Category Archives: Homeownership Tips

Your Home’s Value: Who Wants to Know?

Paper house attached to yellow blank price tag on blue backgroundI normally don’t push syndicated content produced by nameless writers at marketing companies, but this article, “What’s your home’s price tag now?” makes some good points. (Despite an inappropriate title.) ((Could I be any more grudging in my praise?))

The idea is that, accustomed though we might be to thinking of a home’s worth as its likely sale price, there are actually three ways of looking at a home’s value. It depends on who’s doing the looking. These include:

  1. Market value (the likely sale price).
  2. Replacement value (costs of reconstruction, for insurance purposes, after a total loss).
  3. Property tax value (how much the government says it’s worth before sending you a property tax bill for several thousand dollars).

Understanding what each of these figures means, and how each is arrived at, will help you to both avoid confusion and know whether you’re paying an appropriate amount in taxes, covered adequately by insurance, and can sell your house for your hoped-for amount. The article itself explains these details well.

About that inappropriate title, however. Did you notice that none of these three figures would necessarily be the “price tag” that you’d place on your house if you were to put it up for sale?

Savvy home sellers do enough research (and get a Comparable Market Analysis or CMA from their real estate agent) to help them understand their property’s likely market value, but they then set a list price based on what will most likely reel buyers in.

Many sellers adjust the list price downward from the apparent market value, hoping to incite a bidding war that will ultimately take the price higher than they could have dreamed of listing it for. Then again, a seller may not want to set the list price too low, for fear that people won’t view the house as high-quality, or will wonder what’s wrong with it. See “Listing Your House: What List Price Should You Set?” for more on this topic.

There’s also one more measure of value that could have been added to this list: What amount the home appraises for. Before closing on a sale, the lender will doubtless require that a professional appraiser visit and attach a value to the property, as a way of reassuring the lender that it can foreclose for the amount it’s lending out. That appraised amount is supposed to be the “true” market value — but it’s sometimes less than buyers are actually willing to pay for the house, which can be a problem in some transactions. See “Low Home Appraisal: What to Do” for more on this.

Was Your Neighbor’s Dog Overlooked for the “Loudest Bark” World Record?

dog7_2Whenever I mention the recent news story about Charlie, the golden retriever in Australia who got the Guinness world record for having the loudest bark on the planet (and who can resist mentioning said story?) people have one of two reactions:

  1. I’m glad Charlie doesn’t live next door to me,” or
  2. “I bet the dog who lives next door to me would beat Charlie’s record.”

Given that (according to the Humane Society) 39% of U.S. households own at least one dog, adding up to a grand total of about 78 million dogs in this country, it’s fair to say that plenty of homeowners have experienced living next door to a dog. And dogs bark.

According to scientists, they bark to greet people, they bark out of alarm, and they bark as a warning. Dog owners could probably tell you about a few other barks, but it’s taking the science world a long time to admit that these aren’t just random “woofs.”

But back to the neighbor issue. Not every dog barks a lot, nor or at rock-band decibel levels like Charlie’s, but the ones that do can certainly be a nuisance — and I mean that in the legal sense of the world.

Mary Randolph, author of Every Dog’s Legal Guide, suggests, “If a barking dog problem in your neighborhood doesn’t improve after your efforts to work something out, it’s time to check your local laws and see what your legal options are.” Find out more in Nolo’s section on “Neighborhood Dogs.”

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.

 

Will This Be Your Year for Home Improvements?

No points for originality will be awarded to anyone currently thinking, “Gee, we can’t afford to move, so let’s remodel or add on to this place.” The amount of spending on such projects is set to double in 2013, according to a report from Harvard University’s Joint Center for Housing Studies. Homeowners are doing everything from retrofitting with the idea of aging in place to improving their homes’ energy efficiency. And some recent homebuyers or investors are finding that the distressed properties they now own will require some improvements, like it or not.

