Category Archives: Homebuying

Buy Small, Save Big

Remember the days of stretching to buy as much house as you could possibly afford? Once upon a time, it made sense, given that you’d be sitting an a rapidly appreciating asset. But now that real estate appreciation is looking like a thing of the bubbly past, it may be time to shift focus to the advantages of buying less house than you can afford.

That’s exactly what Money magazine did in its April, 2012 issue, under the article, “Buy Less House Than You Can Afford.” (Note: The online version is much shorter than the print one.)  Money compared the long-term financial implications of two different home purchase possibilities:

  • a 2,000 square-foot house, with a purchase price of $239,000, and
  • a 3,000 square-foot house, with a purchase prices of $389,000.

They assumed a 20% down payment, a 30-year fixed-rate loan at 4% interest, and other costs, such as insurance, taxes, maintenance, increasing at 3% per year.

Meanwhile, they calculated how much you would earn if you took the money saved on the sale and upkeep of the house and invested it at 6% per year. (That rate of return may be a little optimistic, but hey, we’re talking about a 30-year window.)

The drum roll please: By buying the smaller house, Money found that you would, after 30 years, have socked away an extra $1,016,800. Of course, that assumes that you actually save the money. Spending it bit by bit will destroy the advantages of earning interest or dividends, not to mention ofcompounding those earnings.

State of the Real Estate Market: Willing Buyers, Reluctant Sellers

A recent article in the Marin Independent Journal (of California) tells a story we’re hearing a lot of these days: A young couple is actively house-hunting, knowing that the market is unlikely to go any lower, yet unable to find what they want among the limited choices out there. (See “Marin Home Prices Are Down, But for Buyers, Choices Are Scarce,” by Will Jason.) The husband says they’re being patient, but the wife amends that to “Semi-patient.”

They’re a perfect representation of the statistics recently cited by Amy Hoak in The Wall Street Journal‘s MarketWatch: Seventy-one percent of 1,000 people surveyed by Fannie Mae last December said they think now is a good time to buy a house, while only 11% think it’s a good time to sell one. (See “It may be a good time to buy, but not to sell.”) The Marin couple is, unfortunately, also a good example of how buyers who wait too long to see the house they want at a bargain price may ultimately lose out.

The advice for sellers in Hoak’s article is that waiting is a good idea — just one more year, and sales are likely to become faster and more profitable. As soon as prices start to tick up, more sellers will willingly put their houses on the market. Good news for buyers’ choice, but maybe not such good news for buyers when it comes to prices . . . .

 

Did Your City Make the Top Ten List for 2011 Home Price Increases?

Thanks to Inman News for creating a list, complete with pretty pictures and exact percentages, of all the metro areas that saw, according to data from the National Association of Realtors, the greatest hikes in home prices over the last year.

This top-ten list contains good news for sellers and owners in those areas. On its face, it contains bad news for buyers wanting to get into the market . . .  except that, with sellers feeling more assured of receiving a decent price, some of them might decide it’s time to sell after all. That will increase the range of choice for buyers, who have been complaining that they’d happily buy now if they could only find a house they liked.

Just to be a spoiler, I’ll reveal the whole list to you up front. But with no pretty pictures. Here they are, starting with number one:

  • Fort Myers-Cape Coral, Florida
  • Shreveport-Bossier City, Louisiana
  • Metro: Washington, DC (Virginia)
  • Fort Wayne, Indiana
  • San Antonio, Texas
  • Washington, DC
  • Peoria-Pekin, Illinois
  • Fort Lauderdale, Florida
  • Omaha, Nebraska
  • El Paso, Texas

Gee, not even one city in Nolo’s home state of California made the list!

Unexpected Homebuyer Expense: New Cookware for Induction Stove

I thought I knew a thing or two about cooking, but when a friend told me that she’d recently bought a house with an “induction” stove, I had to ask, “What’s that?”

Turns out it’s touted as the hot new thing (or old thing, among cooking professionals); a method of cooking that’s not gas, not electric (or not exactly), but . . . electromagnetic. Instead of the traditional heat transfer from burner to pot of food, the burner/stovetop elements generate a field that causes the cooking pot to become hot on its own. Or something like that.

It’s fast, it’s precise, and no heat is wasted. Your kitchen doesn’t get as hot, and your cat can walk across the stove without suffering burnt paws.

But here’s the part of it that seems a bit iffy from a home-sales perspective. The seller didn’t tell the buyers about it in the disclosure forms, nor advertise it in the sales literature. My friend didn’t find out until the final walk-through, just before closing.

