Category Archives: Homebuying

In a Multiple-Offer Situation, Will Your Buyer’s Agent Shine?

applesThey’re making a comeback: multiple-offer home sales. With pent-up buyer demand, low inventory, and a widespread perception that both home and mortgage prices may be on the rise, stories of homes that attract two, five, or ten offers, and sell for far over the asking price, are becoming increasingly common.

If you’re a wannabe homebuyer, you’ll find it hard to predict in advance whether you’ll end up in one of these bidding wars. Not every home will become the hot property of the week. The move-in ready homes in great locations with tempting price tags seem to attract the biggest buying swarms. But, you never know–a fixer upper with great potential may suddenly become the darling of the week.

Some buyers try to avoid emotional turmoil by taking a hard-line approach like, “I’m just not going to bid on any homes where I have to compete with others” or “I’ll never offer more than list price.” That ignores market realities and may mean you wait a long, long time to buy a home.

So, let’s say you find yourself trying to make your offer stand out from a bunch of others. There are various strategies you might take, such as offering all cash (don’t gasp, it might just mean borrowing the money for a couple of months from family and friends, then turning around and getting a bank loan later), or waiving the inspection contingency (risky).

But the strategy I’d like to focus on today is making sure you’ve got an agent on your side who both represents you well and whom the seller’s agent will want to work with.

Real estate agents come in all personalities and levels of professionalism. And their skills and personalities will be on full display in a multiple-offer situation. That’s because the sellers and sellers’ agent will likely schedule the buyer’s agents for back-to-back offer presentations. You, as the home buyer, won’t likely be in the room. You’ll have to trust that your agent will represent you well.

What do these presentations involve? Your agent will need to do more than just hand the offer papers across the table. He or she will want to give a summary of your offer, highlighting its strong features and downplaying its weak ones (i.e. “Even if this isn’t the highest offer you receive today, look at how big the down payment is! My clients will have no trouble getting final loan approval”), and giving a picture of you as buyers (“They’re a lovely couple whose hobby is gardening, and they’re so excited that your yard already has mature fruit trees”).

All of this makes a difference. A bigger one than you might think. Sure, the seller’s biggest decision-making factor is the offer price. But other factors might make the seller rethink and choose a lower offer — and some of those factors depend on the agent him or herself. Picture yourself as the home seller for a moment. Wouldn’t you think twice about an offer where, for instance:

  • the agent already gives indications of being a hard-line negotiator, perhaps by asking for things that aren’t traditional in your locale (for example, to have the seller, not the buyer, pay for escrow costs) or peppering your agent with suspicious questions like,”What’s that new drywall covering up?”
  • the agent appears disorganized, shuffling papers around (“Gee, where did I put that letter from my clients?”) and making you wonder whether he or she will really be able to close the deal without mishaps
  • the agent insults your home in a misguided effort at negotiating, as in, “Of course, we would’ve offered more, but my clients need to set some money aside to rip out that overgrown garden and put in some real landscaping.”

And then there’s the factor that the agent doesn’t really have any control over within the conference itself: His or her reputation in the community. You may have never heard of your buyer’s agent before signing up with him or her, but the seller’s agent has. They may have worked together on many deals in the past. And if it was an unpleasant experience — or worse yet, the buyer’s agent’s incompetence or obstreperous behavior led a deal to fall through — you can bet the seller’s agent will be telling his or her client, “Look, I know it’s the highest price, but here are some very good reasons that we don’t want to work with these people.”

The bottom line: Check out your agent carefully before signing him or her up. Make sure you like the agent personally, and that he or she is highly thought of by others in the same profession. For more tips, see Nolo’s article, “Choosing Your Real Estate Agent.”

Or, You Could Buy a U.S. Post Office!

residential-subdivisionTired of touring through homes that are only faux-historic? Not finding enough real marble flooring or Roman columns to suit your liking? The U.S. Postal Service has entered some unusual options onto the real estate market: Post offices. That’s right, they’re closing some of them down — around 200, at last count, in order to raise money and shift into lower-cost alternatives for office space.

