Buying a home in Rhode Island can be confusing, especially for the first time home-buyer.

The real estate industry, like most others, uses jargon that is sometimes difficult to understand. Consider this a primer to learning a few of those terms.  Below you have a step by step definition that will make you sound “in the know” when buying or selling a home.

“CLOSING” - Closing refers to the final steps in securing a home purchase.  When a property is sold, it is referred to as “closed.” In Rhode Island, the closing takes place with an attorney or at a title company.  This is different than other states that use “escrow” agents.

“OFFER” - Buyers “offer” a contracted rate on a home for sale. A seller may receive many “offers” and is not required to accept any.   Full price “offers” are looked upon favorably, but even “offers” of up to ten percent beneath the asking price may be an acceptable practice, too.   There are several variables to discuss with a knowledgeable real estate agent before submitting a low “offer,” however, so do your homework.  Comparing a home to others in the local market and recognizing the length other homes have been listed are helpful to consider prior to submitting or accepting any “offer” in real estate.  In Rhode Island, there is no rule of thumb here.  Ask your agent to help you evaluate your starting offer in light of where you wish to end (purchase price).

“DEPOSIT” - The “deposit” or earnest money pledged with an “offer,” illustrates a commitment from the buyer to the seller.  Generally the “deposit” amount is determined based on a percent of the home’s purchase price and applies to the final purchase price of the home for sale. This deposit is held “in trust” until the purchase is completed. As a potential home buyer, your “deposit” will only be accepted if your “offer” is accepted. Occasionally a home buyer decides not to move forward with the home sale which can result in the loss of the “deposit.”  In Rhode Island, the general practice is to have this deposit placed in the escrow account at the listing brokerage.  So it Residential Properties LTD (our parent company) has the listing, the buyer would make a check out to “Residential Properties, LTD” for the deposit amount.  Although not set in stone, general practice seems to be a 5% deposit upon signing a purchase and sales agreement.

“CONTINGENCIES” - Contingencies are requirements outlined in the contract that must be fulfilled prior to “closing,” often relating to financing or the house inspection. Another example of a contingency would be the buyer sale of their current property. In Rhode Island this used to be called a “Hubbard” clause, so you may hear agents refer to this contingency as that term.

“CONTRACT” - When a home seller accepts an “offer,”  the “contract” is then created.  A legal and binding document which guarantees the buyer will purchase the property when all contingencies are met. Transaction details are included in the contract, such as the property selling price and description, any important dates and contingency clauses.  In Rhode Island, this is called a “PURCHASE AND SALES” agreement or P&S for short.

“CLOSING STATEMENT” - Required by the Department of Housing and Urban Development to ensure accountability of all finances relating to the sale and purchase of a home.  Real estate commission,  escrow  securities and deposits, and any other fees must be outlined in this document. The buyer and seller will each receive a copy of the “Closing Statement” per the Real Estate Settlement Procedures Act prior to “closing.”  When your attorney says that they are sending you the “HUD”, this is the document to which they refer.

“CLOSING COSTS” - These are the actual costs of “closing” and include securing title, loans, appraisals, credit reports, inspections,brokers, taxes and document preparation.  Closing costs, if agreed to by the seller are able to be rolled in to the purchase price allowing a buyer to come up with less cash out of pocket.  Always talk to your agent to see if this makes sense for you.

Hopefully this tutorial has helped you feel a little more familiar with real estate terms, so that whether you are buying or selling a home, you can feel a bit more at ease.

As always, we are here to help!

A combination of historically low mortgage rates and declines in home pricing are resulting in the most affordable home market in two decades. This is great news for home buyers, provided they are able to qualify for a loan. Stricter guidelines and qualifications may make getting a home loan more challenging, so potential home buyers should work with a mortgage specialist to determine their ability to buy a home.

The National Association of Home Builders (NAHB) and Wells Fargo Housing Opportunity Index (HOI) report that nearly 76% of new and existing homes sold in the last quarter of 2011 could have easily been purchased by buyers earning $64,200 (the national median income). The previous quarter showed nearly 73% of homes in that range, marking a 3% increase.

Interest rates have been at record lows and change weekly on 30-year loans with Freddie Mac reporting an average of 3.87% on February 16th. 15-year loans were averaging 3.16%.

Some of our favorite neighborhoods for affordable housing in the Providence area are Elmhurst and Pawtuxet Village which are great for first time homebuyers.

