Don’t Hesitate To Make A Low Bid To A Seller

Q. I am a first time home buyer, and have been pre-approved for a $255,000 mortgage purchase. In my search, I have seen a number of houses in the $300,000 – $500,000 range in good, move-in condition. The problem I am having is where to start my offer. My realtor is telling me that those houses are priced too high, but that no one there will sell their house for under $300,000. What do you recommend?

A. I have to ask you two preliminary questions first.

Are you approved for a mortgage in the amount of $255,000 or for a home purchase in that amount. If you have been approved for a $255,000 mortgage, that means that you can probably buy a house worth at least 10 percent more. Most lenders will lend you up to 90 percent of the purchase price; some will lend you even more. Check this out with your lender to make sure you understand exactly what you have been qualified to purchase.

Second, you used the words “my realtor.” Is the real estate agent or broker really your agent? Have you signed a “buyer broker” arrangement with him or her? If not, it is important that you keep in mind that the broker (Realtor) really represents the seller. If the realtor knows your mortgage limit, he/she is duty bound to disclose that information to the seller. And you certainly do not want the seller to know exactly how much you are prepared — and able — to obtain a mortgage loan.

And even if the broker claims to represent your interests only, my suggestion is to keep the lender’s information to yourself. If you are able to sign a contract, then you can provide the letter from your lender. Many standard contracts state that “Purchaser will provide seller, within three business days after ratification of the contract, with a letter from a legitimate lending institution indicating purchaser’s ability to obtain a loan.”

This is known in the trade as a “comfort letter”. It is not a formal loan commitment; the lender has to review the sales contract and have the property appraised before such a final commitment can be made. However, it does mean that a lender has reviewed your financial history and based solely on that history, believes that you are qualified for the loan.

Thus, whether or not the realtor is your agent, I strongly suggest that you keep silent on your mortgage availability. You should also not divulge to anyone (other than your family or your lawyer) what your top price will be.

In answer to your question, as this column has suggested on many occasions, everything in real estate is negotiable. Don’t be afraid of making a low offer. The real estate agent is obligated to transmit your offer — regardless of amount — to the seller.

The seller has three choices:

1. Your offer can be accepted, in which case you have a contract;
2. Your offer can be rejected in its entirety. In this case, you can either make a new — higher — offer or walk away from this house; or
3. Your offer can be counter-offered. This means that the seller is rejecting your proposal, but is putting a new offer on the table. Keep in mind that if you receive a counter-offer, you then have the same three alternatives just described.

Let’s look at the following example: the seller is asking $300,000 for the house. You prepare a written offer in the amount of $245,500. The real estate agent submits it to the seller, who in turn counters for $290,000. The ball then goes back to your court.

How much do you really want to pay for your new home? Is this property really worth $290,000? Should you try to make another — lower — offer or should you accept the seller’s proposal? These are questions that only you can answer — even if you can afford the higher price.

However, by reducing the price, the seller has sent you a signal. The price is negotiable. If this is the house you really must have, and clearly if you can afford it, you may want to accept the counteroffer. But, as you know, there are many other houses out there, and if you are prepared to continue shopping around if you lose this house, I recommend that you make yet another counter-offer — this time in the amount of $255,000.

The negotiations will continue until someone takes a hard-line position and “draws a line in the sand.” One of you will ultimately say “this is my final offer; take it or leave it.”

It should also be noted that price is but one of the many items of negotiation in a real estate transaction. Often, a seller may be more interested in the timing of the settlement than in the price. For example, does the seller have to sell immediately and are you prepared to settle quickly. I have negotiated many a deal whereby purchasers received a very favorable sales price because they were prepared to go to settlement just 10 or 15 days after the contract was signed.

On the other hand, some sellers may want to stay in the house for several more months. Are you prepared to wait? Are you prepared to purchase the house now — so as to preserve a favorable mortgage interest rate and begin to get the tax benefits of homeownership — but allow the seller to stay in your new house on a “post occupancy agreement” arrangement? In effect, you purchase the house and the sellers pay you rent until they move out. The rent should be equivalent to the monthly mortgage payments you make (principal, interest, taxes and insurance — also known as PITI).

Another important factor to consider is whether the seller is willing to take back financing — either for the full amount of the purchase price or a small second trust. This is an issue which should be explored with the seller before you make an offer; once a sales contract is entered into, it may be too late to try to renegotiate that contract. You also have to get your lender’s approval if the seller is prepared to take back financing.

In the final analysis, once you have decided to purchase your new home — and have zeroed in on the neighborhood you want — don’t be pressured into buying a home. Shop around, check prices, and negotiate everything.

Realtors — whether they be buyer’s brokers or seller’s agents — will tell you that this is a hot market, and that if you do not put in a contract for the full price, you will lose the house. That may be true. But if you can only afford a lesser-priced house, nothing ventured, nothing gained. The worst case is that your offer will be flatly rejected.

