Category Archives: Homebuying

Huge Disparity in Home Affordability Across the U.S.

SFHow can an annual salary of just over $19,000 be enough to buy you a home in Cleveland, Ohio, while you’ll need a princely income of $115,510 per year to buy a home in San Francisco, California? Let’s just say that home prices, mortgage rates, and other economic factors vary tremendously across the U.S., as evidenced by a recent study by HSH.

The HSH study put together data on mortgage rates and median home prices in 25 of the largest metropolitan areas in the U.S., and calculated how much salary you would therefore need in order to cover the mortgage payments on an average home there. (And that’s before you start worrying about other costs of living, like local private schools.)

The results should make any Californian who doesn’t already own a home want to flee to another state. Not only is San Francisco absurdly difficult to buy into, but prospective Los Angeles homebuyers will need, on average, an income of $72,127, and San Diego homebuyers will need $81,570.

Even New York City starts to look cheap by comparison: An income of $66,167 gives you a shot at buying a home there, woo-whoo! And we can blame the dot-com industry for driving up rates in San Francisco, but why is Seattle, the home of Microsoft and Amazon, still affordable for folks with an income of $59,130?

No wonder the other big story in the San Francisco Bay Area is that rental rates are the highest in the nation. But if you need to buy a house in an expensive area, you’ll find useful information in the “Affording a House” section of Nolo’s website.

 

 

 

Unpermitted Construction by Former Homeowner May Affect Current Owner

outhouseRemember last week’s blog post, “Of Mice and Moss: Tales of Unexpected Homeowner Expenses“? A significant number of people contributed tales of — to quote one of them — “stupid repairs and improvements of previous owners.”

This of course raises the question, why weren’t the issues revealed during the home buying process? My guess is that they’re precisely the types of issue sellers are least likely mention on the disclosure form mandated in most states. After all, the sellers think of disclosures as where they list and describe problems with the property,  such as an aging roof or a crack in the basement floor slab.

But that beautiful new tile that they installed in the kitchen? That’s not a problem, it’s a handmade masterpiece! (Never mind that it ripples in a few places.) And the new bathroom that Cousin Ed created where the back porch used to be? Perfection itself! So perfect that they didn’t bother taking out a permit for it! (The inspector might not have understood Cousin Ed’s avant garde pipe installation style.)

If the former owner could live with some slapdash construction, the current owner sometimes can, too. However, complications arise when it comes time to sell the place yourself. What do you tell the buyers? Do you have to fix the problems? To shed some legal light on these issues, we’ve posted a new article to the Nolo website, “Discovering Unpermitted Construction When Selling Your Home,” by attorney Allison Nash.

Should Sellers Have Warned About Neighbors’ Holiday Lights Display?

holiday lightsHow would you feel as a new homeowner if, with Halloween barely over, you watch your neighbors get out ladders and start gearing up for a massive  holiday display — complete with lights by the thousands, inflatable snowglobes, an open garage full of displays, and music?

That might be cute for the first five minutes. Or if it were a mile away. But then your cat starts coughing at the fumes from the lines of visiting cars, the blinking lights create a horror-show strobe effect on your bedroom wall, and the tune to a certain carol takes up permanent residence in your ear.

So why is it that I’ve met scads of homeowners who say they weren’t advised of such neighborhood holiday shows by their home seller? In one case, it was the seller himself who was the local manic decorator — and didn’t warn the buyer to expect kids knocking at the door in December, wondering when the “Santa’s Workshop” in the garage would open.

Most states in the U.S. require sellers to warn buyers of not just physical issues with the home, but environmental or neighbor-related issues that could have a material effect on its value. In California, for instance, the Transfer Disclosure Statement asks about “neighborhood noise problems or other nuisances.” Not every light show is a nuisance, of course — but at close range, or when a house attracts unprecedented traffic levels, it’s no stretch to say the seller should warn the buyer. (Of course, most homes are sold in summer — and who’s thinking about holiday lights then?)

Oddly, I can’t find any record of U.S. lawsuits against sellers for failure to disclose local holiday light displays. It’s not as though buyers are shy about suing home sellers for nondisclosure, of everything from past crimes on the property to neighbors’ regular loud arguments and late-night parties.

And neighbors have brought lawsuits against the owners of homes with overwhelming displays alleging nuisance. (Perhaps that’s the more relevant path to getting results, given that a few bucks from the home seller isn’t ever going to fully compensate a homeowners for the lost sleep from those blinking red lights.) Some have even explored even more creative approaches — check out attorney Rich Stim’s blog on, “Can We Report Neighbor for Blasting Copyrighted Christmas Music?