Of course, an old post office doesn’t come with many home-like amenities. And their historic significance, in many instances, means that anyone who buys one should be prepared to comply with historic preservation rules — not to mention answer to a public that’s none too pleased about the way the Postal Service has been handling this process. (After one of the historic buildings it sold was torn down to make room for a Walgreens, it’s no wonder.)

But if you rent back some space to the Post Office itself — which it’s hoping to arrange, in some cases — you might never have to stand in long lines for stamps again!

For more information, see Save the Post Office, a website edited and administered by Steve Hutkins, a literature professor who teaches “place studies” at the Gallatin School of New York University.

Do the Math Before Buying a House With a Pool

poolI love to swim — but I would never, ever, buy a house with a pool, particularly an outdoor one. Oh sure, they’re convenient, they look pretty, and almost nothing gets people to your house faster than the word “pool party.” (Nothing legal, that is.) But let’s look at the down sides, most of which have big dollar signs attached to them:

  • Injuries and lawsuits. Ask anyone who’s been to law school. (By now, almost everyone has.) An inordinate number of tort cases have to do with things like children drowning after sneaking into a pool, divers bashing their head, swimmers getting caught in the drain, and so on. (Have you noticed how hotel pools no longer have diving boards? There’s a one-word reason for that: “liability.”) Some lawyers even specialize in swimming-pool injury cases. Apart from the horror of someone injuring themselves or dying on your property, lawsuits are expensive . . . which brings us to the next topic.
  • Paying more for homeowners’ insurance — if you can get pool coverage. As soon as your insurance company knows you have a pool, it will either raise your rates for liability coverage or exclude the pool from your policy altogether. No coverage means you’re on your own if someone sues you for injuries. Just how much your rates go up depends on where you live and other factors — some say around 10% per year — but it’s not the only cost you’re going to face. That brings us to the next topic.
  • Adding safety features. If you’re going to avoid those injuries, or at least show that you weren’t at fault in causing them, you’re probably going to need to build a high fence with a lock on it, and otherwise secure the pool from unintended visitors — and make it as safe as possible for the intended ones.
  • Increased energy use. According to a study by Opower, homes with pools tend to use 49% more electricity and 19% more natural gas per year than non-pool homes, owing in large part to the pumping, filtering, and heating requirements.
  • Maintenance costs. There are the basic chemicals, plus cleaning and inevitable repairs — all of which can easily add up to $3,000 per year,  according to a Wall Street Journal report.

When you get tired of your pool-party house and want to sell, the presence of a pool may be attractive to some buyers — but turn off others. Especially, I’m guessing, the lawyers.

 

Homebuyers Look for Large, Numerous Bathrooms

IMG_4874Let’s talk bathrooms.

When I bought my first little starter home many years ago – which, being in California, cost as much as a mansion in Buffalo would have – my in-laws, who happen to live in Buffalo, were shocked that it came with only one bathroom. Given how hot the market was at the time, I felt lucky that it had any bathroom at all.

Of course, when it came time to move, the 2nd bathroom was one of the biggest things to look forward to. No more knocking on neighbors’ doors while the plumber was in doing repairs! No more standing in line when houseguests were staying!

The desire for more, bigger, and more luxurious bathrooms is a trend that seems destined to never end. As Lauren Beale reported on in the Los Angeles Times last year, the wealthy take it to extremes, demanding two bathrooms for every bedroom. (Gotta love the quote from homeowner Sandra Beltre, whose custom-built home has 16 bathrooms: “We use them all.”)

According to broker and appraiser Hank Miller, “Owners are looking for that special retreat . . .  making spa-like luxury a major push in today’s remodels. Heated towel racks , underfloor heating, over sized shower heads, wall jets, and open showers are popular now and will continue to be in 2013.”

There’s just one problem, for anyone buying a starter home, or in many cases, an older home: You can’t always get what you want. Remember the days when the bathroom was referred to as a “water closet?” Many homes’ bathrooms are small, insignificant, and in short supply.

