Not Buying a House Is Okay, Too

mens roomsEvery once in a while, a journalist asks me to make the “case” for homebuying. That shouldn’t surprise me: I write books about homebuying, I own a home, and I love walking neighborhoods and looking at homes. I even have a little collection of tin houses sitting on my office shelf.

But let’s get one thing straight: Loving houses doesn’t mean I’m an “advocate” for buying one. It’s a lifestyle choice, and the financial outcome is anything but guaranteed. Some people can (with the right landlord) be perfectly happy renting their whole lives. They’re mobile, they can enjoy weekends free of home repair obligations, and if the place gets seriously damaged, they won’t be the one calling the insurance company.

Why am I bringing this up now? Because panic levels seem to be rising right along with interest rates, additionally fueled by headlines like, “Families Blocked by Investors From Buying U.S. Homes.” (This article makes the point that, with rising demand for rentals, investors are moving in with all-cash offers that individual buyers can’t match.)

So let’s refocus on other voices in the media, such as that of Kelly Phillips Erb, in Forbes, with “11 Reasons Why I Never Want To Own A House Again” and Carl Richards for The New York Times, in, “It’s Not Everyone’s Time to Buy a Home.” They discuss varied reasons not to buy, from the amount of interest you’ll plunk down to the fact that you are the only true expert when it comes to your own life.

If you decide to keep renting (and I’m not advocating for that, either!), the most important thing to do is understand your rights as a tenant.

Of Mice and Moss: Tales of Unexpected Homeowner Expenses

beesI’ve been doing a little research lately on how much a homeowner should expect to spend on home repair and maintenance. The experts have actually come up with a number: They predict you’ll pay out 1% – 3% of your home’s purchase price amount each year.

Seriously? How can a two-bedroom California bungalow, bought for $700,000 because it’s in an area of inflated prices with a good school district, cost more than twice as much to maintain as, say, a five-bedroom mansion in Buffalo bought for a mere $300,000?

And then there’s the sheer unpredictability of homeownership. I asked friends whether their homes had thrown any surprises at them, and oh, did I get a flood of replies. Here are some choice ones, which I’ve tried to group thematically:

CRITTERS, CRITTERS EVERYWHERE

  • “Approximately $800 to hire a state-licensed animal trapper to capture and remove a squirrel, five raccoons, and an opossum from my backyard in urban Los Angeles. The raccoons had established a ‘latrine’ that was a horrible mess and a health hazard.”
  • “Beehive in the walls, which cost $600 to remove.”

WATER EVERYWHERE, TOO – OR WORSE:

  • “Plumbing line replacement for older home with tree roots growing into the pipes — $8,000 to replace the line from house to street.”
  • “Tree roots growing into the sewage system, sewage backs into house, must pay to replace carpet, furniture and to fix the issue into the street…$20K later….”
  • “Flat roof eventually leaks causing wood rot.”
  • “I was stunned to discover that my home in urban Miami was not connected to the sewer system but had a septic tank. It failed, and I connected, at a cost of thousands.”

CURSE YOU, FORMER OWNER:

  • “Undoing the stupid repairs and improvements of previous owners. Like the unpermitted second bath that cost us $8,000 to retroactively legalize (for mortgage purposes).”
  • “Added costs of normal repairs (say, replacing a toilet) and discovering the plumbing underneath is below code and has to be replaced as well.”
  • “Undoing the bad building from the first remodel – constantly finding out how the guy who did it really didn’t know what he was doing.”

THERE’S SOMETHING GROWING ON HERE:

  • “Moss removal from the roof cost us $1,100.”
  • “Tree maintenance. Holy cow, it’s expensive, especially if you have redwood trees.”
  • “Recurring mold on the roof that costs about $1,000 per year to power wash.”
  • “It’s costing us several thousands to get our palm tree trimmed. Now I tell my kids: You’re not just getting a house, you’re going to be responsible for everything around it.”

WHO WOULDA THUNK?

  • “Cast iron radiator had a crack in it and it cost us $$$ to have it replaced and a new one installed.”

Does that cover the scope of possibilities? Well, not really, because then there are situations where your own life takes an unexpected turn, as one friend’s did when her husband was hit by a car. She says, “Making [the house] accessible was a matter of ramps outside, and taking out a kitchen wall and repouring the bathroom floor inside. Well, and now we’re building a 2nd bathroom on the back . . . [and] we actually have had to hire someone to help with yardwork and minor fixes.”

There’s really nothing more to say, except, “Expect the unexpected.”

Should Sellers Have Warned About Neighbors’ Holiday Lights Display?

holiday lightsHow would you feel as a new homeowner if, with Halloween barely over, you watch your neighbors get out ladders and start gearing up for a massive  holiday display — complete with lights by the thousands, inflatable snowglobes, an open garage full of displays, and music?

