8 factors that devalue a good home - Business - Eye on the Economy - msnbc.com

8 factors that devalue a good home - Business - Eye on the Economy

If you're considering selling your home, there are a number of factors you should consider regarding the resale value of your property. Some of these issues may devalue your home or scare some potential buyers away entirely, even if your home is an otherwise outstanding property.

Consider these eight factors when listing your home:

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Some buyers are understandably leery of purchasing homes located on flood plains

1. Location, location, location
Many real estate television shows repeat this phrase over and over. Buying a home in an area that provides residents with access to services and effective transportation is important — though many buyers don't wish to live too close to airports and busy roads for fear of noise.

Visual appeal is another concern. Cell phone towers and power lines can be seen as eyesores — or possibly even having potential health hazards. Local school closures can also deter potential buyers who have children or who are considering having children in the near future. Some buyers may be leery of purchasing homes that are on flood plains.

To ensure maximum resale potential, consider how many of these types of issues exist near the properties you're considering. Remember, though, there's no way of knowing exactly how a neighborhood will evolve over time.

2. Good renovations gone bad
If your home looks like a DIY nightmare, this can definitely devalue your home. Though putting money into renovations generally increases the value of a home, poorly done renovations can have the opposite effect. If buyers feel that the renovations will have to be redone, there's a good chance they'll make a lower offer or keep looking for a move-in ready home.

3. Overly creative customization
That bright pink feature wall might have seemed like a good idea at the time, but the truth is that unusual paint choices — both inside and outside the home — can turn buyers off, even if your customization is the cutting edge trend in current home design magazines. Customizing spaces so that they may not be functional to future buyers, like turning the garage into a home gym or a granny apartment, might make some buyers reluctant to buy your property.

The same can be said for unique landscaping choices or renovations that are too high scale for the house. A professional chef's kitchen or marble bathrooms in a modest home suited to first-time buyers won't likely provide a good return on investment.

4. Unappealing curb appeal
The first thing potential buyers will see is the exterior of the property. If the house appears to be outdated or in poor repair on the outside, people will assume it is the same for the inside. Water features or swimming pools and overly landscaped green space may turn off some buyers since people tend to associate high maintenance yards with expensive upkeep and unnecessary headaches. Old fences and sheds can also devalue your home, especially if they look like they're in dire need of replacement. Keep the gardens weeded and the lawn mowed so that potential buyers can see how nice the property is, inside and out.

5. Pets gone wild
Many people won't mind buying a home that has had resident animals, but no one wants to live with constant reminders of former owners' pets. Damage to carpets, walls or a strong smell of animals will put off some buyers — especially those with allergies. Consider letting your pets live elsewhere while the property is for sale. Also, a good cleaning and repairing of any visible damage will help to mitigate the potential devaluation of your home associated with pet ownership.

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6. Not-so-nice neighborhood
A dodgy neighborhood with a high crime rate or homes on your block that look unkempt can scare potential buyers away. Even if your neighbors have unusual-colored homes or have made strange additions to their homes, this can be perceived by potential buyers as an eyesore.

7. Sinister reputation
Well-known crimes, deaths or even urban legends associated with your house or neighborhood can decrease the value of a home immensely. Most people don't want to live in a home where they feel that something awful has happened, much less move in with your alleged resident ghost! Though these kinds of issues may be out of your control, they may certainly have an impact on the resale value of your home.

8. Frightful Foreclosures
Many buyers are leery of purchasing foreclosures that are being sold on an "as-is" basis. The fear is that the home could be a money pit or require a huge amount of repairs before being move-in ready. Some good homes may be available through foreclosures, but it's important to do your research, ask lots of questions and don't be afraid to bargain. It's also crucial that you get a home inspection so that you know exactly what you're getting into. There's a good chance that some work will be required when buying a foreclosure, but you may get great value for your money if you're willing to put in a little work.