Or could it be that homeowners feel just too Scrooge-like suing over what’s meant to be a bit of holiday fun? In any case, if you’re a home seller, you can avert some future bad feelings by telling your home buyer what’s ahead — or at least leaving them your Santa costume.

Getting a Mortgage During the Shutdown? Expect Delays

This isn’t speculation anymore. I talked to an excited new homebuyer just yesterday, whose offer had been accepted from among multiple bids on a home in Berkeley, but whose mortgage broker had warned him that the closing could be delayed.

IRS wall_0Why? Because the lender will need to get his tax transcript from the IRS, and as part of the federal government shutdown, the IRS tax-transcript department has been furloughed. Even if the entire IRS were to reopen tomorrow, chances are their inboxes are already overflowing with backed-up requests.

So now, our new homebuyer waits. And he’s not even applying for a loan that specifically involves approval by the federal government, such as a FHA loan, USDA loan, or VA loan.

Fortunately, most every standard home purchase contract in California is written with a contract contingency stating that if the buyer can’t get a mortgage, he doesn’t have to go through with the sale. Unfortunately, the homebuyer is expected to take care of this and remove the financing contingency by a date even earlier than the closing, or face the possibility of the deal falling through.

In unusual circumstances such as these, however, it’s worth remembering that contracts are nothing more than an expression of the mutual interests of the parties involved. In this case, I would think both seller and buyer would be amenable to negotiating a delay of the contingency and closing dates so that the sale can go through as planned, and everyone can get back to watching CNN to find out when the folks in Washington, DC are going to end this nonsensensical shutdown.

Condo Association Takes on Doggie Doo-Doo Dilemma

pup snowTradeoffs are inevitable when buying a home within a development that’s overseen by a homeowner’s association (HOA) or condo association. Your life is made easier by knowing that the association will take care of maintenance of the common areas and landscaping, and potentially even of parts of your own property, such as your roof.

But you give up some control — such as, according to recent reports, Fido’s genetic privacy, and your right to sneak off and hope that no one notices that your dog just left a deposit on their lawn.

Fox News tells us that The Grand at Riverdale, in New Jersey, has announced to its residents that they must have their dogs’ mouths swabbed for DNA analysis. Thenceforth, any stray droppings will be tested for a match. Owners will be fined $250 for the first offense, with subsequent fines ranging up to $1,000.

It’s a colorful (or smelly) news item, but probably not surprising to anyone who’s lived within a condo association. Their community rules can cover all sorts of issues: in the dog realm alone, whether you can own dogs, how many, how big they can be (by weight), and so on. (Oh, and by the way, Fido doesn’t really have any right to genetic privacy, in legal terms. Though while you’re at it, maybe you can check his ancestry!)

See Nolo’s articles, “Homeowners’ Associations (HOAs) and CC&Rs: Know What You’re Getting Into.”

Should Seller Allow Buyer to Do Pre-Offer Inspection?

OLYMPUS DIGITAL CAMERAThere’s a lot of buzz lately (at least in areas where multiple offers are making a comeback) about buyers getting the sellers of homes in which they’re interested to open their doors for a professional home inspection before, not after the buyer submits a purchase offer.

Buyers are being told that it will ultimately make their offer more attractive, given that they can, armed with extensive knowledge about the house’s condition, submit an offer with no inspection contingency. (The post-offer inspection, based on a contingency or condition written into the contract, is a time when negotiations often get contentious. Enough defects are usually found for the buyer to ask for repairs or a reduction in purchase price, and haggling over the details can consume — or derail — the entire process.)

Some sellers remain leery, however, of allowing pre-offer inspections. Let’s look at why, and whether these are reasonable concerns.

1) Sellers fear that the buyers will turn up defects in the property that even the seller hadn’t known about. True, this could happen. A seller who has lived in the home for years may have little idea of what’s been going on “under the hood,” so to speak. And once the seller knows of the issues, he or she will, in most states, be obligated to disclose them (or any of them that are “material”) to all other potential buyers. (See Nolo’s articles on “Preparing, Showing, and Making Disclosures About Your Home” for more on this.) As daunting as this might sound, however, it’s worth remembering that the truth about the house will likely come out eventually. Unless the market is super-hot and you’ve got buyers willing to waive the inspection contingency blindly, some other buyer will eventually conduct an inspection that turns up the defect, and you’ll be no better off than you would have otherwise been — or possibly worse off, if the buyers’ shock causes them to ask for a major price reduction.

2) Sellers feel they shouldn’t have to put up with an inspector in their home for a buyer who may not even ultimately bid on the place. True, if the inspection report comes back with a long list of defects, the buyer may get scared off completely. But there’s no reason to fear that buyers are running around casually hiring inspectors to write up reports on every home in which they’re remotely interested. These inspection reports cost a few hundred dollars a pop! Only a buyer with a serious interest in your home is likely to request a pre-offer inspection.

