Category Archives: Shopping for a Home

Reasons to Spend Longer at an Open House

IMG_4113If you’re a recreational open house visitor (as I am) or a serious buyer who can tell at first glance that you don’t like the place, walking through an open house can take as few as five minutes.

If, however, you’re seriously interested in a house that you’re touring while it’s open to the public, there are ample reasons to stay for a good long time — longer even than your instincts might tell you.

You may, for example:

  • Overhear what other visitors are saying. A second, third, and additional set of eyes is always useful in forming your own judgments. Other visitors may notice flaws that you hadn’t, or open a door that leads to space you wouldn’t have otherwise noticed.
  • Overhear the real estate agent answering visitors’ questions. Information that isn’t on the listing or advertising materials may be relevant and important — perhaps regarding an upcoming change in the neighborhood, indications of how many offers have come in so far, or the history and scope of remodeling work. Some agents will even unwittingly reveal aspects of the sellers’ personalities.
  • Pick up on the “buzz.” You don’t even have to hover too near other lookers to get a sense of whether they’re excited by the place or not. Are they looking bored, plugging their noses, and leaving quickly? Or pulling out tape measures and cell phones? Such information is highly relevant in setting your own offer price, if any — too much excitement, and you’d better be planning to bid over the list price.
  • Notice things that won’t necessarily appear within five minutes. For example, if a neighborhood fire station discharges regular vehicles with blaring sirens, or a train passes by every 15 minutes, it will help to know exactly how loud they are.

By the end of all this, you yourself may have some good questions to put to the listing agent! Just make sure to be clear on whether you’re already represented by an agent of your own. Otherwise you could find yourself facing a hard sell, as the agent makes a pitch to represent you as well as the buyer (a dual agency arrangement that we don’t recommend).

Unpermitted Construction by Former Homeowner May Affect Current Owner

outhouseRemember last week’s blog post, “Of Mice and Moss: Tales of Unexpected Homeowner Expenses“? A significant number of people contributed tales of — to quote one of them — “stupid repairs and improvements of previous owners.”

This of course raises the question, why weren’t the issues revealed during the home buying process? My guess is that they’re precisely the types of issue sellers are least likely mention on the disclosure form mandated in most states. After all, the sellers think of disclosures as where they list and describe problems with the property,  such as an aging roof or a crack in the basement floor slab.

But that beautiful new tile that they installed in the kitchen? That’s not a problem, it’s a handmade masterpiece! (Never mind that it ripples in a few places.) And the new bathroom that Cousin Ed created where the back porch used to be? Perfection itself! So perfect that they didn’t bother taking out a permit for it! (The inspector might not have understood Cousin Ed’s avant garde pipe installation style.)

If the former owner could live with some slapdash construction, the current owner sometimes can, too. However, complications arise when it comes time to sell the place yourself. What do you tell the buyers? Do you have to fix the problems? To shed some legal light on these issues, we’ve posted a new article to the Nolo website, “Discovering Unpermitted Construction When Selling Your Home,” by attorney Allison Nash.

Knowing Your Home Inspector’s Background May Change Everything

roofAs a reader of Nolo’s books and articles on real estate, you probably know that we recommend that home buyers ALWAYS include an inspection contingency in their purchase contract. That allows you to hire one or more licensed home inspectors to do a full report on the house, and to close the deal only if satisfied with (or able to negotiate around) whatever problems the report turns up.

But Patricia Wangsness, a broker with Coldwell Banker in Washington State, adds some important cautions to this advice: “Realize that inspectors are not all alike! Even if you hire an inspector who is fully licensed, you might find that one who is a former electrician will tell you a great deal about faulty wiring and sockets and deemphasize some other issues, while one who’s a former plumber will look hardest at drains and pipes.”

What’s going on here? Aren’t you hiring the person to conduct a “general” inspection of your home?

“Yes,” explains Patricia, “but inspectors arrive at this career in different ways. Some came from the building industry during the downturn, when they lost their jobs. Others simply decided that inspection was easier than what they were doing before. I’ve even heard media ads for inspector training courses, with taglines like, ‘Make your own hours! Work only three days a week!’”

This can be a serious issue, given the breadth of a standard home inspection. The inspector needs sufficient knowledge to evaluate most of the home’s features and systems. He or she should walk through the entire house, examining or testing for defects or malfunctions in its structure, systems, and physical components, such as the roof, plumbing, foundation, fireplace, doors and windows, electrical and heating/cooling systems, and so forth. The inspector will also check the exterior of the house for grading and drainage issues, problems with retaining walls, and more. (See the “Home Disclosures, Inspections, and Appraisals” section of  Nolo’s website for more information.)

As a buyer, you can understand why this makes it especially important that you do your research before choosing an inspector. Even if you find one whom you’re confident is highly trained and regarded, finding out details concerning his or her background might help you understand various related issues in the transaction – such why the inspector is focusing more on some problems than others, or perhaps why the seller responds to a request for repairs with, “But we did a pre-sale inspection and that never came up as an issue!”

If you’re a home seller, this insight might even weigh against getting a pre-inspection with the hopes of fixing up problems before putting the house on the market. As Patricia explains, “You might repair all the problems the inspector tells you about, only to have the buyer’s inspector come up with a list of new defects!”

Millennials Are Hip to All the Bidding-War Tactics

firewkIf you’re shopping for a home in a hot market — of which there are many, such as Riverside,  Sacramento, Las Vegas, and Oakland — chances are you won’t be the only one making an offer on any given home. And that spells a bidding war.

It’s a war with an invisible enemy, given that you aren’t likely to know who you’re bidding against. And there’s little back and forth — you have to make your best offer and wait to see whether it’s the chosen one.

Typically, the savvy listing agent will schedule a day for presentation of offers, during which a line of buyers’ agents will troop in to deliver the written documents and make a case for why your offer should be the one the seller favors above the rest.

Chances are pretty good, however, that the other bidders will include some “Millennials” — that is, young-ish people born between 1977 and 1992.  And according to a Trulia study cited in Forbes magazine, the Millennials are the group most likely to pull out all the stops and use “aggressive” bidding tactics.

I got a little worried upon first reading the word “aggressive” in the headline, picturing fresh-faced young ‘uns stalking other prospective buyers and slashing their tires, or resorting to underhanded negotiating tactics. No, it turns out they’re just ready and willing to unleash the full volley of tried-and-true ways to make their bids stand out, such as writing a personal (and mildly pleading) letter to the seller, bidding an amount over the asking price (duh), asking friends and family for a loan to help fund the purchase, and removing contingencies from the offer (such as inspection or financing).

Still, the fact that the other age groups surveyed were LESS likely to adopt any and all of these tactics suggest a bit of heel-digging-in. Wannabe buyers who make conservative, “not a penny over asking” offers rarely win bidding wars, and may end up spending more than they would have as home prices eventually outpace them. See “How do I make sure my home purchase offer is the strongest?” for more information.

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.”