Written by Benny L. Kass

Finding a Good Home Inspector: What You Should Ask

You’ve found the house, your offer has been accepted, and funding is in place. But before you start packing, be sure you hire a professional home inspector to make sure your house doesn’t have any major defects that could cost you down the road.

A home inspection typically includes an examination of heating and central air conditioning systems, interior plumbing, electrical systems, the roof, attic, visible insulation, walls, ceilings, floors, windows, foundations, and basements. Inspections may also include appliances and outdoor plumbing.

Once the inspector examines the house, he or she will write up a report with findings. If there are any major problems, you’ll need to negotiate with the seller to either lower the sale price of the home, or determine how the problem will be fixed.

When you make an offer it’s wise to have a contingency clause based on the home inspection. In other words, if the inspector finds $10,000 worth of problems and the seller doesn’t want to provide the fix, you can rescind your offer.

In fact, two in five resale houses will have at least one major defect that could cost you from a few hundred dollars to as much as $15,000 to repair, according to the 2000 HouseMaster Resale Home Deficiencies Study.

Spending a few hundred dollars for a home inspection is well worth the peace of mind.

If you don’t know how or where to find a home inspector, be cautious about asking your real estate agent.

“Be careful, though, of inspectors who are popular with agents – that popularity may stem from not killing too many deals by going easy on their inspections,” says Eric Tyson and Ray Brown in their book Home Buying For Dummies (Hungry Minds, Inc., 1999).

Tyson and Brown say the American Society of Home Inspectorsis a good place to start.

“Just because an inspector is an ASHI member doesn’t guarantee that you’ll get a good inspection, but it certainly increases the likelihood that you’ll be working with a qualified professional,” Brown and Tyson write.

All certified members have performed at least 250 inspections have passed two written proficiency exams. They must also adhere to standards of practice, continuing education requirements, and code of ethics.

The authors and the ASHI recommend you interview several inspectors before choosing one. Some of the questions you should ask include:

• What does the inspection cover? Make sure the inspection and the inspection report meet all applicable requirements and comply with the ASHI Standards of Practice.
• How long have you been in the profession and how many homes have you inspected? Again, ASHI Members are required to have completed at least 250 paid professional home inspections and passed two written exams that test the inspector’s knowledge.
• Are you specifically experienced in residential inspection? The answer should be yes. If someone says they have specialized training in something like construction or engineering but not in residential inspection, you may want to move on to the next candidate.
• Does the inspector’s company offer to do repairs or improvements based on the inspection? The answer should always be no. This is against the ASHI Code of Ethics because it might cause a conflict of interest.
• How long will the inspection take? The average for a single inspector is two to three hours for a typical single-family house; anything less may not be enough time to do a thorough inspection. Some inspection firms send a team of inspectors and the time frame may be shorter.
• How much will it cost? Costs vary quite a bid depending on the region, size of the house, scope of services and other factors. A typical range might be $300-500, but consider the value of the home inspection in terms of the investment being made.
• Does the inspector prepare a written report? Ask to see samples and determine whether you understand the report.
• Does the inspector encourage the client to attend the inspection? This is a valuable educational opportunity for you to learn about how things work around what could be your house, and the inspector may point out things that don’t quite merit a mention in the report but which you should keep an eye on. An inspector’s refusal to allow you to be present should raise a red flag.Finally, once you’ve found an inspector you like, ask him for references, then follow up and contact those clients. Two key questions – whether they discovered any major defects after the close of escrow that the inspector missed, and whether they’d use the inspector again.

Written by Michele Dawson

Tips for Buying an Unbuilt Home

As an increasing number of Americans are snatching up new homes at record levels and technology’s role in the home-buying process continues to mount, many homebuyers are thrust into the position of buying their homes site unseen.

The National Association of Home Builders reports that new-home sales in August reached a record 996,000 units on a seasonally adjusted annual basis.

“Very low interest rates and the widely held view that housing is a very good investment are largely responsible for the surge in new home sales,” said NAHB President Gary Garczynski, a builder/developer from Woodbridge, Va.

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In addition, many home shoppers are relying on the Internet to conduct virtual tours of new-home plans and research home prices, availability, and options.

The National Association of Realtors recently reported that 62 percent of buyers with Web access surf the Internet to shop for a home; 41 percent use the Web as a tool in searching for a home.

As a result, an increasing number of new-home shoppers are buying their homes site-unseen, usually after viewing models and then selecting a lot. Some buyers know even less about what they’re getting into.

In 2000, California’s largest homebuilder, Kaufman and Broad Home Corporation, held an online auction, selling 18 new homes in just 19 seconds. The homes, which ranged in price from the mid-$90,000s to the mid-$300,000s, are located in Riverside, San Bernardino and Los Angeles counties.

In addition, rising home prices – triggered in many regions by demand outstripping supply – means the competition to buy a new home grows fierce as homes are being sold before they’re built.

