How To Get The Best Price In A Slowing Market

Reports across the country suggest that real estate in most areas of the country is no longer appreciating at the rates seen in the past few years. In fact, the National Association of Realtors reports that nationwide August existing home prices were actually down 1.7 percent from a year earlier.

None of this is terrible or awful unless you bought last year and must now sell. Those who have owned for a few years are well ahead in most communities.

Consider that in 2000, according to the National Association of Realtors, the typical existing home sold for $111,800 versus $225,000 in August.

So, what’s the best approach to selling in today’s market? Consider these five core points.

1. Buyers are scarce relative to home supply.

While sellers have called the shots for the past few years, that’s no longer the case in most markets. No problem — adjust. Make your home the most attractive, best priced property in the neighborhood.

While pre-market prep could have been ignored in the recent past, today you have to paint, clean-up and repair before offering a home for sale. An MLS photo that shows a home with a lousy roof is evidence of a property that likely will not sell quickly or at full price.

2. Remember that cash is still an issue.

While home prices may have slipped a touch, real estate continues to be hugely expensive for most buyers, especially first-timers who lack equity from a prior sale. Rather than reducing prices, offer to pay for buyer closing costs, thus lowering out-of-pocket purchaser cash requirements.

3. Choose the right broker.

When comparing local brokers, look for such markers as recent success in your neighborhood, a high level of local activity and professional education.

In a slow market picking the right listing broker becomes especially important. Why? Because a broker with a strong local history is known and respected: If he or she offers a property at a given price that value is likely to be accepted as at least within the realm of reason.

As an example, last year we sold a property that was unlike virtually all nearby properties in terms of size (smaller house), lot (much bigger) and age (older than most). In other words, not an easy house to sell because there were no practical comparables. The broker — who had sold properties worth some $200 million in neighborhood real estate over the years — suggested a sale price which turned out to be exactly on target.

Alternatively, let’s say we used a less experienced broker, someone who was not an authority figure. The property might have sold for less because another broker might have been less credible. In effect, one of the values of using an experienced listing broker is to readily establish believable prices and terms, an important matter in a buyer’s market.

4. Numbers Count.

Real estate sales are a by-product of exposure. If the odds of selling a home are 100 to one, if it takes 100 inquiries and visits to sell a property, then the quicker you get those inquires the better. No less important, if you can get more than 100 inquiries the odds of getting a top price and terms improve.

This means that when considering a listing broker you need to review the marketing plan with care. What, exactly is the broker going to do in terms of advertising, open houses, MLS placements, online marketing, broker relations, etc?

Remember that the marketing plan which works for one property may not work for another. Plans need to be specific to local markets, to particular homes and for current market conditions. The thinking that seemed so good last year may be inappropriate this year.

5. It’s a business deal.

With some frequency I see homes priced for reasons that won’t work:

• The property must sell for this price because I need $400,000 for the next home. The truth: Prices are established by the marketplace, not seller needs.
• Similar homes in a different neighborhood command a particular price, therefore my house should sell at the same price. The truth: What happens elsewhere is irrelevant. What happens in the immediate neighborhood is what counts.
• The Flombacks got $800,00 for their home so I should be getting at least that much. The truth: This is not about the Flombacks and should not be about seller ego. The real issue is about bricks and mortar. The Flombacks may have an objectively better house.
• The buyer’s offer requires that we leave the washer and dryer — it’s an insult. The truth: Homes reflect our psychological identity, who we are, our social status, etc. But the marketplace reflects supply and demand. Leaving a washer and dryer may be a lot cheaper than not getting a sale for months on end.
• This home would have sold for $500,000 last August and we will not accept a lower price. The truth: It’s not last August. It’s now and the marketplace reflects current supply and demand.

Sellers can be successful in any market so go forth and market — but do it right.

Written by Peter G. Miller

Should You Wait For The Market To Cool Before Buying?

In a market where prices are continually rising, should a potential buyer or seller/buyer ever wait for home prices to drop before diving in?

I would first refer you to your local economic outlook. Home prices are driven by supply and demand — straight and simple. One of the myths about real estate is that interest rates drive sales and prices. History shows us differently. During the 1990s, the average mortgage interest rate was at 8.11 percent. Only one year (1998) did the average interest rate for the year fall below seven percent. In the beginning of the aught decade (that’s where we are now, the ’00s), we have seen average rates linger in the five to seven percent range during this recessionary period with mortgages on fixed rates as low as five percent. During both of these markets it was the overall economic growth that drove sales. Once the economy heated up the interest rates edged up.