That might be cute for the first five minutes. Or if it were a mile away. But then your cat starts coughing at the fumes from the lines of visiting cars, the blinking lights create a horror-show strobe effect on your bedroom wall, and the tune to a certain carol takes up permanent residence in your ear.

So why is it that I’ve met scads of homeowners who say they weren’t advised of such neighborhood holiday shows by their home seller? In one case, it was the seller himself who was the local manic decorator — and didn’t warn the buyer to expect kids knocking at the door in December, wondering when the “Santa’s Workshop” in the garage would open.

Most states in the U.S. require sellers to warn buyers of not just physical issues with the home, but environmental or neighbor-related issues that could have a material effect on its value. In California, for instance, the Transfer Disclosure Statement asks about “neighborhood noise problems or other nuisances.” Not every light show is a nuisance, of course — but at close range, or when a house attracts unprecedented traffic levels, it’s no stretch to say the seller should warn the buyer. (Of course, most homes are sold in summer — and who’s thinking about holiday lights then?)

Oddly, I can’t find any record of U.S. lawsuits against sellers for failure to disclose local holiday light displays. It’s not as though buyers are shy about suing home sellers for nondisclosure, of everything from past crimes on the property to neighbors’ regular loud arguments and late-night parties.

And neighbors have brought lawsuits against the owners of homes with overwhelming displays alleging nuisance. (Perhaps that’s the more relevant path to getting results, given that a few bucks from the home seller isn’t ever going to fully compensate a homeowners for the lost sleep from those blinking red lights.) Some have even explored even more creative approaches — check out attorney Rich Stim’s blog on, “Can We Report Neighbor for Blasting Copyrighted Christmas Music?

Or could it be that homeowners feel just too Scrooge-like suing over what’s meant to be a bit of holiday fun? In any case, if you’re a home seller, you can avert some future bad feelings by telling your home buyer what’s ahead — or at least leaving them your Santa costume.

You’ll Scream When You See How Much Americans Spend on Halloween

basketHold on, a yawning gap has been revealed in Nolo’s accounting for likely first-time homeowner expenses: Halloweeeeen!

You think I’m kidding. But that’s because, back when you lived in Apartment A on the 14th floor, you didn’t have to worry about lining your front lawn with styrofoam gravestones or filling your candy bowl in preparation for hordes of little princesses or,  God forbid, Miley Cyruses.

Take a look at your neighbor. He’s probably already affixing a giant fuzzy spider to his front entryway. Americans currently spend a collective $1.96 billion on outfitting their home for this holiday. I’ll leave the “per-household” calculation to someone whose math brain wasn’t apparently eaten by zombies, but given that my household accounts for about $10 of that sum, you’ve got some serious slack to  pick up.

And beware: If you live in one of the zip codes identified by ZipRealty as the “best places to trick-or-treat,” your bowl of candy had better be cauldron sized. Here in the Bay Area, San Francisco’s “West of Twin Peaks” neighborhood made the list.

For more (and more serious) tips on budgeting for home ownership, see “The Essential Guide for First-Time Homeowners.”

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!”

Nolo Mourns the Loss of Real Estate Writer Broderick Perkins

BJBPerkinsA man of immense talents and creativity, Broderick Perkins was perhaps best known professionally for his real estate writing with the San Jose Mercury News and on his website, DeadlineNews.com.

Here at Nolo, however, we felt lucky that he lent his talents to various projects, including writing online articles (tackling tough topics such as “Seller Financing: How It Works in Home Sales” and “Mortgage Rate Locks: How They Work“) and acting as an adviser/reviewer for the writing of Nolo’s Essential Guide to Buying Your First Home (which turned into a company bestseller).

Broderick Perkins passed away on September 29 of this year. It’s both a professional and personal loss for all who knew him. We will miss his warmth, humor, and insight.

Let’s conclude with an excerpt from Nolo’s homebuying book, in which Broderick explained what he liked best about his work: “Aside from the fact that I don’t have to go into an office every day, I appreciate the learning aspect of it. Every story is education for me. I used to get kidded a lot at the San Jose Mercury News when I didn’t own a home and was working on a real estate story–people from the realty industry would say, ‘How can you write about home ownership when you don’t even own a home?’ I’d say, ‘Do I have to rob a bank to write about crime?’ Now that I’ve been writing about real estate for years, I realize there’s no end to learning the details of mortgages, appraisals, the physical structure of homes, unique homebuying and selling experiences, and much more.”