While this may cause some level of uneasiness as you wait out weather delays, watch fluctuating mortgage rates, and worry that the builder may be taking shortcuts to get your house built as quickly as possible, there are ways to avoid potential problems. The Better Business Bureau suggests you:

 

• Investigate land plans. While you may know where your house will be located on the community map, look into what will be happening around you. Go to your local land planning office as well as any current zoning requirements and any proposals that have been submitted to develop land near your home.
• Visit your builder’s other projects. Check out the quality of the community, landscaping, and other amenities. Talk to residents there about their experience with the builder.
• Check with your BBB for a reliability report on the developer. BBB branches maintain files on many companies in their service area. These reports, which cover the past three years, will tell you how long the company has been in business, complaint patterns, whether the company is pre-committed to a dispute resolution program, whether the company is a member of the BBB, and whether there has been any enforcement actions taken by a government agency.
• Find out about the homeowners association, if there is one. Obtain a copy of the rules and ask how much fees are.
• Scrutinize the contract. You may want to have an attorney review it before you sign it. Make sure upgrades are included. You should also add a statement that allows you to visit the site at several designated times. Keep your deposit check as small as possible.
• Protect your mortgage rate. When the closing date draws near, you’ll want to lock in your interest rate. If the builder is delayed in delivering your house on time, ask your lender if you can extend your lock-in rate. If that isn’t successful, ask the lender to close the loan and hold some of the money in escrow until the appraiser verifies the home is complete.Most importantly, you’ll want to inspect the house thoroughly when it’s done. You should strongly consider hiring a professional home inspector. Be very thorough in inspecting every aspect of the home – systems, roofing, counters, fixtures, flooring, walls, and landscaping – for potential damage.

  As NAHB says, once you move in it will be difficult to prove whether damage was caused during the building process, especially considering the potential for damage that can occur during move-in.

 

Written by Michele Dawson

Don’t Be a Staging Stooge

Products sell faster and for more money when they are properly showcased, or as those of us in the real estate business like to call it, “staged.”

Auto dealers wax and polish a car and detail the interior before parking it on the lot. Department stores meticulously dress their manikins to flaunt the latest fashions. Yet, when some Realtors and homeowners put a $100K+ home up for sale, they completely overlook the staging process, cheating themselves out of potentially thousands of dollars.

As a Realtor, you can’t force your way into your client’s house and start rearranging the furniture and decluttering the kitchen. You have to sell them on the value of staging and then teach them the techniques and tips they need to do it right.

First, convince your clients of the need to stage their home. A brief visit to any of the top staging company websites can provide you with the facts and figures you need. In about ten minutes of searching the Web for “staging a home,” I learned that a professionally staged home sells in half the time for seven to ten percent more than a comparable unstaged home.

Given those numbers, a home that would normally take two months to sell at a price of $500,000 would sell in a month for $535,000 to $550,000 with professional staging! With the housing bubble quickly deflating and competition to sell homes heating up, those numbers are enough to drag even the most unenthusiastic homeowners out of their recliners to start cleaning house.

Once you have a motivated homeowner on your team, the next step is to educate that homeowner on how to properly stage the property. Hiring a professional stager is one option, but most homeowners are quite capable of staging their own homes for a fraction of the cost. Staging is not about spending a lot of money. It’s about clearing the clutter and creatively rearranging the stage. Here’s a guide to help homeowners cover the basics:

Landscaping: Mow and edge the lawn, pull weeds, fix any cracks in the pavement, and sweep up after yourself. Lay fresh mulch and plant fresh flowers (if in season).

Entryways: Sweep the porch and stairs, lay down an attractive new doormat, fix the screens, wash the windows, polish the doorknobs, and clear the clutter out of the entryways. Make sure the doors open and close with ease.

Interior: Scrub and shine the house throughout. Hide family photos, religious icons, or political paraphernalia. Prospective buyers need to envision themselves living in the house, and this stuff clutters their minds.

Kitchen: Clean and polish everything and clear off the counters, especially knife racks, dish drainers, towels, and soap. Clear out and clean the inside of the refrigerator, oven, and dishwasher; people do look inside.

Living room or den: Clear the clutter and dust everything. Rearrange the furniture and place excess items in storage. If your furniture is an eye sore, you may want to rent something that’s more attractive and tasteful and that makes the room look larger.

Bathrooms: Empty the trash, scrub down the tub or shower (especially any mildewy areas), keep the toilet seat down and covered, and get those toothbrushes off the vanity.

Bedrooms: The master bedroom should have a good-sized bed and a small dresser. The other bedrooms should follow suit or be empty.

Just before showing: Do a final walkthrough to tidy up the place, turn on all the lights, and open the windows to let the fresh air in. Most stagers recommend against using heavy air fresheners, scented candles, and potpourri. Instead, set out a bouquet of fresh cut flowers to bring the outside in.