3) Waiting for the buyer to conduct an inspection might delay the process. Actually, this is more a concern for the buyer than the seller — as the seller, you don’t have to wait around for any one offer, but can put a deadline on considering them, and review other offers while you wait for the folks doing the preinspection to get everything scheduled and sorted. More and more home inspectors are, in light of this recent trend, making themselves available for inspections within a few days of being contacted by the prospective buyer.

Ultimately, the choice is yours, as the seller, as to whether to let a buyer conduct an inspection of your home before making an offer. But more and more successful home sales are now taking place this way.

“Dear Prudence” Is Giving Real Estate Advice?!

spookyYou just never know what people will decide to write to an advice columnist about. Only yesterday, a couple asked “Prudence” (Emily Yoffe, of Slate) whether they should buy a house that was the site of a horrific and widely publicized murder, in which the husband dismembered his wife. The couple work as a mortician and a pastor, respectively, so they aren’t personally freaked out by death, but they’re worried about what the kids and others will say.

Prudie’s advice is fine as far as it goes. She says if you’re comfortable with living there and want to buy the place, just be sure to tell the kids soon, and perhaps hold a prayer ceremony to . . . well, she didn’t say it, but I’m assuming to rid the house of ghosts and negative energy.

But there’s a lot more this couple should consider, namely:

  1. Their statement that, “Thanks to the Internet, we know all the horrific details of the case” is disturbing. It suggests they might not have learned about the murder from the sellers. A seller is, under most states’ laws, supposed to tell buyers, in writing, about anything that might materially affect the value of the house. If the seller did not, in fact, tell them about this, what else are they not telling? See my earlier blog post about a lawsuit by a buyer against a seller who neglected to disclose a murder/suicide that had taken place in the house for sale.
  2. Is the couple getting a bargain for the house? They’d better be. The place is, in real estate jargon, a “stigmatized” property. The fact that they may be willing to live there doesn’t change the widespread public perception that it’s tainted. Some properties of this nature remain on the market for years, or ultimately have to be bulldozed out of existence.
  3. Have they considered resale value? Once stigmatized, always stigmatized, if the event was horrific enough. And it sounds like this one may have been.

In the end, this couple may actually be the perfect one to buy the house and make it into a cozy, ghost-free place to live. (In fact, buying a stigmatized property is one of Nolo’s “Top Tips” for getting an affordable house.) But to the extent that a home is also an investment, let’s hope they proceed with their eyes wide open, and press the matter hard in negotiations.

Friday Real Estate Fun: “If You Lived Here”

HousesFor anyone who loves real estate, it’s good to stop and reflect once in a while on how the concept, shape, and style of what we call a “house” varies across cultures and time periods. And the book, “If You Lived Here: Houses of the World” contains artful images of just that variety. (Yes, it’s a children’s book, but one that adults can enjoy, too.)

By artist Giles Laroche, the book contains cut-paper collages showing everything from cave dwellings to yurts to Dutch floating houses to Venetian palaces. It’s accompanied by concise text explaining what the house is made of, where such houses are found, and what it’s like to live in one.

My favorite text comes with the cave-dwelling entry, noting that if you lived in one, “you would be among the 45 million troglodytes (cave dwellers) living in the world today.” (Gotta remember to use the word “troglodyte” more often.)

Perfect gift for a real estate agent who’s got kids, perhaps? Or a way to keep your little ones busy in the car while you visit your 25th open house? Then again, Laroche’s inviting picture of the Airstream trailer might make you forget your house-hunting plans altogether.

Charles Ramsey and Amanda Berry Story Illustrates Importance of Good Neighbors

htbh4_2When buying a home, you want to live near neighbors like Charles Ramsey, who will rescue you in a tough situation, right? By the look of it, Ramsey wasn’t living in a fancy house or in a luxury neighborhood. But sometimes other community qualities are just as important when homebuying — a truth that buyers sometimes forget in the midst of admiring the kitchen or reviewing the inspection report concerning the home’s physical condition.

There are limits on how much you can find out about your potential new neighbors, of course. Ramsey himself illustrates this, noting that he could have saved Amanda Berry and the other kidnapping victims a year before, if he’d only known what his neighbor Ariel Castro was up to. He says, “That’s why now I’m having trouble sleeping.” But he didn’t have any idea that the women were there; despite the fact that, “I barbequed with this dude. I ate ribs and listened to salsa music [with him].”