So, apart from their lack of originality, might home renovations be a good idea for you? Here are some issues to consider:

  • How will you pay for repairs? If you’ve got cash on hand, great. If you’ll be looking for a loan, and are underwater on your current mortgage, don’t bother. You will need equity to borrow against — 25-35% equity in your home, according to what Mark Yecies, an owner of SunQuest Funding in New Jersey, told The New York Times reporter Lisa Prevost.
  • Will the changes increase your home’s  market value? In the abstract, any home improvement should make your house more saleable, unless it’s truly weird, wacky, or suited to unique tastes and interests. But even sensible repairs with broad appeal don’t always cover their own costs when the homeowner sells, as described in Nolo’s article, “Do Home Improvements Add Value?
  • Will the costs reduce your capital gains tax bill when you sell? If your profits on an eventual home sale will take you over the $250,000 ($500,000 per couple) capital gains tax exclusion, it’s worth figuring out which of your renovations costs are considered “improvements” rather than mere “repairs,” and therefore which ones will raise your cost basis in the property (in effect, raise your purchase price and thereby reduce your profit). For more information, see IRS Publication 551, Basis of Assets, and look for the section on real property.

If all looks good, it’s time to start looking for a contractor. But get ready for some competition and possibly long waits. See “Hiring a Contractor for Home Improvements” for additional tips.

 

How the Fiscal Cliff Deal Helps Homeowners

The fiscal cliff deal (“H.R. 8″) reached on January 1, 2013 contains a couple of beneficial provisions for homeowners — tax-relief extensions that aren’t getting as much press as the rest of the bill. These include:

  • Extension of mortgage debt relief. A piece of the tax code that was due to expire at the end of 2012 allows homeowners whose mortgage debt was canceled or forgiven to exclude that amount from their income (up to a limit of $2 million or $1 million if married filing separately). If that doesn’t sound very exciting, realize that before 2007, homeowners who restructured their mortgages, gave the lender a deed in lieu of foreclosure, sold via a short sale, or in some other way discharged their obligation to their lender without paying the full loan amount were required to pay taxes on the difference. In other words, the amount of their debt that the lender had forgiven was considered taxable income, as if they had been handed that amount by the lender. The extension of this provision goes through tax year 2013.
  • Extension of PMI deduction. Homeowners paying less than 20% down are typically asked by their lender to pay “private mortgage insurance,” or PMI, which reimburses the lender if the homeowner can’t make the regular mortgage payments. PMI premiums were, from 2007 through 2011, deductible as “qualified residence interest” (like the rest of your mortgage interest). This deduction has been extended both retroactively (to cover 2012) and through 2013.  The deduction is phased out by 10% for each $1,000 by which the taxpayer’s adjusted gross income (AGI) is over $100,000. Thus, you can’t use the deduction if your AGI exceeds $110,000.
  • Extension of credit for energy-efficient home improvements. This one’s not likely to save you huge bucks, but Congress reinstated and extended through 2013 a 10% tax credit (under Section 25C of the Tax Code) for the cost of energy-efficient improvements to existing homes. This applies to such home features as windows, doors, skylights, fans, insulation, furnaces, and hot water heaters. Additional limits apply per item, and there’s a $500 overall limit for use of this credit.

See Nolo’s articles on “Finances and Taxes for Homeowners” for more information.

Maybe Money DOES Grow on Trees

Neighborhood trees have been getting a lot of good press lately. First there was writer Tim De Chant, who created an Internet sensation last summer after posting his “Income inequality, as seen from space” blog series. It showed satellite photos of rich and poor neighborhoods in various cities.

The contrast was stark, revealing in shades of green and gray that “rich people . . .  have a lot more trees than poor people.” That’s Tim De Chant talking to Matt O’Brien of the San Jose Mercury News, whose article “Gauge of Bay Area neighborhood wealth? Look to the trees” also quotes Forest Service Chief Tom Tidwel saying, “If you have a tree-lined street, property values go up.”

Next we have the October 2012 issue of Money magazine, in which Josh Garskof writes that a tree “may be contributing 8% to 10% [of] your home’s value, according to Scott Cullen of the Council of Tree and Landscape Appraisers.” Not only that, trees can save you money, as (Garskof continues) “a big shade tree will knock nearly $70 off annual air conditioning bills, says David Nowak of the U.S. Forest service, and a large evergreen that blocks winter winds will reduce heating costs by around $60 a year.”

Are we convinced yet? Of course, big trees can also be a source of worries and neighbor conflict. Nolo’s website offers a lot of useful guidance on legal matters relating to trees, in its “Trees and Neighbors FAQ” (with questions like, “My neighbor’s tree looks like it’s going to fall on my house any day now. What should I do?“) and the “Neighbor Disputes” section.

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.

Millionaires Stay Put in Their Homes: Should You?