Often, the best that you can do as a homebuyer is to look past the staging (as in the above photo, where the pretty accessories can almost make you forget that there’s hardly enough space on this sink for a toothbrush) and assess just how big (or small) the bathroom really is. Then examine the surrounding rooms to see whether they offer room for expansion, and possibly bring in a contractor for a reality and price check.

The good news is, if you do remodel or expand your home’s bathrooms, this is among the home improvements most likely to yield a higher sale price when you move. See “Do Home Improvements Add Value” for details.

If a Home’s Walk Score Is Low, How’s Its Parking Situation?

parking_ResidentialParkingWe’ve long known that a home’s walk score is a big factor in its value: A 2009 study found that homes with above-average levels of walkability (to amenities such as stores, parks, schools, and public transportation) sell for anywhere from $4,000 to $34,000 over homes whose walk scores are merely average.

Millennials in particular are taking an interest in walking or biking, whether for lifestyle or pocketbook reasons, thus sending the car industry into a state of worry about declining purchase rates.

Still, with one car out there for every two Americans, there’s a good chance that folks buying a house are going to want at least one spot for their vehicle, as well. The 2011-12 “Cost vs. Value” report from Remodeling Magazine found that a standard (not upscale) garage adds about $33,000 to the value of a U.S. single-family home — not enough to make it worth the $57,000 price tag in building a new one, but certainly enough to warrant calling attention to a garage that’s already there.

First-time homebuyers don’t always appreciate the benefits of a garage, but those who go without soon learn. Circling the block night after night in order to park at your own house is no fun. Neither is waking up to find that your car has been relieved of its catalytic converter.

With condos, or homes in jam-packed urban areas, buyers may have to pay separately for a parking spot. If you thought condo fees were high, get ready for some new sticker shock. As Bob Hunt reports in RealtyTimes, parking-spot prices in San Francisco have gone as high as $1 million, and in San Francisco, up to $90,000 back in 2011. Do we hear $100,000?

Whether you’re buying or selling, considering these proximity and transportation issues will help to both place a value on the property and  estimate the costs and ease of life for the owner.

What Do Condo Fee Amounts Really Tell You?

As anyone thinking of buying a condo should know, the list price is not the only dollar figure to take into account: You’ll want to look at how much you’ll be paying in monthly homeowners’ association fees, which go toward upkeep and repairs to the commonly owned areas (such as landscaping, walkways, and roofs) and any amenities (such as a pool or community room).

In fact, it appears that buyers are well aware of this issue, as evidenced by a recent Orange County Register story about a condo in Laguna Woods, California that’s listed for $1 — but not selling, due in part to the monthly $1,718 maintenance fee. (And the fact that it’s tiny, and located in a retirement community.)

Lenders are similarly attuned to the burden that monthly fees add to a homebuyer’s debt, and reject many loan applications for reasons that have more to do with the condo association’s finances than the individual borrower, according to a report by Annamaria Andriotis of SmartMoney.

A common mistake among buyers, however, is to believe that the fee amount alone tells the story — as in, lower amount = good, higher amount = bad. It’s not that simple.

For instance, Jim Adair of RealtyTimes describes a situation where the board of a condo association in Toronto went to court to get new maintenance charges imposed on the residents, who’d been refusing to raise them for years, while ignoring needed maintenance and repairs in their aging building. With the court’s help,  fees were raised to a backbreaking $900 a month. Owners who then tried to sell discovered that unloading units that were saddled with both high fees and neglected physical conditions was nigh on impossible. Slightly higher fees for the years leading up to this would have been a much healthier approach.

Then there was a recent Washington Post report out of Virginia, where a condo complex called “Shadowood” so overused its power to tack on extra fees — for everything from calling the management office to having the wrong color blinds — that a Fairfax County judge permanently enjoined it from imposing fees not already listed in the development’s original master deed (which decision was upheld by the Virginia Supreme Court). The basic fees, however, were between $287 and $324 a month; which an unwitting buyer might have concluded were reasonable, without doing any deeper digging.