Home ownership can be a heavy responsibility at times… especially when times are tough. Homeowners in the city of Providence RI face unemployment and a city on the brink of Bankruptcy. It can also be challenging to find help when times are difficult due to a  decrease or loss of income, illness, unexpected disaster or home repairs, or personal crisis such as separation or divorce.  Add to that a reduction in home values, and the problem can seem insurmountable. While savings can help to alleviate some of the impact of these life events, it is still helpful to be aware of  potential programs and alternatives offered to distressed homeowners, too.  In fact in last month’s State of the Union address, President Obama made reference to this struggle in home ownership, saying, “And while Government can’t fix the problem on its own, responsible homeowners shouldn’t have to sit and wait for the housing market to hit bottom to get some relief.”

If you find yourself in a no-win situation regarding your mortgage, it can be helpful to speak with your lender and ask about modifications that can be made in the short term.  You can ask about the short sale process,  too, and see if that may be a viable option for you.  A short sale is when your lender agrees to accept a lower price than is owed on your property as payment in full.  There is a lot of paperwork that accompanies this type of sale and it is helpful to use a real estate agent that has short sale experience with this type of transaction.  In fact, some real estate agents and home buyers specialize in just this type of sale and can be a great help to you!

If you want to stay in your home, rather than sell, programs such as the Home Affordable Refinance Program (HARP), Home Affordable Modification Program (HAMP) , or the Home Affordable Foreclosure Alternative (HAFA)  offered by Freddie Mac may all be options.  Fannie Mae and your individual lender may have other programs that can assist you as well.  Please click here to view a variety of tools on how to avoid foreclosure.  Remember that you have options, if you are willing, able, and have the time necessary to explore them.  Don’t give up!

We get so many questions about how the Homestead Exemption works in Providence RI, that I thought it would be helpful to explain it in a post.

So how does it work?

The tax rate in Providence for someone that does not live in a home as a “primary residence” is $30.38 per thousand of assessed value.

If by, December 31, you are living in the house AND SUBMIT AND APPLICATION TO THE CITY, then the rate is cut in half to 15.19 per thousand of assessed value. This is called the HOMESTEAD EXEMPTION in Providence RI.

So, for example, let’s say a property is assessed at 400,0000 by the city of Providence.

If it is owner occupied, there is a homestead exemption, so the tax is calculated at (400,000 /1000 =400) X 15.19 or $6076 per year in tax.

If it is NON-owner occupied, the is NO homestead tax exemption, so the tax is calculated at (400,000/1000 =400) X 30.38 for a whopping $12,152 per year in property tax.

The city says that the owner occupant must own the property by Dec 31 of the PRIOR tax year to qualify for a homestead exemption for the next year 2011.  Then the homestead exemption is in effect for the full tax year 2011.

Here is where is is a bit confusing:

1. The Homestead exemption runs with the property, not the owner. So for example, let’s say you purchased a property in February from an owner that is occupying the property, and has the homestead exemption.  But in this case, instead of living there, you intend to rent the property out to a tenant.  The tax for 2011 would be billed at the owner-occupied rate (because the person you bought it from had the homestead exemption in place, so as an INVESTOR/NON-OWNER OCCUPANT you would reap the benefit of lower tax for the calendar year 2011.  Your bill would rise to the higher level in 2012 however.

2. Conversely, let’s say you purchase the a property which is vacant (non-owner occupied or no exemption) in February 2011.  Then you will be penalized by the fact that there was no owner occupant in place as of Dec 31, 2010.  You will pay the high taxes (same as an investor/non-owner occupant) until you apply for the homestead exemption and the property qualifies in 2012.

3. If you are living in and own such a property for example, as of December 31, 2010, then for 2011, you will get the lower rate, starting in 2011.

4. If you purchase a property from an owner occupant in February, and you live in the property as an owner occupant, than you will have the lower taxes automatically. BUT YOU MUST APPLY yourself for the homestead exemption at a pre-determined time by the city (usually March 15th).  To use an example, if a condo is owner-occupied right now, the taxes would continue to be lower in 2011 no matter when in 2011 you purchase.

As an important note, if you are using Zillow.com and Trulia.com to search, the taxes NEVER reflect the homestead exemption.  Those sites calculate the tax only as a NON-OWNER OCCUPANT, so keep that in mind when figuring out what your actual taxes will be.

