power strip off when the electronics are not in use.

There are also incentives available to help offset the cost of installing more expensive energy savers such as solar systems, home insulation, dual-pane windows, and graywater systems that use waste water from washers, showers, tubs and sinks to water landscaping.

Will green features pay off when you sell your home? If buyers had a choice between a house whose owners pay low water and energy bills and one where the bills are high, they'd probably choose the home with lower operating costs.

Recently a home with large single-paned windows sold in the hills of Oakland, Calif. Three buyers seriously considered buying it. All three factored the cost of installing dual-pane windows into the price they would pay.

According to the �2008 Remodeling Cost vs. Value Report� from the NATIONAL ASSOCIATION OF REALTORS� and �Remodeling� magazine, on a nationwide basis window replacements returned more than 76 percent of the cost when the home sold. Combine this with a possible incentive, lower energy bills during your ownership and the appeal to buyers when you sell, and it's worth the investment.

Homebuyers should be skeptical of green advertising. Some agents advertise that a house is green when in fact the home might have only one green feature, like a solar hot water heater.

The city of Berkeley, Calif., has had a modest energy retrofit ordinance for years. Recently, there was an attempt at the state level to require California homeowners to comply with a more stringent energy retrofit at the time of sale.

THE CLOSING: It's quite likely that energy retrofit requirements for older homes will be required at some point in the future.

Top Mistakes Today's Sellers Make

Sun, 31 May 2009 21:46:56 +0000

By Dian Hymer

Low interest rates could spark a pickup in the home-sale market in some areas. If you're inclined to sell, here are some mistakes you'll want to avoid. The biggest mistake sellers make is listing at an unrealistic price. If you want or need to sell, your home must be priced at or under current market value, particularly in places where prices are declining.

To avoid pricing too high or too low, carefully research your local market before selling. If you can't get the price you want, and you don't have an urgent need to sell, wait for a better market.

Some sellers want to price under the market to stimulate multiple offers. In some price ranges, such as low-end foreclosures, this can be an effective strategy. However, in higher price ranges, this approach could boomerang. It's not a good idea to list your home for a lower price than you're willing to accept.

HOUSE HUNTING TIP: Sellers who need to sell because they can no longer afford their mortgage payment should check with their lender about reworking the loan to make it more affordable. It could be fruitless to put your home on the market for the price you need in order to pay off your mortgage if that price is above market value.

Consider the benefit of having presale inspections done on your home. It can be beneficial to the sale process if buyers know as much as possible about the property's condition before they make an offer.

Recently, a home seller in the hills of Oakland, Calif., decided not to have a presale home inspection done. The house was priced right and beautifully prepared for sale. It sold for more than the asking price with multiple offers. Then the buyer's home inspection revealed a problem with the foundation. This started a round of renegotiation that ultimately resulted in a canceled sale.

It's a mistake to refuse to entertain any offer from a qualified buyer. In a soft market, it's natural for buyers to make low offers. Many sellers would rather set a price and say take it or leave it. But, you'll never know what price the buyer will pay unless you negotiate. Make sure to select a listing agent who has good negotiation and communication skills. A lot can be accomplished through verbal communication between the buyer's and seller's agents, even though a real estate agreement is not binding unless written.

Be wary of working with an out-of-the-area agent. Especially in the current market, you need an agent who specializes in your local market. The status of the housing market varies significantly from one niche market to the next. An agent who works in an area with a high percentage of foreclosures will have a very different opinion of the market than one who works in an area that is low on inventory.

Don't get into contract with a buyer who isn't financially qualified. A prequalification letter isn't enough. You need to know who the lender is. The buyer should have underwriting approval within a number of days of acceptance. Make sure this is written into your purchase contract if the buyer isn't already lender approved.

Sellers who are fortunate enough to receive more than one offer usually go with the highest price. But, the highest-priced offer isn't always the best offer. The turmoil in the home mortgage business has resulted in an increase in failed home-sale contracts due to financing issues. Consider accepting an offer in backup position in case the first deal falls apart.