Of course, high fees can spell trouble, too. As industry expert Paul Grucza noted in the recent new edition of Nolo’s Essential Guide to Buying Your First Home, “Shrinking hourly wages have seriously impacted people’s ability to pay their dues and assessments. A delinquency rate of between 5% and 7% is average and realistic, but I’ve heard of associations where up to 70% of the homeowners can’t pay what they owe. That puts a huge burden on the other homeowners — they’ll likely either have to pay more themselves or watch the property decline.”

The bottom line: You’ve got to dig. Find out not only what the monthly fees are in whatever condo unit you’re thinking of buying, but look into related issues like:

  • how many owners are actually paying those fees (more than 15% in arrears is a serious problem)
  • how much the association has in its reserve account (close to nothing is all too common, and means there’s nothing to rely on if a sudden repair or emergency need comes up)
  • when the condo association can impose special assessments or other fees, and any recent history of its doing so, and
  • whether any financial disputes or lawsuits are brewing.

Reviewing the master deed or “Covenants, Conditions, and Restrictions” (CC&Rs) will be a good start, but you will also want to talk to other owners, review minutes from recent board meetings, and follow up on any disturbing information you uncover.

Past Foreclosure Overcome by New Wave of Homebuyers

They’re being called “boomerang buyers” — those who only a few years ago lost their home to foreclosure or a short sale, but are now reentering the real estate market. No, it’s not necessarily easy, but it’s possible, and sooner than you might have thought. Phones are reportedly “ringing off the hook” at some loan offices.

This trend is a reminder that every tough situation creates some winners. Even as sellers wish their property values would rise faster, the once-big losers in the housing market crash have now had some time to rebuild their credit and stash away a down payment.

For a rundown on the qualification rules and required waiting period, Shashank Shekhar has provided a handy article called “Buying a Home After Short Sale, Foreclosure or Bankruptcy.” And for broader information on recovering from tough financial situations, see Nolo’s articles on “Improving Credit After Bankruptcy.”

The rules remain strict — you are likely to have to wait at least two years after the foreclosure, and to come up with a 20% down payment. But there’s a positive side to that, too. Lenders today are far less likely to allow buyers to sign up for high-risk loans that might ultimately lead to another foreclosure.

 

“For Sale” Signs Still Important Home-Search Tool

A recent Washington Post article, “Conn. real estate agent accused of stealing competitor’s for sale signs from in front of homes,” got me wondering: Are yard signs still that important? Or was this overly competitive agent skulking around in vain, in a world that’s become Internet-driven? (Allegedly skulking, that is.)

Here’s what the National Association of Realtors (NAR) tells us about how home buyers locate the place they want to buy:

Information sources used in home search:

  •     Internet: 88%
  •     Real estate agent: 87%
  •     Yard sign: 55%
  •     Open house: 45%
  •     Newspaper ad: 30%
  •     Home book or magazine: 19%

Yes, the Internet tops the list, but over half of home buyers still rely on a yard sign — and why not? Seeing a “For Sale” sign on a neighboring house is sure to get some buzz going. Not to mention the fact that if you see a house ad, and then drive by to take a quick look, the yard sign helps spot the place.

So, if you’re selling a house, make sure to use a yard sign. (Most everyone does, but some sellers have been known to refuse, for privacy reasons or because they’re embarrassed at having to sell when the reasons are financial.) And then make sure that sign doesn’t walk off during the night!

For more marketing tips, see Nolo’s articles on “Preparing and Showing Your Home.”

What These Crazy-Low Mortgage Interest Rates Mean for You

If you’re new to the housing market, take my word for it: Today’s interest rates are eye-poppingly low. A 3o-year fixed rate mortgage at 3.44%? A 15-year fixed rate mortgage at 2.83%? (Figures from Bankrate.com.) No, don’t take my word for it: The press is calling these “record lows.” As in, record for all of U.S. history. Even back when Grandpa was buying an ice cream cone for a quarter, his family was probably paying 7% on their mortgage.