Considering tax assessments on the East Side of Providence, RI, we ran across an interesting example of how one can get fouled up when considering the purchase of a home.

Take the example below which is an actual MLS listing description from our realtor MLS.  The inputting of this data into MLS feeds all the other national sites, like Zillow.com, Trulia.com and every other listing website out there.

When compared with the official tax assessor’s database, the following discrepencies are noted:

1. MLS says assessment is $899,400 but Tax Assessor’s Database says it is $710,000

2. MLS says square footage is 4,039 but Tax Assessor’s Database says it 3,548.  On MLS, it is noted that the “Living Area Source” is from the Tax Assessor.  How could that be and does it really matter?

New this week  — Fresh to East Side Providence RI Real Estate —- brand new single family listings.  Well sort of “brand new”  Four out of 10 of these are “re-lists” – Wayland Ave, Greaton, Freeman Parkway and Woodland Terrace.

Showing properties 1 - 10 of 11. See more East Side Providence SF New.
(all data current as of 5/11/2012)

1. $459,000 : 306 Elmgrove Av, East Side of Prov
   
   4 beds, 2 full, 1 part baths

   Home size: 2,700 sq ft

   Lot size: 5,500 sqft
   
2. $459,000 : 56 Sheldon St, East Side of Prov
   
   3 beds, 2 full, 1 part baths

   Home size: 2,388 sq ft

   Lot size: 3,050 sqft
   
3. $649,900 : 257 Elmgrove Av, East Side of Prov
   
   3 beds, 2 full, 1 part baths

   Home size: 2,200 sq ft

   Lot size: 6,534 sqft
   
4. $179,900 : 53 Woodbine St, East Side of Prov
   
   4 beds, 2 full baths

   Home size: 1,362 sq ft

   Lot size: 4,356 sqft
   
5. $237,000 : 226 Camp St, East Side of Prov
   
   3 beds, 1 full, 1 part baths

   Home size: 1,453 sq ft

   Lot size: 3,161 sqft
   
6. $479,000 : 240 Bowen St, East Side of Prov
   
   6 beds, 3 full baths

   Home size: 3,381 sq ft

   Lot size: 3,694 sqft
   
7. $249,000 : 69 Eleventh St, East Side of Prov
   
   2 beds, 1 full bath

   Home size: 1,100 sq ft

   Lot size: 4,000 sqft
   
8. $359,000 : 62 Woodbury St, East Side of Prov
   
   3 beds, 2 full baths

   Home size: 2,189 sq ft

   Lot size: 5,357 sqft
   
9. $469,900 : 31 Burlington St, East Side of Prov
   
   5 beds, 3 full baths

   Home size: 3,943 sq ft

   Lot size: 4,356 sqft
   
10. $729,000 : 162 Pratt St, East Side of Prov
    
    6 beds, 2 full, 1 part baths

    Home size: 3,968 sq ft

    Lot size: 5,758 sqft
    

Listing information deemed reliable but not guaranteed. Read full disclaimer.

To continue from the last post, I thought I would take the same example, this time from Trulia.com to see if the Property taxes East Side Providence RI reported were accurate from the national website versus what should be reflected in MLS.  Again, Trulia.com doubles the taxes.  Most single family homes on the East Side of Providence are owner-occupied, making the tax rate HALF of what is stated in the national site.  Property taxes on the East Side of  Providence are $30.38 per thousand of assessed value but if you live in the house, you qualify for a tax exemption which brings the rate to $15.19 per thousand of assessed value.

How misleading.  It’s as if they took they 80/20 rule and decided to make the results on 20/80 instead.  I would venture a guess that less than 20% of the single family homes on the East Side of Providence are taxed at the full rate.  So if a buyer new to the area looks at Zillow.com or Trulia.com to get their information, they are likely to have a coronary when they look at the taxes! Most single family houses on the East Side of Providence DO have the homestead exemption, so please keep this in mind when calculating your overall monthly payments.  To be fair, the taxes in our city are high compared to most, but what Trulia.com and Zillow.com are showing are truly off the charts.

Uploaded with Skitch!

Here are some stats for the Barrington RI market for 2010.

For single family homes in Barrington RI 02806, the median sales price was $359,000 and priced at $205 a square foot.  Average days on market were 121 days.

I like to point out  the highs and lows of the Barrington RI market because it shows the breadth of the offerings and the wild differences.

