Category Archives: Shopping for a Home

Friday Real Estate Fun: Ideal House Features

kittyOne of the fun parts of shopping for a home is dreaming about all the great features you’d like to find there — and then maybe being surprised by a few that you didn’t expect or know existed. With that in mind, check out “27 Things That Definitely Belong in Your Dream Home.”

Me, I like the hidden room — it evokes childhood reading about castles full of secret passageways and oubliettes.

Of course, homebuyers will have to listen to the voice of practicality all too soon, and I’m not just talking about affordability. Look at how many commenters pointed out what the neighborhood cats are likely to do with the sandbox! For more on practical matters, see the “Choosing a House” section of Nolo’s website.

 

When Is a Room a Bedroom?

bedSquare footage? Who cares about square footage? It’s the number of bedrooms in a home that’s usually the key indicator when sellers advertise and buyers search for homes online.

Which raises the all-important question: What’s a bedroom?

In real-estate tradition, a bedroom is a room that has a closet as well as a door you can close. Makes sense: If you’re going to sleep in a room, you’ll want to be able to close the door. And when you wake up, you’ll want to grab some clothes from the closet.

From the standpoint of the seller, this standard means that you’ll have trouble fudging the number of bedrooms. Clever staging won’t do it: Just putting a bed into a room doth not a bedroom make.

Unfortunately, that doesn’t stop some sellers from trying to expand the definition of a bedroom. I recently attended an open house for a place advertised as three-bedroom. The upstairs level clearly had only two.  The basement was unfinished. The main floor seemed to have all the normal rooms you’d expect on a main floor, with nothing resembling a bedroom.

I asked the agent, “Where’s the third bedroom?” Ruefully, she inclined her head toward a space off the living room that was obviously a den, with a couch and TV. No closet. The agent explained that the seller had once used this as a bedroom, and knew that people would prefer more bedrooms, so the seller insisted on advertising it as a bedroom.

Now, it’s true that buyers prefer more bedrooms. But for the buyers who really need a third bedroom for their large household, a room with no closet just isn’t going to cut it. They’re going to feel nothing but disappointment as they view the home.

And for the ones who are looking for a third bedroom because — as is common — they need a home office, there’s a perfectly good way to advertise it. Call it a bonus room! You see it in listings all the time, and the home-office seekers pick up on this quickly.  Such buyers might even prefer a home that doesn’t come with the price markup that’s expected for an additional bedroom.

Last I looked, the three-bedroom — no, make that two-bedroom — house I visited was still on the market.

In Housing Limbo, Sellers Scramble to Find New Homes

IMG_4418“I really hope I don’t have to move in with my mother-in-law.”

“I’ve had to move into a rental in a scary part of town — there goes my down payment for the next house.”

“Well, at least my parents haven’t done anything with my old room.”

These are all from stories I’ve heard on the local, Bay Area grapevine.  Anecdotal accounts, it’s true. But I’d hazard a guess, from the current state of the real estate market, that plenty of other recent home sellers are having the same trouble.

They couldn’t afford to buy a second house before selling the first one — banks aren’t exactly sympathetic to carrying two loans these days. But after the sale is done, they have nowhere to go. Inventory is low, and in this part of the country, multiple offers are becoming normal again — at tens or even hundreds of thousands of dollars over the list price. (Remember when the market felt so slumped that it could never unslump? Weird.)

The only silver lining to the low inventory is that buyers are often so grateful to be in contract to buy a home that they’ll bend over backwards to accommodate sellers’ needs to stay a little longer, an arrangement outlined in Nolo’s Q&A, “What happens if we’ve sold our old house without buying a new one?” But even the most sympathetic seller isn’t going to want to wait around forever.

Scary Stats on How Quickly People Buy a Home

IMG_4403According to the National Association of Realtors® Profile of HomeBuyers and Sellers 2012, typical U.S. home buyers spend a mere 12 weeks searching, and view only around ten homes, before settling on the one they ultimately buy.

Let’s think about that for a minute. Twelve weeks. About three months.

That’s a very short time, in which a whole lot has to happen. The front end of the transaction alone is plenty time-consuming — prospective buyers occupy themselves viewing houses online and on foot, meeting with realtors, researching comparable values, writing up offers, negotiating over a purchase contract and repairs, researching and applying for mortgages, arranging for home inspections, buying homeowners insurance, and so on, until the deal is closed. (The closing usually happens about six weeks after the buyers’ offer is accepted by the seller.)

Behind the scenes, of course, there’s plenty more going on: Clearing out closets, holding a garage sale, trying to figure out where the hell you tossed your last pay stub because the mortgage broker has to have it right this minute, researching moving companies, finding new schools and doctors, and oh yeah, trying to hold onto your job in the midst of all this, because you’re going to need it to pay the bills.

Intimidating enough picture for you? This should serve as a reminder to get as much done as possible BEFORE you get serious about househunting. At least the clearing out of closets can be done well in advance.

In fact, the item that should perhaps go at the top of your “Do it now!” list has to do with another scary statistic, this one from the Federal Trade Commission: Around 5% of consumers find errors on their credit reports — errors serious enough that they could end up paying more for loan products such as, oh, I don’t know, maybe a mortgage?

Let’s bring in another important number: It can take up to 45 days to get credit report errors corrected, as described in Nolo’s article, “How Fast Can Home Buyers Improve Their Credit Score?” Yup, some advance work could really pay off.

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.

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.

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.

“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.”