If you’re in the market to buy a home, just sit back and enjoy. Or if you’d like to gloat, play with some online calculators and realize how much interest you’ll be saving over the life of the loan as compared with people who bought houses just a few years ago.

Using Bankrate’s “Mortgage Calculator,” for instance, I plugged in numbers for a 30-year fixed rate loan on a $250,000 house at 3.5% interest; and then the same loan at 6.5% interest. (Be sure to press the “Show/Recalculate Amortization Table” for a full rundown of interest payments and totals.) With the first loan at 3.5% you’d pay $154,140 over the life of the loan. (Gulp. Really, when you add it all up, even the lowest-interest mortgage results in a big pile of cash handed over to the lender.)

Now let’s look at the same loan at 6.5%. Total interest = $318,861. That’s a difference of $164,721. With figures like that, homebuyers today can afford a lot more house than they will be able to when interest rates rise again. (And there’s little doubt that they will, someday.)

If you already own a home, now’s a good time to think about refinancing — or perhaps even re-refinancing. But run some numbers on that first, too. You can do so using Nolo’s Refinance Calculator. The upfront costs of getting a new loan sometimes wipe out the savings. The key is to find your “breakeven point,” indicating how long it will take you to work off the initial closing costs by saving money on interest each month. If you expect to stay in your home for less time than it takes to reach your breakeven point, the refinance definitely isn’t worth it.

Should You Worry About Fraud When Buying a Home?

Various forms of real estate fraud are on the rise, the news tells us. The biggest one making headlines is “collusion,” which we’re told affected fewer than 5% of real estate transactions before 2009, but doubled by 2010, and then fell only a little, to 6.8%, in 2011. (See “Housing prices: Agents make houses sell for a lot less. On purpose,” by Schuyler Velasco of the Christian Science Monitor.)

Also called “flopping,” this  form of fraud is not likely to affect you as a homebuyer — it simply means that home sellers convince the bank to let them sell the house “short” (for less than what’s owed on the mortgage), sometimes by tearing up the lawn, painting false cracks, and otherwise making it look bad; then they sell it to a friend or family member; then happily roll in profits when that person makes big bucks reselling the place a day or two later. The bank/lender is the primary victim of this crime.

Then there are the various schemes and scams that prey on homeowners having difficulty paying their mortgages; see, for example, the video “ConsumerWatch: Real Estate Fraud On The Rise In Bay Area.”

But when it comes to simply buying a home, the type of fraud you should probably worry about the most concerns the seller’s representations about the house’s condition. In most U.S. states, sellers are required to fill out a disclosure statement, itemizing the house’s features and pointing out any known defects. (Even in those states that don’t legally require it, savvy buyers can negotiate to receive such a summary.) Unfortunately, the disclosure forms don’t require the seller to actually investigate the property, and they often contain opportunities to fudge an answer (such as the option to check a box saying “unknown”), leading some sellers to turn a blind eye to problems.

That’s why any home buyer with an ounce of sense will also make the sale contingent upon the right to hire one or more home inspectors, and to be satisfied with the results of the inspectors’ reports. A trained home inspector will examine the house from roof to basement, test the various working systems, and point out defects concerning everything from wiring to leakage to foundation issues.

Those two protective mechanisms, the disclosure report and home inspection, are usually enough to uncover the biggest problems with a house.

And yet . . . some home sellers manage to perpetrate more serious forms of fraud, even under the nose of the home inspector. Attorney Ken Goldstein of Massachusetts, for example, says: ““One of the most blatant cases I’ve seen was where, a few weeks after the sale, the new owners heard a crash from the basement. The ceiling—one of those drop structures with a metal framework and tiles fitting in the grid—had just collapsed. The tiles were all soaking wet. Suspiciously, an old kitchen pot was sitting within the wreckage. It turns out there was a leaking pipe up there, and the sneaky seller had apparently removed a tile and put in the pot. That worked to hide the problem through the closing date—but then the pot overfilled.”

Oops. When something like that happens, it’s time to read Nolo’s article on “Home Defects: Sue the Seller?“.