Waiting for prices to drop may not save you as much money as you think. In fact, a lower priced house could cost more than a higher priced home by virtue of the interest rate. Here’s an example:

A $300,000 mortgage financed at 5.75 percent on a 30-year note would result in a monthly payment of about $1,751. Take a $275,000 mortgage with the same terms, but change the interest rate to 7.5 percent and your monthly payment jumps to $1,922.

So, do you really want to wait for the market to drop and possibly get a higher interest rate, too? When you are considering that move up, what you must look at is the monthly payment in today’s home buying environment. Buyers really don’t qualify for a home price these days, instead they are qualifying for the monthly payment.

If you must sell your house first before moving up, then you have to remember that the move up home you feel is inflated in price also pertains to your current house. If a homeowner waits until his targeted house price drops — then he’s also at a depressed state on his own house.

For instance, let’s say you want to buy a larger home and currently it’s priced at $350,000 — too much, you fear. Meanwhile, your house is worth $275,000 and you have $125,000 equity in the house with a mortgage balance of $150,000.

If you wait, hoping the market will drop the house down 10 percent to $315,000 — your current home has headed the same direction more than likely. Now, your $275,000 property is only worth $247,500. Your equity has deteriorated by $27,500. By waiting, you’ve lost the extra cash for a larger down payment, plus, now you’re not in the driver’s seat as the seller — if home prices are dropping, it’s a buyers market.

The numbers speak for themselves. (The assumptions here are the cost of sale equaling points, closing costs and selling commission. The payments are for principal and interest only using the above mentioned home prices of $350,000 and $315,000.)

Appreciated Market Samples:

Current Home Sales Price:	$275,000
Cost of sale:	$27,500 (10%)
Equity for down payment:	$97,500
Mortgage on New Home:	$252,500
Payment on 6%:	$1,513
Payment on 7%:	$1,679

Depreciated Market Samples:

Current Home Sales Price:	$247,500
Cost of sale:	$24,750 (10%)
Equity for down payment:	$72,750
Mortgage on New Home:	$242,250
Payment on 6%:	$1,452
Payment on 7%:	$1,611

As you can see — waiting for the price to drop $35,000 is going to save you roughly $60 per month.

Now here’s the final part of this scenario — when the market turns — which home do you want to be in when the annual appreciation of 5 percent kicks in again — your $247,500 home or your new $315,000 home? Your current home’s cash appreciation will now be $12,375 per year, while the more expensive home would increase at $15,750 per year.

If you’re looking for the long-term investment — meaning more than 10 or 15 years — then don’t wait. Throughout the years real estate has proven to be a safe investment.

Written by M. Anthony Carr

Don’t Follow In Your Parents’ Money-Saving Footsteps

When it comes to saving money, it’s probably a good idea to do what your parents tell you to do, rather than what they do.

Harris Interactive’s latest survey, conducted for reverse mortgage lender and IndyMac Bank subsidiary, Financial Freedom, found that 56 percent of those aged 62 to 75 would have started saving earlier if they had to do it all over again.

Given the high and fast growing-cost of housing, that’s smart advice.

One of the best ways to avoid riskier, interest-only, zero down, adjustable rate mortgages, perhaps with the added expense of private mortgage insurance, is with a hefty down payment in cash that will also net you the best loan interest rate.

A down payment of 20 percent or more tells the lender financially you’ve planned well and long for your home-buying transaction and you’ve got the cash to show a big personal stake in the investment.

Unfortunately, the youngins may not be paying attention — especially women.

Earlier this year, the Consumer Federation of America, along with Visa USA found women squirming about their financial status because 42 percent of those surveyed said they had emergency savings of less than $500 and 55 percent of women, between the ages of 25-34, said that they did not maintain an emergency savings account of at least $500.

“Abysmally low,” is how Keith Millner, senior vice president for the In-Retirement business segment of Nationwide Financial Services, described consumers’ current savings rate.

Americans socked away only 0.6 percent of disposable income in May, according to recent data from the Bureau of Economic Analysis.