The only sale below $150,000 last year was a foreclosure at 49 Rolfee which was priced at 115,000 and sold for over asking in 12 days for $ 121,500.  From the photos, this house seemed to be going through major renovations when perhaps the owner ran out of money.  It went into foreclosure at some point and sold very quickly .

The highest priced sale in 2010 in Barrington RI was 375 Rumstick Point, a waterfront property that was originally listed for 3,100,000 and finally sold for $2,650,000 after a year on the market.  Originally 1940′s construction, this home was added on to over the years.  It has sweeping views of the Narragansett Bay.

It will be interesting to see what happens as we move through 2011.

I post this as a real life example of buying on the East Side of Providence, although to be fair, we don’t see a lot of foreclosures on the East Side, so getting one in a decent area is rare, and you have to have the stomach for going through the process.  At present, I see just 5 foreclosures listed in the MLS, all condos.

As I move through this example, I will highlight what the buyers faced when going through the process and some to the challenges you too may have when purchasing a foreclosed property on the East Side.

The property itself is a condo which at the height of the market in 2005, and sold in the low 300′s.  It is one of our typical Providence triple deckers, converted into “luxury condos”.  The unit itself has all the great bells and whistles: granite, stainless, open floor plan, zero clearance fireplace, etc.. The tax assessor places its “value” at $225,000.  The list price when our buyers made an offer was $165,000.

When we first met with our buyers, we talked about what would makes sense for them financially.  We are typically not big fans of the small condo conversions, but we all agreed that if the mortgage payments could approximate the rent they were paying, give them equity in an ownership position, tax savings, a great space, then it made sense.  So place an offer they did.

After a “highest and best” round, our clients secured the property from Fannie Mae, the owner of the foreclosed property.  Then we got in down and dirty with the financing.  Not exactly pretty and let me tell you why.

First of all, a small condo association is not “FHA approved”.  An FHA approved property will allow the buyer to only put down 3.5% as a down-payment.  How many first time homebuyers these days have more?  We are still recovering from a recession, the worst since the GREAT DEPRESSION and unemployment in RI is over 12%.  We were able to get over this hurdle by getting a loan locally, by Coastway Bank in Cranston, so the buyers were able to put down just 5%.

Here is the kicker though:

Their mortgage payment with still low interest rates was around $820 a month (sure beats the $1200 they pay in rent right now, so far, so good) BUT the TAXES are $570 per month, bringing their payment with PMI, utilities, insurance, etc. to about $1600.

Yikes, why not stay in the rental and just WHAT is happening here?

The answer has to do with the “non-owner occupied tax rate” and the high assessed value by the city of Providence.

Providence has two tax rates — one for owners of property who live in the house — which is $15.19 of assessed value (in this case $3,412) or if the property is non-owner occupied — the rate doubles to $30.38 per thousand of assessed value (here again, in this case, $6836).  Because the bank or Fannie Mae owns the property, the tax rate for this year is $6,836 or $570 per month.

The first thing to understand is that the tax rate travels with the property for the year, not the owner.  That means that the new buyer is on the hook for the full amount until 2012, at which point they can prove their residency and get the reduced rate. So for all intents and purposes, the buyer will have to pay the $570 a month until 2012.

All I can say is that just didn’t work for these buyers, despite the good deal they secured. Nor should it, but what options does a buyer of this type of property have?  It is a good deal for sure, priced at $165,000 while assessed at $225,000.

What we discussed with the buyers is that this situation is temporary.  Here is what we recommended:

1. Ask the bank to roll the additional taxes into the purchase price so the buyers can finance the higher taxes and not to have to come up with so much out of pocket. The bank, and cooperative selling agent was willing to do this.

2. Appeal the assessment.  If you purchase a property for $165,000 for example, but it is assessed at $225,000, then there is a large discrepancy between how the city views the property and how the market views it. Contact your realtor to help you with comparable sales to make this case to the city. We will be helping our buyers with this.

The good news is that come 2012, the tax will be lower, the buyers are in a location that they love, getting tax benefits though writing off interest payment, and paying themselves instead of a landlord.

In the end…….well….this is not the END of the story since we just went through inspections today…….they will have a place to live that they are proud of, they are paying themselves and building equity, and they building a more secure future.

More later to follow on this progression……..but I hope that this gives you some insight into the challenges in purchasing a foreclosure on the East Side.