Which might not be a problem, except that guess what: You can’t necessarily use your normal pots and pans on an induction stove. You have to buy iron or steel ones that will do the right magnetic thing. Bye-bye aluminum, copper, or glass cookware.

“It was frustrating, because we’d just gotten married and had all this beautiful new non-stick cookware,” she says. “Our favorite pots and pans all gave us error messages when we tried them on our new stove. So did the new stuff that my husband laid out money for online, even though it had been advertised as induction-stove friendly. We’ve been eating a lot of microwaved dinners lately.”

How’s that for an unplanned budget item? (Or items, if you count all the prepared-food costs for nights of microwaving.) Sellers, I think buyers might want to know about this one — both because of the pros and the cons. While technically speaking, it might not fall within your disclosure obligations — which mainly include defects (and a high-tech stove can be seen as a property enhancement) — the old maxim about “When in doubt, disclose” seems apt here, if only for the sake of good buyer relations. For more information on what sellers must disclose, see Nolo’s article, “Required Disclosures When Selling Real Estate.”

Staging Lesson #3: Don’t Forget the Tuscan Landscape Prints

To judge by the open houses I’ve seen lately, framed prints of Tuscan landscapes — with shapely cedar trees, winding rivers, and perhaps a splash of red poppies — are basically de rigueur. Can’t sell a house without ‘em.

Home stagers must have bought up warehouses of these prints.

In fact, once you start noticing their ubiquity, you’ll see the same syndrome in dental offices, hotels, and so on.

It makes me wonder: Who’s the artist, and is he or she getting rich? Or gnashing his or her teeth at having sold away the rights to some printmaking company?

Here’s another photo, from the staging on the house I now live in. I’ve tried to figure out which artist it is, but no luck. For one thing, on places like art.com, it appears that several artists have cottoned on to this trend, and are supplying infinite (if slight) variations on the Tuscan landscape theme.

Do I think a little art originality might be nice? Yes. Is it a little weird that home sales in the U.S. apparently require images of landscapes in a country that the buyer may have never visited? Also yes. But if you’re trying to sell your home and you want to go with what’s safe and apparently working right now, you’ve got some decisions ahead of you: Should the river be on the left or the right? Poppies or no poppies? Happy shopping.

Wouldn’t Any Homebuyer Want to Know About a Murder/Suicide on the Property?

The big news in real estate law these days is a decision by the Pennsylvania Supreme Court holding that a home buyer has the right to sue the seller and the real estate agent for neglecting to disclose a murder/suicide that had taken place in the house for sale. (See Milliken v. Jacono, 2011 PA Super. 254). The crime took place in 2006, when Konstantinos Doumboulis, who owned the home prior to the Jaconos, allegedly shot his wife and himself, leaving his children to call 911.

It was a crime that made the news, such that two professional real estate appraisers stated (on behalf of the buyers) that the property was worth 10-15% less as a result. The buyers themselves stated that they wouldn’t have bought the place had they known.

The Milliken case is based on a Pennsylvania law requiring sellers to disclose “material defects” in a property during the sales process. Nearly every U.S. state has a similar law, or common law concept, mandating that sellers tell prospective buyers what they know about the property — instead of withholding key facts that might affect how much the property is worth, under the bad old rule of “caveat emptor” or buyer beware.

The Pennsylvania supreme court’s decision doesn’t seem too surprising, although it was hardly inevitable, given that the trial court had ruled in favor of the sellers. Court decisions across the U.S. have emphasized home sellers’ responsibilities to be upfront about the condition of the property — not just regarding physical defects, but other matters that may affect what an ordinary consumer would be willing to pay. A classic example is the 1991 Stambovsky v. Ackley case, from New York, holding that the sellers of a Victorian mansion that had become the site of local haunted house tours should have told the buyers about its supposed ghostly inhabitants. (For details, see “Buying a Haunted House: How Will You Know Beforehand?“)

One thing that does stand out about the Milliken case, however, is the home sellers’ assertion that they asked their real estate agents something along the lines of, “Should we tell the buyers that they’ll be living on the site of a recent murder/suicide?” and the agents said, “No need.” That’s a rather large “oops” on the agent’s part, and a reminder that agents are not lawyers, and should not be looked to as the last word on such matters. Not that all home buyers need a lawyer in order to fill out their disclosure forms, but given the general real estate wisdom that sellers should err on the side of disclosure, specifically to head off the possibility of lawsuits, I would have thought the agents themselves would have had the wits to advise the buyers to consult a lawyer.