“It’s definitely not enough for a comfortable retirement,” adds Millner.

In yet another recent study, Marketdata Enterprises in “Check Cashing, Money Transfer, Payday Loan Services & Pawnshops: A Market Analysis,” found that 12 million U.S. households, 35 percent of them, are “unbanked,” that is, they have no checking or savings accounts with mainstream banks. Instead those households commonly use alternative financial services, including check cashing outlets, payday loan outlets, money transfer services, and pawnshops.

Chances are, they’ll wind up like their wistful seniors.

The Harris survey also found, if they had to do it all over again:

• Sixty-percent of seniors would have begun saving before the age of 30.
• Thirty-four percent of seniors would have begun saving between the ages of 30-39.
• Six percent of seniors would have begun saving between the ages of 40-49.
• One percent of seniors would have begun saving between the ages of 50-59.

Why?

Sixty-five percent of those who would have started saving earlier have less that $50,000 in investable assets and 63 percent plan to rely upon the questionable Social Security system as their primary source of income.

The study also found that 39 percent of seniors wished they had allocated a greater amount toward their retirement plan and 27 percent are remiss about not putting more money in less risky investments.

Visa is targeting women with its Save $500 Challenge, a program offering weekly emailed finance and savings tips and eligibility to enroll as an American Saver, an America Saves service open to anyone, which entitles consumers to free information and financial planner advice.

Consumers can also access Practical Money Skills , Visa’s online personal finance curriculum for consumers of all ages and financial needs.

Read your privacy rights before signing up for any free information and, whenever possible, opt out of any credit card offers or other marketing come-ons that could distract you from learning the financial ropes.

While the free information is valuable, Visa is not a nonprofit agency, but a corporate operation that thrives on income derived from the use of credit cards.

The information you received is best learned before you venture into the world of credit.

Written by Broderick Perkins

Sellers Could Lose Waiting for Buyers to Make Offers

One of the biggest mistakes sellers make in a buyers market is trying to price their houses with a “cushion” in the asking price for negotiation room. In the current market where most sellers find themselves, it’s all back to price, condition and location.

Pricing the house from the start is the first offensive strike the seller possesses in his arsenal. The best way to determine price in our market is to start looking at two categories of real estate: solds and actives.

Properties that have sold in the last 30 days provide you a picture of what price range pulled in offers 60 days ago. By looking over those properties, you’ll know if you’re headed in the right direction with your price. Then, after seeing what’s pulled in offers, look at where the competition is priced — and price lower than the lowest price. If the trend is headed downward over the last 12 months the motivated seller will get in front of that price trend and sell for less than everyone.

This can be an emotional ordeal for sellers. The seller who approaches the sales price of a house like the asking price of a used car — where negotiation and give-and-take is expected — will also be calling the movers sooner and get through the transaction with the least amount of emotional turmoil.

Condition is the second part of this equation that sellers have control over in today’s market. Folks — it’s got to look new. Period. Here are the steps that MUST be taken for a successful sale.

1. New paint. Everywhere. Don’t leave one room unpainted. Paint is the cheapest, yet most effective way to give a house a face lift.
2. New carpet/flooring. This addition along with No. 1 makes people drop open their mouths with, “Wow.”
3. Replace the small things. It’s the attention to detail that can make a big difference for the buyers. New faucets throughout, new hardware on the doors, and new switches/plugs/plates take the house from just “cleaned up” to new.
4. Deep clean. I always have to mention this because a lot of sellers still just don’t get it. It’s still amazing to me how many people will leave a house in the “un-” condition. Unvacuumed, undusted, unwashed. Invite friends over for a deep cleaning or hire it out. This is a must, no questions asked.
5. Do you do windows? Well, somebody better. Get all the windows cleaned and caulked. The house may look great from the inside, but if you can’t look outside because of the dusty film over the glass, steps 1 – 4 could be for naught.

Finally, location is what buyers are looking for. I saw a listing the other day that was obviously connected to a realistic agent and seller. It was a lot of house for the price with the 1-plus acre lot — and it was “priced for location,” because the house backed to a very busy 4-lane highway. The comps in the neighborhood were nearly $100,000 more.