THE CLOSING: An offer from a buyer with a large down payment but a lower price is often a more solid deal than one with a higher price and a 10 percent cash down payment.

Smart Buyers Put on Reporter's Hat

Sun, 31 May 2009 21:46:30 +0000

By Dian Hymer

It's risky to buy a home in an area you know nothing about. Plan to investigate the neighborhood before you buy to make sure you'll like living there. Buyers who know homeowners in the neighborhood have a ready source of information. Buyers transferring from out of the area face a bigger challenge.

Your future employer can recommend neighborhoods, and may know people living there that you can contact. Subscribing to a local newspaper will give you access to local news and events.

There is some neighborhood information online. Check REALTOR.com, the NATIONAL ASSOCIATION OF REALTORS�� national Web site. Go to "Find Neighborhood" on the home page. You might also find information by using your search engine to find a certain neighborhood.

Good public schools are a priority with most homebuyers, even if they don't have school-age children. Housing demand and property values tend to be higher in areas that have good school systems. These neighborhoods may hold up better during down cycles in the housing market.

Due to overcrowding in some areas, you might not be able to send your child to the school closest to your home. If a local school is important to you, plan to visit the school to find pertinent details. In areas where the public schools don't live up to your expectations, make sure that there are good alternate private schools that have space available for new students. It's difficult to get in to the best private schools in places where demand is high.

Good public transit and easy access to urban centers are key attributes of sought-after neighborhoods. An increasing number of homebuyers want to become less dependent on using a car. Investors who are buying foreclosure properties at discounted prices should keep this in mind. Tenants also favor housing that's close to public transportation.

Today's buyers favor convenience to shopping, caf�s and entertainment. Neighborhoods that are within walking distance of an attractive commercial center are in high demand. Houses in such neighborhoods may command a premium price.

Unfortunately, a convenient location can also be one where the crime rate is higher due to easy access. Check with the local precinct for information about crime in the neighborhood. Ask local homeowners if they have experienced criminal activity locally.

Is there a neighborhood watch group? If there is a neighborhood homeowner association, either mandatory or voluntary, ask to see copies of minutes from recent board meetings. This will give you an insight into homeowners' concerns.

Plan to visit the neighborhood several times at different hours of the day and night. Talk to residents to find out what they like and don't like about where they live. A good way to find local homeowners to talk to is to attend Sunday open houses in the neighborhood.

It's important to find out if there are any planned changes in or around the neighborhood that could impact the quality of your life. For example, a new public transit station or freeway close by could boost property values. However, if a freeway will run directly behind the house you're considering, this could negatively impact its value.

Pay attention to the consistency of the housing in the area. Are the homes well-maintained, or are they run-down? A low number of "For Sale" signs can be a good indicator that homeowners move in to the neighborhood and stay put. Evidence of remodeling is also a good sign.

A lot of "For Sale" signs can signal a problem. Surplus inventory might not diminish quickly or easily if job growth in the area is low or diminishing.

THE CLOSING: This would lead to a decline in property values.

Remodels Holding More Value Than Home Prices

Sun, 03 May 2009 17:46:40 +0000

By Dian Hymer

�Remodeling Magazine's� 2008-2009 Cost vs. Value Report, produced each year in conjunction with REALTOR� Magazine, contains good news about the value of remodeling projects.

The recent Cost vs. Value Report showed that renovations on a nationwide basis held their value better than home prices did in 2008. According to the NATIONAL ASSOCIATION OF REALTORS� (NAR), home prices declined 7 percent in 2008, while the value of homeowners' investments in remodeling dropped only 2.8 percent in 2008.

During slow real estate cycles, many would-be sellers postpone their move and remodel instead. This makes sense as long as the projects are selected carefully for maximum return on the investment. It's important to avoid renovations that would overimprove the property for the neighborhood.

One benefit of remodeling sooner rather than just before selling is that the homeowner is able to enjoy the improvements before moving on. All too often, sellers wait until right before they put their home on the market to enhance its appeal.