The best way to get a first-hand look at a properly staged home is to visit a builder’s model home. You will quickly notice that the model is impeccably clean, sparsely furnished (though not completely empty), and tastefully decorated. That’s your goal. With a modest investment of time and effort and very little money, you significantly boost your chances of selling the house fast and for top dollar. Don’t be a staging stooge.

Written by Ralph Roberts

Five Keys To Successful Negotiation

 

Whether you’re a buyer or a seller you want to succeed in the realty marketplace. That’s natural and reasonable, but what are the steps you need to triumph?

Negotiation is a complex matter and all transactions are unique. Both sides — buyer and seller — want to feel that the outcome favors them, or at least represents a fair balance of interests. In the usual case there is a bit of bluff, some give-and-take, and neither party gets everything they want.

So how do you develop a strong bargaining position, one which will help you get the most from a transaction? Experience shows there are five basic keys which will determine who wins at the negotiating table.

1. What Does The Market Say?

At various times we’re in a “buyers” market, a “sellers” market, or a market where housing supply and demand are roughly equal. If possible, you want to be in the market at a time when it favors your position as a buyer or seller.

Because all properties are unique — it is possible to buck general trends and have more leverage than the marketplace would seem to allow. For instance, if you have a property in a desirable neighborhood with few sales, you may be able to get a better deal than elsewhere. Or, if you’re a buyer who can quickly close, that might be an important negotiating chip when dealing with an owner who just got a new job 500 miles away.

2. Who Has Leverage?

If you’re on the front page of the local paper because your business went bust — and the buyer knows it — you have little clout in the bargaining process. Alternatively, if you’re among six buyers clamoring for that one special property, forget about dictating an agreement — the owner can sit back and pick the offer which represents the highest price and best terms.

3. What Are The Details?

A lot of attention in real estate is paid to transaction prices. This surely makes sense, but the key to a good deal may be more complex.

Consider two identical properties that each sell on the same day for $275,000. The houses are the same, the sale prices are the same, but are the deals the same? Maybe not. For instance, one owner may have agreed to paint the property, replace the roof, purchase a new kitchen refrigerator, and pay the first $3,000 of the buyer’s closing costs. The second owner made no concessions.

In this example, the first house was actually sold at discount — the $275,000 purchase price less the value of the roof repairs, closing credit, and other items. If you’re a buyer, this is the deal you want. If you’re a seller, you would prefer to be the second owner and give up nothing.

4. What About Financing?

Real estate transactions involve a trade — houses for money. We know the house is there, but what about financing? There are several factors that impact the money issue:

• Has the buyer been pre-qualified or pre-approved by a lender? Meeting with a lender before looking at homes does not usually guarantee that financing is absolutely, unquestionably available — a loan application can be declined because of appraisal problems, title issues, survey findings, and other reasons.But, buyers who are “pre-qualified” or “pre-approved” (these terms do not have a standard meaning around the country) at least have some idea of their ability to finance a home and know that they are likely to qualify for certain loan programs.

  The result is that pre-qualified buyers represent less risk to owners than a purchaser who has never met with a lender. If the seller accepts an offer from a buyer with unknown financial strength, it’s possible that the transaction could fail because the buyer can’t get a loan. Meanwhile, the owner may have lost the opportunity to sell to a qualified buyer.

• The lower the interest rate, the larger the pool of potential buyers. More buyers equal more potential demand, good news for sellers.Alternatively, high rates or even rising rates may drive buyers from the marketplace — and that’s not good for anyone.
• It used to be that downpayments were a major financing hurdle — but not anymore. For those with good credit, loans with 5 percent down or less are now widely available. In fact, 100 percent financing, mortgages with nothing down, are now being made by conventional lenders. Reduced downpayment requirements are good for both buyers and sellers.

5. Who Has Expertise?

Imagine you’re in a fight. The other guy has black belts in 12 martial arts — and you don’t. Who’s going to win?

Brokers have long represented sellers, and now buyer brokerage is entirely common. In a transaction where one side has representation and the other does not, who has the advantage at the bargaining table?

Written by Realty Times Staff

Many Questions To Answer Before You Sell

Question: We own a single-family house in a quiet suburban neighborhood. Our children are grown and we are considering putting our house on the market. We want to downsize, and perhaps even move down South. How do we go about selling our house?

Answer: The very first thing I would do is to determine the taxable consequences should you sell your house. Most houses have significantly appreciated over time, especially within the last few years.

Let’s look at this example: Your purchased your first home in 1960 for $25,000, and sold it in 1970 for $75,000. Although you made a profit of $50,000, you took advantage of the rollover law then in existence and did not have to pay any capital gains tax. In 1970, you bought the house in which you currently live for $100,000. However, the profit that you made was rolled over into this new property, and the basis for tax purposes is $50,000 ($100,000 – $50,000).