While you may not be able to do anything about the location of your listing, you can definitely spin the benefits of where it’s located. Near commuter routes means the house is next to big highways, but for some shoppers they just want to get home quick after work and this is going to be a benefit — but only if you market it that way.

Sell the lifestyle of the house as much as the amenities of the house itself. With prices dropping in some areas, headlines such as “Quit Commuting,” “Walk to Everything,” and “Cut Your Gas Bill” are becoming more and more enticing. The third- to one-acre lot doesn’t look as good after the 75-minute commute. Some commuters are looking to move back in to the work centers.

Market to buyers outside the community who would find your neighborhood attractive. It’s amazing how many buyers don’t mind a busy 2-lane street — when they’ve been overlooking the Beltway for years. Remember to market the benefits that you liked about the house when you bought several years ago.

Written by M. Anthony Carr

Top 10 Tips for Staging a Home

Provided your home-for-sale has the curb appeal to get potential buyers inside, keeping them inside for a further look requires a staging strategy that sticks the deal.

HGTV’s FrontDoor.com offers what it considers the Top 10 tips that can turn a languishing listing to a multiple offer attraction.

• Reclaim the yard. First impressions rule. Spruce up curb appeal by maintaining a clean yard, adding plants for a splash of color and applying a fresh coat of paint to the front door.

• Let the foyer flourish. The home portal sets the tone for the entire home. Make the space up-to-date, well-maintained and eye catching — top to bottom.

• Back off beige. Don’t let neutral colored walls dominate a room. Splashes of color liven up boring spaces. Throw pillows, artwork and fresh flowers add pops of color and personality.

• Cure kitchen craziness. Consistency pleases. All countertops and cabinets should match. New hardware, a new backsplash and a thorough cleaning can transform a bleak kitchen into one with smiles.

• Denude the dining room. De-cluttering and depersonalizing is the first rule of home staging. Homebuyers can have trouble envisioning themselves living in a home that’s full of the seller’s personal items.

• Avoid focal point faux-pas. Highlight the great features in a home by positioning furniture to highlight them. Windows, fireplaces and other architectural details will be noticed by a buyer if they are emphasized in the home correctly.

• Perk up the patio. The outdoor space is an extension of the home. Capture a higher selling price by cleaning and adding style to any outdoor space with furniture, lighting and accessories.

• Master the master suite. The best approach to staging is often working with existing accessories. Using what is already in the room and repositioning the furniture will highlight the room’s best features.

• Cure bathroom blues. Older vanities and dreadful wallpaper will make any bathroom feel outdated. Apply a fresh coat of neutral-hued paint and new hardware to modernize and brighten.

• Repurpose extra rooms. The value of a space decreases when homebuyers see a room without direction (think part office, part playroom, part home gym). Though almost every homeowner is guilty of having a “junk room,” take sure to stage each room with a clear purpose before putting the home on the market.

Written by Broderick Perkins

Avoid Home Buying Mob Mentality

Waiting for higher interest rates to depress prices may not be your best home-buying strategy.

That’s because interest rates have become part of a vicious housing market cycle that’s pushing prices up, not down, and more than ever conditions warrant a more holistic approach to buying a home.

This year, interest rates have been rising during the season when most buyers traditionally hit the market. That has swelled the ranks of seasonal buyers with an influx of buyers chasing interest rates.

The extra demand is contributing to higher prices.

As prices rise, yet another wave of buyers begin to chase rising prices.

If interest rates are your buying indicator, it’s a cycle that may not end anytime soon.

During the mid- to late-1990s’ technology-driven economic and housing boom, interest rates were, at times, more than two percentage points higher than they are now. In the 1980s’ housing boom, mortgage interest rates were higher still, from 10 percent to more than 12 percent at times, according to Freddie Mac.

In addition to higher interest rates-driven demand and related higher home price-driven demand, demographics and mathematics continue to put further price pressures on the housing market.

The growing bulge of second home-buying baby boomers and homeowners who see housing as their only money-making investment, those groups have done the math. Stocks remain well below their peaks, while housing not only survived the recession, but helped shoulder the national economy through the downturn. Older, wiser buyers are moving up and moving on to second and third houses.

What’s more, for most buyers, the bottom line isn’t home prices or even interest rates, but the affordability of the monthly mortgage. As long as buyers continue to enjoy income growth and can make that mortgage payment, they will continue to buy into a market. A host of mortgage programs make housing more affordable.