HOUSE HUNTING TIP: Remodeling, if done smartly, can result in a quicker sale and less negotiation with buyers over perceived shortcomings. Painting the house and updating the kitchen, baths, lighting fixtures and floor coverings are examples of improvements that can improve the sale price.

In today's slow economy, there are more contractors looking for work in some areas. And, in some cases, their prices have come down. This positively impacts the return on investment when the home is sold.

Recently, an Oakland, Calif., homeowner received a bid of under $20,000 for a midrange kitchen remodel. Four years ago, he received a $45,000 bid for the same work, but decided against going ahead with the project because of the cost. Now that he's ready to sell, he's planning to do the midrange kitchen remodel to enhance the salability of his home.

The amount of return from a remodel investment that is recouped when the property is sold varies significantly from one place to the next and from project to project. For example, nationally, 70.7 percent of the cost of a major kitchen remodel was recouped at sale.

In the Pacific region (Alaska, California, Hawaii, Oregon and Washington), a major kitchen remodel returned 95.5 percent. In San Francisco, a major kitchen remodel returned 131.5 percent of the investment at sale. Despite higher labor and material costs, The Pacific Coast average cost recouped at sale was 14.8 percent higher than in the rest of the country.

Smaller cities such as Jackson, Miss., and Billings, Mont., had high rates of recovery due to lower labor and material costs.

Nationally, exterior improvements generated the biggest payback on average. A midrange deck returned 80.8 percent. Upscale fiber cement siding returned 86.7 percent. A midrange minor kitchen remodel returned 79.5 percent. And upscale vinyl windows returned 79.2 percent. These projects increase curb appeal -- an important selling feature for most homebuyers.

The data used to generate the Cost vs. Value Report was obtained from surveys sent to more than 150,000 appraisers, real estate agents and brokers in July and August 2008. The cost data was obtained from HomeTech Information Systems, a remodeling estimating software company. The confidence level of the results is 99 percent, plus or minus 2 percent, according to NAR.

Homeowners who are concerned about the resale value of their home should first consult contractors to obtain estimates. Then consult with an experienced local real estate agent for input on the estimated cost recovery of the anticipated improvements before moving forward.

THE CLOSING: Sellers often spend too much on improvements, or make improvements that don't add value at sale. Some improvements can actually decrease value if they are so specialized that they don't have broad-based appeal.

Mortgage Seekers Hit New Roadblocks

Sun, 03 May 2009 17:45:45 +0000

By Dian Hymer

Mortgage rates on conforming loans up to loan amounts of $417,000, and $729,750 in high-cost housing markets like San Francisco and New York City, are attractively low -- hovering close to 5 percent. That's the good news. The challenge is getting through the approval process.

Several years ago, one couple bought a home in Hercules, a suburb in the San Francisco Bay Area, for $650,000, with no cash down payment and no documentation of their income, employment or assets. They would not have qualified using conventional financing with full documentation. Their income didn't support a $650,000 mortgage.

Today, a buyer is having difficulty getting approved for a conforming $417,000 mortgage even though his credit score is high, his debt-to-income ratio is low and he is putting 30 percent cash down. His file, which is now a couple of inches thick, is caught in the quagmire of underwriting.

The problem from the underwriter's standpoint is that the borrower has income from several sources. If he was employed by the government and received one W-2 from his employer each year, income verification would be simple. Self-employed individuals are having a much more difficult time getting approved.

This doesn't mean that you shouldn't apply for a mortgage if you're self-employed, or have multiple sources of income. Just be prepared for a long loan approval process. In one case, the borrower's file took 31 days to get through underwriting.

And, steel yourself for frustration. You'll be required to document everything, which can include requests that seem ridiculous.

One borrower was asked to write a letter explaining why he made less money last year than he did the year before. He was an attorney in his 60s who decided to work less. He handily qualified for the mortgage on his current income.

Borrowers who have income from investments should be prepared to provide documentation about these investments. Even if you qualify without using your investment income, if it's reported in your income tax return, the underwriter is probably going to want full documentation.

