Category Archives: Homebuying

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?“.

The House That Got Away; Or, When Are You Safely in Contract?

A real estate market that’s heating up in various regions of the U.S. doesn’t only mean higher prices: It also means some buyers need to pick up the pace and deal with competition for the houses they want. That competition can lead to “ouch” scenarios like the one faced by clients of Spokane real estate broker Michael Crowley.

While still negotiating the final contract, says Crowley, the buyers “decided to counter on a minor detail, moving the seller’s requested closing date by three days to accommodate a birthday party. That counter kept the offer open just enough for another buyer to show up with a better offer. The buyers were not happy, but I had clearly warned them of the risks.”

Such eleventh-hour switches in seller loyalty can be confusing to buyers. By now, they’ve already been told that the seller likes their offer and wants to work out a deal. Some buyers even believe (mistakenly) that because they got there first, they’ve established some right to the house, such that other wannabe buyers will just have to wait and see what happens.

The reality comes down to a basic matter of real estate contract law. As New York attorney Richard Leshnower explains: “Until you, as the buyer, have your hands on a contract of sale with both the seller’s and your signatures, don’t get overly excited—you’re not yet in contract.”

The concept of being “in contract” is vitally important. It means not only that the escrow process leading to the closing has been launched, but that the buyer and seller are mutually bound to go forward with the deal. (Exceptions are made when the contract terms and contingencies allow an out, as many do, for example if the home inspection turns up defects that the buyer can’t accept.) Once in contract, backing out without an agreed-upon reason comes with consequences, such as a potential lawsuit, or the buyer forfeiting the earnest money deposit.

The steps toward this safety zone of being “in contract” depend on state or local real estate practices. These vary to a surprising degree. In some states, such as New York, the buyer’s starting offer is a short document, and it’s up to the seller to draft a full sales contract for the buyer to review and suggest changes to, until both buyer and seller are ready to sign.

In other states, such as California, the buyer presents an offer that’s in the form of a full contract. All the seller would have to do is sign and return it to the buyer, and they’d be in contract. More often, however, the seller will make some adjustments and return a very similar document as a “counteroffer,” which the buyer can either sign (thus creating a contract) or respond to with another counteroffer, and so on.

No matter where you’re buying a house, however, the procedures and the possibility of counteroffers tend to leave plenty of wiggle room for a seller who sees a better offer come along at the last minute. Leshnower says, “I know of situations where sellers have accepted a better offer that came along while their contract with the first would-be buyer was being mailed to them for signature.”

The bottom line: If you love a house, and are worried that other buyers are circling, do everything in your power to get into contract. Postpone the birthday party, hand-deliver your signed contract to the seller instead of waiting for the mail to get it there, or do whatever it takes. Having an experienced real estate agent at your side, who has established good working relationships with other local agents, can also help here. Michael Crowley says, “There are a few homes in our market that will sell overnight, and I can often call the selling Realtor to see whether other offers are expected and to get some assurances that I’ll be notified if one comes in.” But in the end, notes Leshnower, “A lot depends on the seller’s good faith.”

There’s a Reason You Can’t Find a House to Buy

Deciding that you’re really ready to buy a house and finding an actual house to buy are two different things — especially in the current market. If you’ve been scanning the home listings or visiting open houses and thinking, “Why don’t I see anything that looks good?” it’s probably not your imagination. It’s not even your innate fussiness.

A shortage of housing inventory is affecting many parts of the United States. This issue, and the multiple reasons for it, were major topics at the recent conference of the National Association of Real Estate Editors (NAREE) in Denver.

Curt Beardsley with Realtor.com observed, “Total for-sale inventory is 20% down. That means we’re down to about 1.8 million single family homes for sale, from 3.1 million in 2007.”

The most massive decreases in inventory, says Beardsley, are along the West Coast, in Seattle, Oakland, San Francisco, and San Jose. On the other side of the country, Tampa and Atlanta have the most limited offerings of homes for sale.

Here are some of the reasons the experts offered for the shortage:

  • Potential sellers feel trapped. According to Scott Ryles, CEO of Home Value Protection, Inc., “One quarter of homeowners are underwater today” (owe more on their mortgage than the home is worth, in cases where they have a mortgage) or they simply “can’t afford to move.” Even if these owners want to sell, the numbers just don’t add up for them — and won’t, until home prices rise.
  • Builders aren’t building. Before the crash, builders of new homes were adding to the nation’s inventory at three times the rate they are today, according to David Crowe, Chief Economist at the National Association of Home Builders (NAHB). Across the U.S., there are only about 50,000 newly built homes where the carpets are in and you can move in tomorrow, says Crowe. What’s more, it’s not easy for builders to reverse course and start building again. Crowe explains, “We’ve lost a lot of capacity; contractors, materials supply . . . No one has come back strong. Plants have been mothballed.”
  • Investors are turning single-family homes into rentals. As a potential buyer, you’ve got competition from investors savvy enough to realize that the rental market is stronger than ever. Margaret Kelly, CEO of RE/MAX notes, “Twenty five percent of home buyers now are investors. These are good investors, not flippers. They’re going to drive the recovery. Families who’ve been foreclosed on can’t qualify for a home. If you have kids, dogs, and so forth, you want a yard; you’re not going to move into an apartment.” Of course, if you want to buy a home, get ready to watch some of the bargains being snapped up.

This doesn’t mean that you should give up. Stan Humphries, chief economist with Zillow.com, believes that every time prices spike upward, it will “free some owners from negative equity, and you’ll see some surplus in supply for a while.” But hoping for low prices as well as lots of choices may be too much to hope for.

Staging Includes New Furniture AND New People?!

Whilst indulging in my favorite real estate fantasy reading — back issues of Country Life magazine, from England — I came across an article on home staging. (It was specially adapted for those selling multi-building country estates, of course.) The article credits the U.S. with having begun and “matured” the idea of dressing up one’s home for sale, which I thought was awfully sporting for a country that thinks we all live in McDonald’s parking lots.

The article goes on to say that U.S. stagers “now offer to move people as well as furniture into empty homes to give them the life they need to find a buyer.” Really? I have never, ever been through a staged home that actually had people in it. Would they be fashionably attired and draped across the sofa holding a cocktail, perhaps?

Determined to show the writer up for her anti-American snickering, I turned to Google — and whaddya know, us Americans live up to our stereotype. The Great Zillow has spoken, with an article entitled “New Staging Concept: Live-In Stagers.”

From what this article describes, however, the purpose of the live-in stagers isn’t so much to make their presence felt during showings, but to act as security and maintenance detail during the off hours. An excellent idea, in cases where the sellers have already moved and the home would otherwise be vacant. Back when I was selling my first home, I’d stop by every morning to turn on the fountain, and would almost always find something needing attention — an orange in the stager’s fruit bowl that had gone fuzzy-green with mold, a branch blown into the middle of the yard by the wind, flyers on the front doorstep, and so on.

Then again, live-human staging must have its disadvantages. They’ve got to put their toothbrushes somewhere, and keep the towels looking perfectly plush and fresh every day. Plus, I can imagine some odd interactions as visiting buyers, assuming they’re the owners, ask questions about the house, only to be told, “Don’t mind me, I’m part of the furniture.”