“Take a cue from the rich,” advises the July, 2012 issue of Money magazine, and “practice patience” when it comes to homeownership. According to Money, millionaires tend to live in their homes for over 20 years. (They also tend to hold their stocks for long periods of time, not to mention their spouses; 96% don’t divorce or separate.)

How does that 20+ years in a home compare with the average length of time spent by the rest of the U.S. populace? Hard to say. (Money doesn’t even try.) According to an analysis of  2007 U.S. Census figures by Paul Emrath, Ph.D., of HousingEconomics.com (published here on the NAHB website), there’s a mix of homeowner types: The people who tend to move every few years and the ones who stay put for a while. Averaging these out doesn’t really provide an accurate picture of anyone at all — though one can say that the biggest group of homeowners stays in their home for up to 19 years, which is less than reported for the aforementioned millionaires.

So, assuming it is true that millionaires stay in their homes for an appreciably longer time than the 99% does, the question becomes: Is this actually helping them achieve millionaire status? Or is something else at work in creating this statistic?

The first thought that came to my mind was that perhaps a millionaire’s “starter home” is so much bigger and better than what you or I could afford that there’s simply no incentive to move. They can sit back in their poolside cabana and relax for a few decades. But no, Money supplies a surprising statistic here: Three times more millionaires live in homes worth less than $300,000 than in homes worth at least $1 million. (I guess you don’t become or remain a millionaire by spending all your money.)

Money also points out that by staying in one place, “You don’t lose money to transaction costs and you ride out market slumps . . . .”

I still question whether there’s a lesson in there for the rest of us, however. For instance, a lot of millionaires aren’t relying on day jobs for income, but on their investments; in which case, they have no need to, say, move to a new city in order to take advantage of a lucrative job offer. Worries about transaction costs and missing the boat to millionaire-dom certainly shouldn’t stop someone who DOES need to advance in their career from moving. And if I’m right that many millionaires don’t have to worry about commuting, maybe the houses they’re buying are sometimes cheaper because they’re located in remote rural locations.

Just in case, however, I’m planning to stay in my house for a good long time and wait for the millions to roll in.

Buying a Foreclosure Home With Tenants? Important Cautions

If you’re among the many would-be homebuyers looking for an affordable place among the vast stock of foreclosures, here’s an important tip: Factor into your research whether the foreclosure home in which you’re interested is owner or tenant occupied.

If the house is a rental, federal law gives the people living there certain rights, which may affect when you can actually move in. Specifically, the 2009 Protecting Tenants at Foreclosure Act (PFTA) says that:

  • month-to-month tenants must be given 90 days’ notice if a buyer at the foreclosure sale intends to terminate their tenancy, and that
  • tenants with leases can remain until the lease ends (but can be terminated with 90 days’ notice if an individual buyer intends to live in the property).

You’re looking at a minimum 90 days from the house purchase to its being empty and ready for you to start moving those boxes in the front door.

If you’re buying in California, there’s even more you should know: As explained by Nolo landlord/tenant expert Janet Portman, a March 2012 court decision from the Los Angeles Superior Court held that during the time that your newly acquired tenant lives in the house under the preforeclosure lease, the only way you’ll be allowed to deal with a failure to pay the rent is to use a 90-day termination notice — instead of the normal 3-day notice to pay rent or quit. The bizarre result of that is that the tenant would be able to live in your house for 90 days rent-free. For more on this issue, see “Termination for Rent Nonpayment after Foreclosure: 90 Days’ Notice?” and PNMAC Mortgage v. Stanko, Los Angeles County Superior Court Limited Jurisdiction, Case No. 11U04495, March 7, 2012.

 

Luxury Homeowners in Default Face Lower Risk of Foreclosure!?

If you want to work up a bit of 99% steam, read Felix Salmon’s excellent opinion piece in Reuters, called “Why banks are reluctant to foreclose on expensive homes.” Yes, the once-rich guy down the street who hasn’t paid his mortgage in months may still be enjoying life in his mansion while Joe Average gets both foreclosed upon and evicted.

The reasons, as Salmon explains, need not give rise to any conspiracy theories. Other than the fact that luxury homes are hard for foreclosing banks to to sell, a large part of the pattern has to do with Fannie Mae and Freddie Mac rules. These happen to apply mostly to mortgages on less-expensive homes that were resold on the secondary market. Still, it’s pretty galling.

In the meantime, plenty of homeowners still don’t know their rights when facing a possible foreclosure. For tips on that, see the Foreclosure section of Nolo’s free, online encylopedia.