For more information on disclosure requirements and best practices, see Nolo’s article on “Required Disclosures When Selling Real Estate.” And if you’re a home buyer, do your research before relying entirely on the sellers’ disclosures! A little Googling about the previous sellers might have turned this news story up.

Rent vs. Buy: It’s All About Whether You Can Save

You can track the local trends, run numbers through the online calculators, and so on. But in the end, according to what Eli Beracha, co-author of “Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise?” told Amy Hoak of the Wall Street Journal, “We find that if people don’t invest the money [that they save by renting], actually about 90% of the time, you’re better off buying.”

So instead of thinking of a home as an investment, perhaps we should start referring to it as a forced savings plan. Read all about it in the full article, “Making a New Case for Home Buying.” And for more help with everything from affordability to inspections to mortgages, see the Buying a House section of Nolo’s website.

Parents Helping WIth Kids’ Home Purchases

The trendspotters are out in force, noting that the tight mortgage market is prompting kids to get financial help from Mom and Dad, in order to take advantage of low real estate prices and buy their first home.

Some wannabe buyers are asking their parents to cosign onto a bank loan, as described in Shandra Martinez’s article in the Grand Rapids Press, “More parents helping their grown kids buy first homes by co-signing mortgage loan or providing financing.” But that has some downsides for the parents’ credit rating — they’ll be viewed as, in effect, having taken on more debt, and their credit will suffer if the buyer defaults. Learn more in Nolo’s Q&A, “Should we cosign for our son’s mortgage?

Other buyers are going straight to the “Bank of Mom and Dad,” as described in Sandra Block’s article in USA TODAY, “More parents finance their kids’ mortgages.” That has the advantage of keeping all the interest income within the family, as further described in Nolo’s article, “Borrowing From Family and Friends” (which also offers tips on preparing the paperwork).

 

 

Is “As Is” Really “As Is” When Buying a Home?

At last, someone has written a cogent explanation of what the buyer should (or has a right to) expect when buying a house “as is.”

Frankly, I’ve been confused by the differing accounts I’ve read or heard — some say “as is” means that you pays your money and gets what you gets, no basis for price reductions (or later lawsuits)  if any repair needs turn up. Others say that you can still include an inspection contingency and ask for repairs — which makes one wonder, “In what sense is that sale ‘as is?’”

So, big thanks to Tara-Nicholle Nelson for her article “Buy real estate ‘as is,’ use inspection contingency,” syndicated by Inman News.  I haven’t been able to find the article online yet (I read it in the Montclarion), but it’s sure to turn up one of these days.

In the meantime, here are the most important points:

  • The meaning of “as is” varies by state.
  • In most states, it means the buyer takes the property “as disclosed.” So anything the seller revealed to the buyer ahead of time, such as a leaky roof, becomes something you cannot go back and negotiate over. Any surprises regarding the house’s condition, however, are fair game for negotiation.
  • In a few states, it doesn’t matter what the seller told you, “as is” means you accept the risk of flaws in the property.
  • Regardless of what state you’re in, insist that an inspection contingency be included in your offer.  That way, if the house’s repair needs turn out to be more than you want to take on, you can at least back out of the sale without losing your earnest money deposit. You might even be able to negotiate with the seller despite the “as is” clause, with the seller’s willingness to pay for repairs or agree to a price reduction dependent on how eager he or she is to sell. (But, as Nelson points out, it would be unethical to try negotiating over issues that were disclosed by the seller from the beginning. )

And, a final tip from me: Remember to choose an inspector with a reputation for giving houses a detailed once over. Get independent recommendations — some real estate agents, unfortunately, will recommend inspectors who soft pedal problems and therefore ensure that the deal goes through.

Short Sales Still a Long Process in California

Remember my post last year, called “Short Sales: A Trap for the Unwary?” It described how short sales weren’t always the deal they seemed to be for sellers, whose credit rating suffers more than people realize, and whose lenders, if and when they finally get around to approving the deal, might sneak in language making the homeowners agree to continued liability for the remaining mortgage debt.

Well, I wish I could report that things have improved, but according to a recent report in Realty Times, by Bob Hunt, California short sales have gotten more difficult than ever, impacting buyers as well as sellers. Fewer than 3 in 5 short sales even closed successfully last year, and the lender-approval process often took sixty days or more. Pending legislation to improve the process has gone nowhere.

Is it time to rename this a “long sale?”