Such limitations shouldn’t stop you from trying to find out what a home’s neighbors are like. A good way to start your research is simply to knock on doors to houses surrounding the one you’re thinking of buying. You probably don’t want to ask whether they’re up to anything that the police would like to know about! Simply explain that you’re interested in purchasing, and ask about how they like the neighborhood, what they’d change, whether they know of any neighbor disputes or recent crime or problems on and around the house for sale, and so on.

If the neighbors are forthcoming, you may learn a surprising amount about both the condition of the house and neighbor relations. If they’re unpleasant or hostile, that tells you something, too. They may be difficult to deal with, or be carrying a grudge against the home’s current owners.

You can also ask the home’s seller for information, through your and their agent. Good questions might include:

  • Have disputes arisen with the neighbors? If so, how were these resolved?
  • Do you and your neighbors share the same idea of where your property boundaries lie?
  • Do the neighbors smoke, make noise, have difficult pets, or do anything else that impacts your use and enjoyment of the property? (This type of information may appear on the disclosure form, but most likely not.)
  • How do you and the neighbors handle fence repairs and trimming of trees on the boundary line? (Most of this should probably be shared, but if you find out that the sellers have been dealing with such things alone or shirking their duties, you’ll need to plan ahead for some delicate neighbor negotiations.)

Add your own questions as relevant to the area and property. And for more information on how to research a home before buying, see the recently released new edition of Nolo’s Essential Guide to Buying Your First Home,

Don’t Let an Investor Buy the Home You Wanted!

IMG_5064They’re back! Those steely eyed buyers with pockets full of cash, attracted by the combination of low but rising prices in many parts of the United States.

In some geographic areas, the investors — professionals who plan to rent out or flip the house rather than live there — are actually the CAUSE of the price increases; in others, they’re just one of the active players in a local area with a rebounding economy. (See CNNMoney‘s Real Estate Guide 2013.)

That’s bad news for ordinary mortals, however, who are just trying to buy a family home. Inventory is at its lowest in decades, as a result of builders having folded up their tents and stopped building and banks having made their way through most of their pending foreclosures.

An investor who comes in to buy a house is likely to literally offer all cash; which, even if it’s not the highest offer, can look very attractive to a seller who knows full well that buyers are still having trouble getting final approvals on mortgages.

How do you compete with these investors? First, know that they’re out there, and plan accordingly. (Double check by asking your real estate agent how active investor-buyers are in the area where you plan to buy.) Other potential strategies include:

  1. Bid higher. True, that may take the home out of your price range. But now’s a good time to come to terms with the fact that a house’s list price is just a suggested amount with which to open negotiations. Many houses go for more than the list price, and if you’re bidding against other possible buyers, such a result is all but guaranteed. At a certain price level, investors lose interest — they’re only out to make a buck, and have no interest in whether this is the perfect house in the perfect location for their own lifestyle and dreams.
  2. Pay all cash. Don’t laugh — doing so on a very short-term basis may actually be possible, with the help of your family and friends. Even people who aren’t wealthy may have a nest egg they’d be willing to park in your house temporarily — just until you close the deal and turn around and take out a traditional bank loan. Even if everything goes wrong and you can’t pay it back, they can always foreclose on you and recoup their investment. See Nolo’s article on “Borrowing From Family and Friends to Buy a House” for more information.
  3. If you can’t pay all cash, do the next-best thing(s). That’s making a large down payment, for starters — higher than the usual 20%.  Why does the seller care? Because he or she knows that the less you’ll be borrowing from the bank, the more likely the bank will be to approve the loan, confident that it can sell the house for enough to recoup the amount at stake. And if you can’t manage a large down payment, at least come in with a letter of preapproval from a lender and other forms of proof that your financial situation is strong enough to likely close the deal.
  4. Strengthen your offer in other ways. Remember, when competing against other bidders, you won’t get a second chance at working out the details. You’ll want to concede everything that can reasonably be conceded in order to woo the seller. That may mean offering the shortest closing period you can manage; accommodating the seller if you know that he or she still needs to find a house to buy (for example by offering a rent-back or home purchase contingency); and even waiving the contingency allowing you to make the sale conditional on your satisfaction with the results of a home inspection (though this is risky; you’d want to at least get a friend in there with contracting skills to tell you what you might be getting into).

Bidding wars aren’t fun, and many buyers react with, “I’m just not going to get into any transaction where I’ve got to play that game.” But as long as you don’t lose your head, a bidding war is in some ways no different than buying a house where you’re the only offeror — your job is to calmly, and with an eye on what comparable houses are selling for, choose a price and terms that balance out both your own needs and market realities.

Buyers who wait until the investors lose interest may still be looking for a house a few years from now, when prices really have gone up.