And then, of course, there’s the housing shortage. From Delaware to California the shortage of housing also exacerbates home prices.

Bottom line?

Interest rates don’t rise in a vacuum and that makes an interest rate-driven home buying strategy a myopic approach to the transaction.

Even when all the market conditions appear to trumpet “Buy!,” it’s not your time until owning is cheaper than renting and a home purchase is a natural fit for your financial needs, goals, obligations and lifestyle.

Instead of making the home-buying decision based on one or more economic conditions alone, don’t overlook the more holistic context of your own home economics.

If you are too over-burdened financially to buy a home and take the “Buy now!” advice, it could bankrupt you.

Step back, take a thorough look at your financial picture, pay off debt and otherwise take the time to prepare yourself for the financial responsibilities of home ownership. Don’t overlook the value of a financial planner or other professional personal finance specialist for objective advice about home buying.

The most expensive transaction you’ll likely ever complete, comes with many more costs than the monthly mortgage payment, property taxes and insurance.

For you, it’s the “right time to buy” when buying a home won’t put you in the red.

Written by Broderick Perkins

Investing Starts With Drafting A Team

More and more readers are considering setting up a business to invest in real estate … I know these things because of all the e-mails I receive asking about how to do just that. Over the last few weeks, I’ve received various e-mails asking for more information regarding the surface piece I did on the steps to take to launch your real estate investing business, so here are explanations on those depths, but more in-depth.

The Corporation

First of all, since you’re setting up a business you may want to consider establishing a limited liability corporation. This means contacting an attorney who has established these type of corporations before. They will help you conduct business and protect your private assets — such as your personal residence — in case you are sued by a tenant, owner, seller or other entity. You’ll find some online services as well, but if you’re looking at processing contracts, leases, and other legal-binding papers back and forth — have an attorney look over your business setup from step one. Here are a few online resources to get started:

• Companies Incorporated
• Nolo: Law for All
• FindLaw.com

The Agent

While you’re waiting for the paperwork to clear on the LLC, start looking for a Realtor who can walk you through the processes. The agent should have an intimate knowledge of the investing world. You don’t want a novice when it comes to your investing schemes. You’re looking for a professional who not only has helped other investors get into their first, second, etc., property, but also someone who has invested in real estate themselves. The agent is the primary person to work with in your investments on the searching, inspecting, fixing, maintenance and financing side of things. This professional acts as the central figure in most transactions — especially if you are employed full time elsewhere. You’ll need a professional to track down and complete all the necessary tasks required in purchasing house after house while you still have your day job. You especially want an agent to help you on the back side as well. I can’t tell you how many pitfalls a professional will help you avoid in this process. I’ve seen a lot of investor wannabes make huge mistakes (read — lost money) when trying to go down this road alone.

The agent also knows a lot of the other residual professionals you’ll need in this process — inspectors, contractors, insurance providers, title services, etc. Make your life simple — don’t worry about all these providers to start with. As a buyer, most likely, the agent will get paid from the transaction — not from your back pocket — so the return on investment is worth their expertise.

It’s a small industry once you get down to the brass tacks, and you’ll find that the real estate investing industry is even smaller. There are Realtors who work in what I call the “retail” market — that’s where most of us find our primary residence — then there are those who know how to navigate the investor world. They both have their place in the world of real estate — and many times, they are the same person.

The Loan Officer

The first referral you want from your agent is a great loan officer (LO) who will hunt down the cheapest, best financing available to investors. Keep in mind, you’re looking to get into properties for as little money out of your pocket (if any at all) because you want your renters to make your monthly payments over the long-haul. In your first interview, find out what kind of financing they offer — if they don’t have a large supply (or at least creative packages) of investor programs — find another LO.

The Club

If you’re looking for the nuances of the real estate investing world in your small corner of the globe, search out a real estate investing club in your area. Here are some sites that have listings of such clubs:

• Creative Real Estate Online (click Real Estate Clubs)
• RealEstateLink.net — The Resource for Real Estate Investors
• Real Estate Investment Club

Written by M. Anthony Carr

Be On The Lookout For Water Problems During Home Inspection

A home inspection involves hiring a professional home inspector to examine the house’s major systems — including heating and central air conditioning, interior plumbing, electrical systems, the roof, attic, visible insulation, walls, ceilings, floors, windows, foundations, and basements — to let you know if there are any problems or defects.