Now, the house is worth $900,000. If you sell your home at that price, you will have made a profit of $850,000 (for purposes of this discussion, I am ignoring such costs as commissions, settlement fees or improvements — all of which can be used to increase your tax basis and reduce your capital gains tax exposure).

Under the laws in existence today, you can exclude up to $250,000 of gain if you are single or $500,000 if you are married and file a joint income tax return. In your case, you will have to pay capital gains tax on $350,000 ($850,000 – $500,000). The current capital gains tax rate is 15 percent, so when you sell your house you will have to pay Uncle Sam $52,500. And don’t forget that you will also have to pay tax in the state where your property is located.

Once you have determined the taxable consequences of selling, the next question is: Do I really want to sell? Should I keep the house as an investment? Is the house in a neighborhood where property continues to appreciate? Are there good schools in the area? Is public transportation accessible? Do I need the money to purchase a new home or can I afford to get a loan for that new property?

These are questions which you should consider before making the decision to sell. While no one believes that the real estate market will continue the phenomenal growth which has occurred in the past few years, in my opinion, real estate is still a good long-term investment.

But you have decided that you do not want to be a landlord and want to sell rather than rent. Now, you have to consider the logistics of this transaction. Which comes first: sell your current house or buy the new one? Clearly, the ideal arrangement is to buy another house first, so that you will have plenty of time in which to get it ready to move in when you ultimately sell your current residence. However, that will require money.

Talk to a mortgage lender? Can you afford to purchase another house without selling your present residence? Can you get a bridge loan on your old home?

These are important questions which should be seriously considered before you put your house on the market. I have encountered numerous situations where sellers have had to move in with friends, relatives or even to a hotel because they did not have a new place to live when their house was sold.

Next, you will need to determine the market value of the house. Talk to several real estate brokers and get their opinions. In many jurisdictions, home sales prices are listed on government websites. You may also want to retain an appraiser to give you a ballpark of what your house is worth.

If you decide to use a real estate broker, you will have to sign a “listing agreement” with that company. Read the document carefully. Here are some tips on what to include in that agreement:

• Do not give the broker a listing for more than 60-90 days. If your house does not sell during the listing period, but you are pleased with the services you are getting, you can always extend the listing. But if you are not happy with the broker, you want to be able to terminate the relationship if necessary.
• Get a written statement as to how often the broker will hold an open house to show your property to the general public.
• Include language in the agreement that the real estate commission will only be earned if settlement actually takes place. The standard listing agreement provides that the commission is earned when the broker finds a buyer who signs a real estate contract; if the buyer defaults and does not go to settlement, the commission is nevertheless still owed to the broker.

Before you put the house on the market, you also have to determine if there are any repairs which should be made. Clearly, roof leaks, plaster cracks or peeling paint should be corrected. You want the house to show in good condition in order to get the best possible price.

You should also have a neutral third party (a friend, relative or even the real estate broker) walk through the house and get an assessment as to how it looks. Keep in mind that you have been living there for many years. What you consider attractive may be considered hideous to a stranger. Is there too much furniture in the living room? Is there enough light in the bedrooms? Do the pots and pans hanging all over the kitchen detract or improve its appearance?

There are many issues which you must consider when deciding to sell your house. This column can only highlight some of these questions. If you decide to use the services of a real estate broker, you certainly can rely on their expertise — but only up to a point. You still need to rely on other professionals for assistance and guidance. Specifically, before you sign any contract presented to you (whether or not you use a real estate broker) your lawyer and your financial advisor must review that document.

You should also keep in mind that many buyers get “buyer’s remorse” immediately after they sign the real estate contract. You need to make sure that your contract is iron clad. Every state has legal requirements which must be met in order to have a legally binding real estate contract — such as seller disclosure laws, lead paint or underground storage tank disclosure requirements. A competent real estate attorney can often find a loophole in a real estate contract so as to relieve a buyer from having to go to closing. You want to make sure that you are similarly protected.

Written by Benny L. Kass

Is Condo Life for You?

You want to begin investing your money into a home, but without the responsibilities of yardwork. So you set your sights on a condominium. You select an upstairs unit and after the usual process of paperwork, credit checks and obligatory waiting-and-nail-biting period, you’re approved and move into your new home. The first night you spend in your new domestic bliss, however, you meet the little old lady downstairs — and without a formal introduction. Actually, her television is what gets you acquainted on intimate terms. The decibel level emanating from tonight’s episode of “Diagnosis Murder” is more than you can stand, so you head downstairs and introduce yourself formally to your neighbor, whose hearing is on its way out (thus, the high volume on the TV set). It’s the beginning of a beautiful relationship … and it’s just part of life in a condominium. Isn’t communal living great?

Wait — don’t jump to conclusions just yet. Condominium life can, in fact, be great with the right mix of residents and if your property is well-maintained. Admittedly, it’s not for everyone. But the advantages of condo ownership seem to be winning over a growing legion of homeowners across the country. In cities like Philadelphia and Dallas, developers are building luxury condominium properties with asking prices of $250,000, $350,000 and higher — and they’re attracting homeowners who sign on the dotted line without so much as a blink of an eye. In fact, many of these properties are filling up before construction has even been completed.

