Category Archives: Homebuying

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.

The Seller Has No Place to Move to Yet: Will Your Purchase Close?

IMG_4405Found a house to buy? You’re probably feeling lucky, while many other home buyers remain frustrated at the present dearth of “For Sale” signs (not to mention properties). Low housing inventory breeds low housing inventory, with sellers thinking, “How can I put my house on the market when I don’t know if I’ll be able to find another house to buy?” along with “How can I afford to buy another house until I’ve sold this one?!”

Would-be home sellers are all but stuck — unless a buyer is willing to sign onto a so-called “seller purchase contingency.”  This portion of (or addendum to) the home purchase contract says that the deal will not close unless the seller finds another home.

If you’re the buyer, and you love the house in question enough to risk either waiting extra time for it or losing it altogether, you might want to sign onto such a contingency. But read its terms carefully first, and sound out your seller. In particular, you want to find out how far down the road toward a new house the seller will contractually need to be before your sale will close, and what steps the seller has already taken toward finding a new home.

As pointed out by Bob Hunt in the RealtyTimes article “Seller Purchase Contingencies Require Care,” the California Association of Realtors (CAR) has issued a new (as of November, 2012) addendum for just this purpose, called the “Contingency for Sale or Purchase of Other Property.” (Note: It’s not that this contingency is a new concept — real estate agents could, in the past, add language to this effect in California as well as in other states — but the contingency has become more commonly used, which apparently led CAR to issue the new form.)

The language in the new addendum is favorable to California buyers, requiring only that sellers have “enter[ed] into a contract to acquire replacement property” within a certain number of days (17 is suggested in the contract) in order to remove the contingency and allow the original deal to close. In other words, buyers who sign this addendum don’t have to wait around to make sure that the sellers’ deal actually closes on time or at all — they just need to hope that the sellers get as far as a signed agreement with another home buyer (and actually removes the contingency).

Seventeen days isn’t a very long time in which to not only find a house but enter into a purchase contract. You may want to give the sellers more time to begin with. But to make sure you’re not going to be strung along for nothing, it’s also worth making sure the sellers have been taking the appropriate steps toward finding a house.

California Realtor George Devine (co-author of Nolo’s How to Buy a House in California) says, “The seller is motivated to act in good faith here — otherwise he or she risks losing you, the willing buyer. Nevertheless, in a situation like this, you (most likely through your agent) should be asking pointed questions of the seller, like, ‘Why are you selling? How many houses have you already looked at? Have you made an offer on any? If so, at what stage are the negotiations?’ If, for example, the seller hasn’t really looked around at all, but wanted to test the market and see what price his or her house would command before taking the next steps — or is already in escrow, but with a 180-day closing period — you might want to think twice. “

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.