Water, even a constant drip gone unnoticed, can cause thousands of dollars worth of damage behind walls, on structural beams, and in the foundation.

“Sometimes, particularly with first-time homebuyers, the more obvious cosmetic home concerns, such as landscaping, painting and flooring overshadow the more critical issues, such as water damage, which can have serious consequences and cost quite a bit to correct or repair,” said Kathleen Kuhn, CEO and president of HouseMaster, a home inspection company with more than 380 offices throughout the United States and Canada. The company has performed more than 1 million home inspections since 1979.

HouseMaster’s Resale Home Deficiencies Survey found structural damage, plumbing systems and water seepage are three of the most commonly found defects in older homes for sale.

Some of the water problems you and your inspector should keep an eye out for during the inspection include:

• Water seepage and wet basements. If you have small cracks in the foundation and porous walls, heavy rains can potentially build up against the foundation and ultimately leak into your basement and could eventually cause serious and costly structural concerns. How do you alleviate the problem? Make sure those foundation cracks are sealed. Also, surface water run-off should drain away from the house. Direct gutter downspouts away from the foundation.
• Roof leaks. The biggest problem area is the flashing, the areas where the roof plane changes, like at a chimney or plumbing vent. Regularly check your flashings. Check the interior of your roof at least once a season. If you have constant leaks in the attic, damage or mold growth in the insulation can occur.
• Poor water pressure. This can be a sign of water service supply deficiencies or costly piping upgrades. First you should determine if the problem might be caused by blocked faucet aerators, partially closed or defective faucets. If you have old galvanized piping in your house, the issue might be interior corrosion or deposit build-up. The best thing you can do is replace the blocked sections of pipe. And perhaps the biggest water issue these days is mold, which can cause panic in homeowners and is prompting the number of insurance claims and amount of jury awards that are on the rise.”Mold has been around for years and is commonly found in homes,” said Mike Casey, president of the American Society of Home Inspectors, the largest professional society for home inspectors in North America. “But while often harmless, too much of certain kinds of mold in a home can be dangerous. Mold always indicates excessive moisture and the source should be corrected immediately.”

Once you have found the house of your dreams, the ASHI says the following steps should be taken to prevent mold growth:

• Wash mold off hard surfaces and then dry them completely. Absorbent materials, such as ceiling tiles and carpet, may have to be replaced.
• Keep drip pans in your air conditioner, refrigerator and dehumidifier clean and dry.
• Use exhaust fans or open windows in kitchens and bathrooms when showering, cooking or using the dishwasher.
• Place vents for clothes dryers and bathroom exhaust fans outside the home.
• Remove and replace flooded carpets and drywall.
• Maintain low indoor humidity, ideally between 30-50 percent relative humidity. Humidity levels can be measured by hygrometers, which can often be found at local hardware stores.
• Clean bathrooms with mold-killing products.
• When painting the home, add mold inhibitors to paint.
• Do not carpet bathrooms.
• If the problem persists, or if anyone in the house is susceptible to mold and mildew, have the problem evaluated by an expert in mold/moisture intrusion.

Written by Michele Dawson

Should You Wait For The Market To Cool Before Buying?

In a market where prices are continually rising, should a potential buyer or seller/buyer ever wait for home prices to drop before diving in?

I would first refer you to your local economic outlook. Home prices are driven by supply and demand — straight and simple. One of the myths about real estate is that interest rates drive sales and prices. History shows us differently. During the 1990s, the average mortgage interest rate was at 8.11 percent. Only one year (1998) did the average interest rate for the year fall below seven percent. In the beginning of the aught decade (that’s where we are now, the ’00s), we have seen average rates linger in the five to seven percent range during this recessionary period with mortgages on fixed rates as low as five percent. During both of these markets it was the overall economic growth that drove sales. Once the economy heated up the interest rates edged up.

Waiting for prices to drop may not save you as much money as you think. In fact, a lower priced house could cost more than a higher priced home by virtue of the interest rate. Here’s an example:

A $300,000 mortgage financed at 5.75 percent on a 30-year note would result in a monthly payment of about $1,751. Take a $275,000 mortgage with the same terms, but change the interest rate to 7.5 percent and your monthly payment jumps to $1,922.