Before you jump into condo ownership, you’ll want to consider the pros and cons of such a lifestyle. Contrary to the picture painted by the above example, there are in fact many pros to condominium ownership. Provided you have considerate neighbors, a condominium can provide an excellent first purchase for a twentysomething, a scale-down for an empty-nester couple or anyone between those two life stages. Condominiums can be more affordable than single-family homes — with plenty of exceptions. Monthly association fees can add substantially to your payments. And within many regions of the United States — particularly within major cities, where healthy economies, low unemployment rates and a revitalization of the downtown sector has inspired developers to build more luxurious and subsequently more expensive condominium properties — condo ownership can be just as expensive if not more pricey than single-family homeownership.

Ultimately, the decision about whether or not a condo is right for you all comes down to your individual preferences and tolerance levels.

First, some clarification on what “condominium” actually means. When you purchase a condo, you’re actually purchasing the rights to the space inside your walls — and partial ownership in the common grounds, including the parking lots, the pool, sidewalks and stairs, balconies, elevators, common hallways and so forth.

How do you determine if a condo is the best choice for your lifestyle? Consider how much the following “pros” appeal to you.

As mentioned earlier, condominiums require their residents to assume far less responsibility for maintenance than single-family homes. Chores such as mowing the lawn outside, watering and maintaining the landscaping, bagging leaves, cleaning the pool of debris, painting the trim on buildings, and unclogging the gutters all fall within the realm of the property management company. Sure, you’re paying for their services with your monthly association fees, but you don’t have to take off work to wait for the repairmen to show up. Your condo association should have in writing all of the repairwork covered by your monthly fee. Don’t make assumptions about what those fees will cover; different associations cover different areas of maintenance, and not all of them will perform them in a satisfactory manner. So walk around the property before you buy, and ask residents for their insight.

If you’ve always dreamed of owning a pool but can’t afford one, or if you enjoy having access to a tennis court of fitness center, many condominium properties across the United States offer these recreational amenities and more — including walking and biking trails, manmade lakes and clubhouse facilities. You may also have easy access to nearby golf courses, country clubs, lakes or other recreational opportunities. That means that the area surrounding your own condominium complex is probably prime land on which single-family homes are being sold for high prices. So you’ll be in good company living in a neighborhood in which property values stand a good chance of increasing or at least remaining steady.

In a future article, we’ll explore the potential disadvantages of condo ownership. As mentioned before, this lifestyle isn’t for everyone, and we’ll explore just who might be better off seeking a similarly priced single-family home.

Written by Courtney Ronan

Many Questions To Answer Before You Sell

Question: We own a single-family house in a quiet suburban neighborhood. Our children are grown and we are considering putting our house on the market. We want to downsize, and perhaps even move down South. How do we go about selling our house?

Answer: The very first thing I would do is to determine the taxable consequences should you sell your house. Most houses have significantly appreciated over time, especially within the last few years.

Let’s look at this example: Your purchased your first home in 1960 for $25,000, and sold it in 1970 for $75,000. Although you made a profit of $50,000, you took advantage of the rollover law then in existence and did not have to pay any capital gains tax. In 1970, you bought the house in which you currently live for $100,000. However, the profit that you made was rolled over into this new property, and the basis for tax purposes is $50,000 ($100,000 – $50,000).

Now, the house is worth $900,000. If you sell your home at that price, you will have made a profit of $850,000 (for purposes of this discussion, I am ignoring such costs as commissions, settlement fees or improvements — all of which can be used to increase your tax basis and reduce your capital gains tax exposure).

Under the laws in existence today, you can exclude up to $250,000 of gain if you are single or $500,000 if you are married and file a joint income tax return. In your case, you will have to pay capital gains tax on $350,000 ($850,000 – $500,000). The current capital gains tax rate is 15 percent, so when you sell your house you will have to pay Uncle Sam $52,500. And don’t forget that you will also have to pay tax in the state where your property is located.

Once you have determined the taxable consequences of selling, the next question is: Do I really want to sell? Should I keep the house as an investment? Is the house in a neighborhood where property continues to appreciate? Are there good schools in the area? Is public transportation accessible? Do I need the money to purchase a new home or can I afford to get a loan for that new property?

These are questions which you should consider before making the decision to sell. While no one believes that the real estate market will continue the phenomenal growth which has occurred in the past few years, in my opinion, real estate is still a good long-term investment.

But you have decided that you do not want to be a landlord and want to sell rather than rent. Now, you have to consider the logistics of this transaction. Which comes first: sell your current house or buy the new one? Clearly, the ideal arrangement is to buy another house first, so that you will have plenty of time in which to get it ready to move in when you ultimately sell your current residence. However, that will require money.