Floodwaters May Not Be Rising Yet, But Flood Insurance Rates Are!

floodNo one can say FEMA didn’t warn us. Its website offers pages of information about how flood insurance rates might go up in 2013 due to the Biggert-Waters Flood Insurance Reform Act of 2012. Every homeowner’s case is different, but in extreme cases, FEMA projected that individual premiums could go up to $20,000.

(By the way, could you get a more perfectly ironic name for a flood-related law? It’s named after its Congressional co-sponsors, Rep. Judy Biggert, a Republican from Illinois who is no longer in Congress, and Rep. Maxine Waters, a Democrat from California.)

Until recently, this law attracted little public attention. But October 1, 2013 marked its first actual effective date.

The results aren’t pretty. Nor are they surprising, given that the purpose of the law was to put the National Flood Insurance Program (NFIP) on a firmer financial footing by, among other things, raising insurance rates to reflect true flood risk levels. For example, homes whose lowest floor elevation is below the Base Flood Elevation (BFE) will no longer receive subsidized rates, and homeowners who were grandfathered in under old flood maps will no longer be able to take advantage of this.

Now we’re hearing that even Congresspeople who voted for the law are worried about how it will impact some homeowners. Homeowners themselves are complaining; The New York Times reports “rallies, petitions and concern among state governors.” And real estate agents report home deals falling through when the new owners get a look at the new price tag for insurance.

Some members of Congress are, in fact, looking into ameliorative or delay measures. (If there’s anything Congress is capable of doing effectively, it’s delay!)

In the meantime, if you’re buying a home, you might want to add an insurance contingency to your contract, specifying that closing be made conditional on obtaining acceptable insurance coverage. See Nolo’s Essential Guide to Buying Your First Home for details on contract clauses,  insurance and other aspects of home buying.

Yes, It’s THAT Shiller Who Just Won a Nobel in Economics

Macro of sparkling champagne against black backgroundAnyone who follows the real estate market has probably heard of the “Case-Shiller Index,” known for “tracking changes in the value of residential real estate both nationally as well as in 20 metropolitan regions.” Its findings are widely reported on, as are the thoughts and conclusions of Robert Shiller himself, who warned the U.S. of the pre-2008 housing bubble many times over. (Well, at least he was wrong about that. Oh.)

So yes, this is the very same Robert Shiller who was recently named as one of three co-winners of the 2013 Nobel Prize in Economics. When you hear blurbs about his study of when “assets are overvalued,” real estate is one of the assets being referred to.

Now that his credibility just got gold-plating, what does Dr. Shiller have to say about where the housing market is going next? Actually, he’s worried that prices in some markets have risen unrealistically high — creating a “bubbly” situation, according to a Reuters report. Let’s hope that’s just the celebratory champagne talking.

Or, You Could Paint Your Kitchen in Downton Abbey Colors

engravDon’t say I never brought you any useful information here. True, it’s not exactly in line with Nolo’s mission of putting the law into plain English, but how about painting your walls in plain English? Specifically, Amber Grey or Empire Grey, the colors created by the British company Mylands specifically for Downton Abbey based on century-plus-old recipes — and available to the public for online orders.

The Brits themselves will make fun of such obsessive adherence to tradition, of course, but they’ve got so much history all around them, they can take it for granted. Oh, but if you’re a devoted fan of the series, avoid reading about it in the British press — it’s already well into the next season, so spoilers abound.

 

Getting a Mortgage During the Shutdown? Expect Delays

This isn’t speculation anymore. I talked to an excited new homebuyer just yesterday, whose offer had been accepted from among multiple bids on a home in Berkeley, but whose mortgage broker had warned him that the closing could be delayed.

IRS wall_0Why? Because the lender will need to get his tax transcript from the IRS, and as part of the federal government shutdown, the IRS tax-transcript department has been furloughed. Even if the entire IRS were to reopen tomorrow, chances are their inboxes are already overflowing with backed-up requests.

So now, our new homebuyer waits. And he’s not even applying for a loan that specifically involves approval by the federal government, such as a FHA loan, USDA loan, or VA loan.

Fortunately, most every standard home purchase contract in California is written with a contract contingency stating that if the buyer can’t get a mortgage, he doesn’t have to go through with the sale. Unfortunately, the homebuyer is expected to take care of this and remove the financing contingency by a date even earlier than the closing, or face the possibility of the deal falling through.

In unusual circumstances such as these, however, it’s worth remembering that contracts are nothing more than an expression of the mutual interests of the parties involved. In this case, I would think both seller and buyer would be amenable to negotiating a delay of the contingency and closing dates so that the sale can go through as planned, and everyone can get back to watching CNN to find out when the folks in Washington, DC are going to end this nonsensensical shutdown.