So, do you really want to wait for the market to drop and possibly get a higher interest rate, too? When you are considering that move up, what you must look at is the monthly payment in today’s home buying environment. Buyers really don’t qualify for a home price these days, instead they are qualifying for the monthly payment.

If you must sell your house first before moving up, then you have to remember that the move up home you feel is inflated in price also pertains to your current house. If a homeowner waits until his targeted house price drops — then he’s also at a depressed state on his own house.

For instance, let’s say you want to buy a larger home and currently it’s priced at $350,000 — too much, you fear. Meanwhile, your house is worth $275,000 and you have $125,000 equity in the house with a mortgage balance of $150,000.

If you wait, hoping the market will drop the house down 10 percent to $315,000 — your current home has headed the same direction more than likely. Now, your $275,000 property is only worth $247,500. Your equity has deteriorated by $27,500. By waiting, you’ve lost the extra cash for a larger down payment, plus, now you’re not in the driver’s seat as the seller — if home prices are dropping, it’s a buyers market.

The numbers speak for themselves. (The assumptions here are the cost of sale equaling points, closing costs and selling commission. The payments are for principal and interest only using the above mentioned home prices of $350,000 and $315,000.)

Appreciated Market Samples:

Current Home Sales Price:	$275,000
Cost of sale:	$27,500 (10%)
Equity for down payment:	$97,500
Mortgage on New Home:	$252,500
Payment on 6%:	$1,513
Payment on 7%:	$1,679

Depreciated Market Samples:

Current Home Sales Price:	$247,500
Cost of sale:	$24,750 (10%)
Equity for down payment:	$72,750
Mortgage on New Home:	$242,250
Payment on 6%:	$1,452
Payment on 7%:	$1,611

As you can see — waiting for the price to drop $35,000 is going to save you roughly $60 per month.

Now here’s the final part of this scenario — when the market turns — which home do you want to be in when the annual appreciation of 5 percent kicks in again — your $247,500 home or your new $315,000 home? Your current home’s cash appreciation will now be $12,375 per year, while the more expensive home would increase at $15,750 per year.

If you’re looking for the long-term investment — meaning more than 10 or 15 years — then don’t wait. Throughout the years real estate has proven to be a safe investment.

Written by M. Anthony Carr

Do You Need Title Insurance?

Question: We will be refinancing our mortgage in the next few weeks. We purchased our home six years ago, and at that time purchased both owner’s and lender’s title insurance. Our new lender is also requiring title insurance. We have made very little by way of improvements, and do not believe there have been any events which would impact our title. Why do we need to purchase title insurance again? This seems to be just another hidden expense involved in the settlement process.

Answer: Although you should be able to obtain what is known as a “reissue rate,” you will still have to obtain — and pay for — a lender’s title insurance policy.

Oversimplified, title insurance insures a homebuyer — and a mortgage lender — against loss resulting from title defects, whether these defects are known or unknown at the time of the sale or the refinance. In the language of the title industry, the insurance covers both “on record” and “off record” problems.

For example:

 

• A person in bankruptcy who has no authority to sign the deed conveys property to a third party.
• A grandson forges his grandmother’s name to a deed and conveys her property to a third party, or to himself.
• A mortgage (deed of trust) is properly recorded on the land records, but there is no legal description identifying the property which is subject to the mortgage. As a result, creditors are not put on notice of the existence of this mortgage lien.
• A deed (or other legal document) is improperly recorded with the wrong legal description.The list, unfortunately, can go on and on. There are numerous instances where title to real estate has been found to be defective — either based on substantive grounds or technical, legal procedural reasons (such as improper indexing, misfiling or failure to comply with local recording requirements).

  Title insurance is designed to protect the lender — and the homeowner — against these risks. Unlike other types of insurance policies, however, title insurance does not cover future risks; its coverage is limited to risks (defects) that are already in existence at the time the policy is issued. According to one Judge:

  Insurers in other lines cannot control the risk beyond being careful in the selection of insureds. However, title companies do control the risk; they attempt to eliminate it by the work they do in determining the state of title. Title insurance is not so much the assumption of an uncontrollable risk as it is a guarantee that the title company’s work is accurate and therefore free of risk.