Talk to a mortgage lender? Can you afford to purchase another house without selling your present residence? Can you get a bridge loan on your old home?

These are important questions which should be seriously considered before you put your house on the market. I have encountered numerous situations where sellers have had to move in with friends, relatives or even to a hotel because they did not have a new place to live when their house was sold.

Next, you will need to determine the market value of the house. Talk to several real estate brokers and get their opinions. In many jurisdictions, home sales prices are listed on government websites. You may also want to retain an appraiser to give you a ballpark of what your house is worth.

If you decide to use a real estate broker, you will have to sign a “listing agreement” with that company. Read the document carefully. Here are some tips on what to include in that agreement:

• Do not give the broker a listing for more than 60-90 days. If your house does not sell during the listing period, but you are pleased with the services you are getting, you can always extend the listing. But if you are not happy with the broker, you want to be able to terminate the relationship if necessary.
• Get a written statement as to how often the broker will hold an open house to show your property to the general public.
• Include language in the agreement that the real estate commission will only be earned if settlement actually takes place. The standard listing agreement provides that the commission is earned when the broker finds a buyer who signs a real estate contract; if the buyer defaults and does not go to settlement, the commission is nevertheless still owed to the broker.

Before you put the house on the market, you also have to determine if there are any repairs which should be made. Clearly, roof leaks, plaster cracks or peeling paint should be corrected. You want the house to show in good condition in order to get the best possible price.

You should also have a neutral third party (a friend, relative or even the real estate broker) walk through the house and get an assessment as to how it looks. Keep in mind that you have been living there for many years. What you consider attractive may be considered hideous to a stranger. Is there too much furniture in the living room? Is there enough light in the bedrooms? Do the pots and pans hanging all over the kitchen detract or improve its appearance?

There are many issues which you must consider when deciding to sell your house. This column can only highlight some of these questions. If you decide to use the services of a real estate broker, you certainly can rely on their expertise — but only up to a point. You still need to rely on other professionals for assistance and guidance. Specifically, before you sign any contract presented to you (whether or not you use a real estate broker) your lawyer and your financial advisor must review that document.

You should also keep in mind that many buyers get “buyer’s remorse” immediately after they sign the real estate contract. You need to make sure that your contract is iron clad. Every state has legal requirements which must be met in order to have a legally binding real estate contract — such as seller disclosure laws, lead paint or underground storage tank disclosure requirements. A competent real estate attorney can often find a loophole in a real estate contract so as to relieve a buyer from having to go to closing. You want to make sure that you are similarly protected.

 

Written by Benny L. Kass

What To Do When Your House Won’t Sell

You’ve heard all about the hot real estate market that’s been sweeping the country the past couple years. Selling your house, you assumed, would be quick and easy. But that isn’t always the case. If you’re caught in a situation in which your house has lingered on the market while you’ve watched neighbors sell and move, then it may be time to make some changes.

Economists at the National Association of Realtors expect homebuying activity in the next few months to lose a bit of steam, but maintain a strong clip despite increasing interest rates.

“But even with the increase, mortgage interest rates currently are below the average for all of 2002,” David Lereah, chief economist, said. “Given that last year was a record for home sales, today’s interest rates are still very attractive and will keep sales at relatively strong levels going forward. We expect only a modest rise in interest rates, with the 30-year fixed staying below 6.5 percent for the rest of the year.”

The national median existing-home price is expected to increase 6.6 percent in 2003 to $168,600, while the median new-home price should rise 3.2 percent to $193,700. “With a more balanced market between buyers and sellers expected in 2004, home prices should rise in the range of 4 to 4.5 percent,” Lereah said.

That prediction is proving true in some parts of the country, like Sun Valley, Idaho.

“Things are neutralizing more each day in Sun Valley as interest rates move upward, ever so slightly,” said broker Mo O’Connell. “Everything that is priced well is still being shown, though marketing times are getting a bit longer.”

A similar situation exists in Northern Colorado.

“Northern Colorado is experiencing some “market corrections” in response to an abnormally high-priced market,” said agent Mary Roberts, of Fort Collins. “Days on market for a home in the high $100,000’s to low $200,000’s is now three to four months instead of one to two months.”

So if your house has been on the market longer than you had anticipated and you’ve seen few – if any – reasonable offers, then the first thing you should examine is your asking price.

If you’re working with an agent, he or she conducted a market analysis of similar homes that have sold recently in your area. The specifics of your house – any home improvements you may have made, the condition of the roof and paint, the size of your lot, the location in the subdivision (cul de sacs and courts are usually more desired while houses closer to the front of a development and closer to main thoroughfares might reduce the asking price) should have been considered.

Perhaps you got a little greedy and insisted your house be listed on the high side, or even higher than your agent recommended. Now’s the time to reduce the asking price.