Recently, a borrower with good income and credit applied for a $729,500 conforming loan, but was denied because he had only one credit card. The lender required the borrower to have two credit cards. The lender did, however, approve the borrower for a $417,000 confirming loan.

To qualify for the $625,000 mortgage, this borrower would have to acquire a second credit card, use it a few times, pay the bills on time and wait one year before applying to refinance for the larger loan amount.

Is this sensible underwriting? Why encourage a borrower to take on more credit in order to qualify to borrow more money?

Sloppy underwriting and lax lending practices are partially responsible for today's economic crisis. Lenders should qualify and lend only to borrowers who can handle the monthly payments, have a decent equity stake in the property and have a good credit history. However, in many cases, prospective qualified borrowers are being put through the wringer. We need rational, prudent and intelligent underwriting, not prohibitory underwriting.

The government is pouring billions of dollars into the economy -- ultimately at taxpayers' expense -- to stimulate lending and the recovery of the housing industry. If the approval process is so arcane and unreasonable that responsible, qualified buyers can't get approved in a reasonable amount of time, and without enduring giant frustration, it defeats the purpose of the stimulus.

THE CLOSING: If you have trouble getting a mortgage, and you know that you're a qualified buyer, call your congressperson and wage a complaint. The pendulum has swung too far.

A Primer on Purchase Offers

Sun, 03 May 2009 17:42:22 +0000

By Dian Hymer

Decades ago, sellers priced a little high to leave room to negotiate down. Buyers typically offered 5 percent less. Then they negotiated and settled at a price in between. Today, there is so much variability in the housing market that it's impossible to use a pat formula for coming up with an offer price.

Your goal is always the same: You want to buy the best house for your needs and pay the lowest price. In many cases, you can start with a price that is less -- maybe even considerably less -- than the asking price and negotiate from there.

However, this strategy might not work in some California inland markets where housing prices have dropped about 50 percent in recent years. Some low-end housing markets plagued with foreclosures have heated up in recent months. Multiple offers are common, and some listings sell for more than the asking price.

Tailor your offer price to the specific house you want to buy. How much you offer should depend on how much you can comfortably afford to pay, which may be less than what the lender says you can afford. The price should be determined by current local market values, how well the listing is priced for the market, and whether or not you are in competition.

HOUSE HUNTING TIP: Buyers making offers in competition should try to make a rational decision regarding how much they're willing to pay. Don't get caught up in the frenzy of activity and offer more than your top price for the property. If you overpay, you could get cold feet and back out. In this case, your deposit might be at risk.

An appraisal contingency makes your offer contingent on the house appraising for the price you agreed to pay in the purchase agreement. If the property appraises for less than that price, you can withdraw from the contract and your deposit will be returned to you. That is, if your purchase agreement clearly stipulates this.

Other options are to try to renegotiate the price with the seller or put more cash down to make up the difference between the loan amount the lender is willing to lend and the purchase price.

Lenders are being just as cautious about appraisals as they are about qualifying buyers for a mortgage. Some appraisals are coming in lower than market value and some lenders are knocking down the appraisal 5 percent or so if they're concerned that home prices might decline.

Buyers who offer an under-asking price can improve their chances of starting a dialogue with the seller if they are preapproved by a lender for the financing they'll need to close the deal. The number of transactions that fail has increased in the current market. In most cases, this is due to buyers having difficulty getting financing. If the sellers know you will be able to perform, they'll be more likely to work with you to come up with a mutually acceptable price.

Short-sale sellers will need lender approval if the accepted price is lower than the amount of financing secured against the property. This can be a slow and tedious process. Many lenders realize that it makes more sense for them to work with a buyer on a short sale than it is to let the property go into foreclosure. But, your contract should include an escape clause so that you can withdraw without penalty if the lender is not responsive.

THE CLOSING: If you make a low offer on a bank-owned property (REO) and you don't get a response, make another offer at a higher price, but only if you think the property is worth it.