  Thus, when you purchased your house several years ago, your title insurance policy covered you — and your lender — for all risks (defects) which existed at time you took title; the policy did not cover future defects.

  Several years have passed since you first purchased your home. You believe that your title is clear, subject only to the mortgage which you plan to refinance. However, are you really sure that there are no title problems affecting your title? Did a mechanic place a mechanic’s lien against your property? Did a creditor obtain a judgment against you and have that judgment recorded against your home? Did the home get sold at a tax sale, without your knowledge? Did someone forge your name to a deed and sell the property to a third party?

  Or did someone accidentally place a lien against your property (lot 657) when they really meant to place the lien on lot 567?

  Strange as it may sound, these things do happen. Your lender wants assurances that should you not be able to make the monthly mortgage payment, and the lender has to foreclose on your property, that you have clear title. Keep in mind that when you obtain a mortgage, you will sign a Deed of Trust. This is a legal document whereby the borrower (homeowner) signs a deed conveying the property to a trustee selected by the lender. That trustee holds legal title to the property, in trust however, for the benefit of both the borrower and the lender. If and when the mortgage is paid in full, the trustee will release the deed of trust back to the homeowner.

  However, should the borrower go into default, the trustee (because of the language in the deed of trust) has been given authority by the homeowner to sell the property at a foreclosure sale. This is known as a “power of sale.”

  Clearly, the trustee wants to be assured that when he takes title to the property through the deed of trust, he has good, clean title.

  Your new lender probably trusts you, since it is willing to make you a loan. However, since you cannot categorically advise the lender that you have clear title, the lender will insist that you obtain a title insurance policy in favor of the lender.

  There are two basic types of title insurance policies: lender’s and owner’s. The lender’s policy protects only the lender (or any subsequent lender to whom the loan may be sold or assigned). The owner’s policy protects the homeowner from the potential risks which can arise. Unlike other types of insurance, an owner’s title insurance policy is paid only once — when you go to settlement. The homeowner does not have to make quarterly or annual premium payments. Additionally, an owner’s policy covers the owner so long as there may be potential liability for a title defect; this coverage can — and will — last long after the owner has sold the property.

  Here is a real, factual situation: A sold property to B in l982. In l985, B sold to C, who then sold to D in l996. B, C and D all obtained owner’s title insurance. In l997, D’s neighbor sued D, claiming adverse possession of a small strip of land abutting both properties. Since adverse possession in Maryland requires a 20 year vesting period, D’s neighbor had to argue that its right began at least as early as l977. Thus, after D was sued, D brought C into the suit. Needless to say, C filed a claim against B, who in turn brought A into the litigation.

  In this litigation, B advised its title insurance carrier of the claim, and the title insurance company picked up the extensive legal fees which were involved in the lawsuit. B was protected, even though he sold his property many years before the lawsuit was brought.

  Every homeowner must, however, carefully read the insurance policy. There are numerous coverage exclusions contained in an owner’s policy, such as:

• Taking of the property by a government (called eminent domain);
• Defects, liens or adverse claims not known to the insurance company but known to the insured and not disclosed in writing to the company prior to inception of the policy, and
• Any law restricting or relating to the use or occupancy of the property based on environmental protection.There are a number of such exclusions from coverage, and all homeowners should discuss these issues with their attorney before going to closing (or refinancing).

  Finally, you questioned why you have to pay for another full title insurance policy. You don’t have to. As mentioned earlier, the owner’s title insurance policy you initially obtained is still in force and effect. Thus, there is no reason for you to purchase additional owner’s insurance.

  As for the lender’s policy, although you will be obligated to obtain such a policy if you want the refinance loan, you may be eligible for a “reissue rate.” This means that if you had a previous policy and no more than ten years have elapsed since you first obtained that policy, you will be charged at a much lower rate than what the title charge would normally be.

  It should also be noted that if you are purchasing another property, while you will have to obtain — and pay for — lender’s title insurance if you are getting a mortgage loan, you have the right to reject purchasing the additional owner’s title insurance. You must discuss this option with your settlement attorney at settlement, to get the pros and cons for this decision.

  Title insurance is a complex issue. However, it does give some peace of mind to homeowners, especially since we live in a litigious society and property values have risen dramatically in recent years.

  Written by Benny L. Kass