Other things you can do and consider include:

 

• Ask your agent to talk to other agents who have brought clients to the house to try to determine what potential buyers thought of the house and why they passed it up.
• Fix the obvious. If you started out with a situation you knew might deter buyers, take care of it – now. Whether it’s a worn roof with missing shingles, the dirty peach-colored carpet, or the back yard that is nothing but dirt, remedy the problem so it can be an attribute.
• Think about your curb appeal. In other words, the way your house looks from the street – the roof’s condition, how the paint is holding up, whether the windows are sparkling, the lawn is mowed, the landscape is attractive and not buried beneath a peppering of fall leaves, and the driveway and walkways are free from toys and clutter.
• Try to see your house through someone else’s eyes. If you have too much furniture, put some of it in storage. Fewer pieces of furniture will make the room seem larger and more open. Also, clear counters in the kitchen and bathrooms. Make sure closets are clean. Pack up some of your clothes now. Fewer hanging clothes in the closet will make the closet appear bigger.
• Showcase any assets. If you’ve already had your own home inspection, provide a copy of the report to anyone who looks at the house. If you have an Energy Star air conditioning or heating unit, or an Energy Star water heater or appliances – all of which typically reduce energy bills – display your utility bills and any fact sheets of information you have on your Energy Star amenity.Finally, don’t lose hope. Barring any major structural problems, when your house is priced right and looks its best, it will sell.

 

Written by Michele Dawson

 

Selling? Show Your House in the Right Light

If you’re getting ready to put your house on the market you’re probably busy painting some of the dingy walls, shampooing your carpet, and clearing the clutter. But be sure you add something else to your list – strategic lighting.

With the right lighting, the look of a room can turn from mediocre to sensational, making it look bigger, airier and more desirable.

The right lighting can enhance your skin tone, allow you to see what you’re doing, draw attention to focal points in your décor, and make a big difference in how you feel about your home. And best of all, it’s inexpensive compared to other home decorating or remodeling options.

Lighting experts tell us there are three types of lighting: general, which gives overall light to an area and allows for safe function in your home; accent, which highlights and draws special attention to details; and task, which helps you to perform tasks.

Rosemary Sadez Friedmann, a member of the American Society of Interior Designers, says there are three other categories of light as well.

Ambient light is a hidden source of light that washes a room with a glow. Aesthetic lighting itself can be a work of art, such as a neon sculpture. Natural light, (sunlight, candlelight and firelight) is light that moves. Quality of natural light, sunlight in particular, depends on many things such as time of day, the weather, and what season it is.

Lighting can also play tricks on the mind and enhance or minimize the physical size of the room. For example, Sadez Friedmann says that if a room is too tall, low luminaries that don’t allow light out the top help shorten high ceilings; if a room is too small, visually push one wall open by washing it with light; and if a room is too wide, illuminate the narrow ends of the room. Conversely, if a room is too narrow, illuminate the wide sides of the room.

In his book Improve the Value of Your Home Up to $100,000 (John Wiley and Sons, Inc., 2003), Robert Irwin says a dark house is a definite turn-off to potential buyers.

“Not only will they keep you from getting a quick sale, but they will also cut down on the amount of money you’ll get in offers,” says Irwin, who has written more than 50 books on a range of real estate issues. “On the other hand, if you lighten up these dark spots, you can very quickly improve the value of your property.”

Chris Casson Madden, the author of 13 interior design-related books and host of HGTV’s Interiors by Design, takes a look at how you can improve your lighting and attract buyers, room by room:

 

• Any room: Use high-hats or recessed down-lights installed in ceilings with a dimmer control.
• Bedroom: In addition to above, add a floor lamp or table lamp and bedside lights for reading.
• Bathroom: Angle recessed lighting to bounce light off the walls and ceiling and help reduce glare and shadow. Use wall-mounted sconces or over-vanity lights beside the mirror. Light your shower’s interior with uniform brightness.
• Kitchen: Task lighting is required here. Group down-lights to focus more light on particular areas.Today’s decorative lamps and fixtures do more than illuminate. You can choose from decorative sconces, chandeliers, and table and floor lamps in a variety of shapes, styles and finishes that take a room from drab to dramatic with the flick of a switch.

  If you’re looking for a quick fix, Irwin suggests replacing all the old fixtures – they typically run about $40 to $50 apiece. Be sure to get a fixture that produces 200 to 300 watts each.

  “Now, no matter which room a prospective buyer walks into, it will be lit brightly,” he says. “And the lighting fixture itself will be modern and attractive.”

  He also recommends buying six or so halogen lights and placing one in each room.

  “Yes, they use a lot of electricity, but the extra light often makes the difference when a buyer is on the fence and can’t decide whether or not to make an offer on the home,” he said.

  So once you’ve added a few strategic lamps and fixtures throughout your house, don’t leave potential buyers in the dark. Be sure to turn on all the lights before you leave your house in the morning – you never know when your house may be shown to those potential buyers.

 

Written by Michele Dawson