The bottom line
Neighborhoods change over time, so there's no way to be totally sure when you buy a property how the area will look in the years to come. However, you should always make your best efforts to address any issues with your property that are within your control. Play up your home's strong points and get involved with your real-estate agent to ensure that any special features of your home and neighborhood have been highlighted

Today’s Real Estate Investors: A Vital Force in America’s Communities

Today’s Real Estate Investors: A Vital Force in America’s Communities

Homeowners flinching at the latest home price reports may not be in a grateful mood right now. But what they may not realize is that property values could be in worse shape if not for the recent actions of many unsung players in their local housing markets -- investors.

Today, while investors make up less than 20 percent of all home buyers[1], in recent months they’ve been quietly buying approximately 35 percent of all homes sold each month.[2] Even more intriguing, investors are expected to become three times more active than typical homebuyers in the next two years, based on data from a new investor survey recently conducted for Move, Inc.

While there’s nothing new about investing in real estate, today’s climate has made it an attractive option for a wide variety of little known buyers in thousands of communities across the country. Many are typical homeowners who probably won’t or can’t sell their existing home at today’s prices. Instead, they opt to rent them out until prices improve. Others are taking advantage of low prices to buy second homes or retirement properties as long term investments, and then rent them until they’re ready to use the property themselves.

They also don’t fit the stereotypical deal driven buyer known as a ‘flipper.’ Most real estate investors today are beginners; only 36 percent have done more than one deal.[3] Most are financing over 50 percent of the transaction; only 18.5 percent will use all cash. They also have a heightened interest in their local communities; 62 are paying more attention to local home values today than they were a year ago. Two-thirds say they’re investing for the long term and half plan to hold their properties for five years or more.

It’s also important to keep in mind that today’s investors do more than just reduce local housing inventory with their purchases. Many repair the properties they buy and then live in them until they’re ready to sell or return them to the community as rentals or restored properties for sale. For many it’s a labor of love; some 42 percent of investors[4] save money by doing the work themselves.

For some, the decision to venture into real estate investing is simply a matter of economics and opportunity. They see prospects for a 10 to 20 percent gain over five years as a real estate investor, where others see overstocked housing inventories with little chance of earning value. They see stock marketinvestments in today’s recessionary climate are only yielding 1.6 percent a year over five years.[5] They also see the potential to regain recent portfolio losses within a local housing market they know and probably lived in for many years. It’s a once in a lifetime opportunity for many that cannot and must not be ignored.

Local real estate investors are a more vital force in the marketplace today than perhaps at any other time in recent history. They are a little known factor that’s shoring up many local housing markets. One might even say American entrepreneurialism is helping to preserve the American dream of homeownership.

In the next few years, it’ll be very interesting to see how they fare as the market changes. In the interim, let’s give them credit for the role they now play in helping to keep local housing markets alive.

By Steve Berkowitz

Chief Executive Officer, Move, Inc.

8 Must-Have Numbers For Evaluating A Real Estate Investment - Investopedia.com

8 Must-Have Numbers For Evaluating A Real Estate Investment - Investopedia.com

8 Must-Have Numbers For Evaluating A Real Estate Investment

Posted: May 26, 2011 8:48AM by Michele Lerner

1. Your Mortgage Payment
For a standard owner-occupied home, lenders typically prefer a total debt-to-income ratio of 36%, but some will go up to 45% depending on other qualifying factors such as your credit score and cash reserves. This ratio compares your total gross monthly income with your monthly debt payment obligations. For the housing payment, lenders prefer a gross income-to-total housing payment of 28 to 33%, depending on other factors. For an investment property, Freddie Mac guidelines say that the maximum debt-to-income ratio is 45%. (For more check out Simple Ways To Invest In Real Estate.)

2. Down Payment Requirements
While owner-occupied properties can be financed with a mortgage and as little as 3.5% down for an FHA loan, investor mortgages typically require a down payment of 20 to 25% or sometimes as much as 40%. None of the down payment or closing costs for an investment property may be from gift funds. Individual lenders will determine how much you need to put down to qualify for a loan depending on your debt-to-income ratios, credit score, the property price and likely rent.

3. Rental Income to Qualify
While you may assume that, since your tenant's rent payments will (hopefully) cover your mortgage, you should not need extra income to qualify for the home loan. However, in order for the rent to be considered income, you must have a two-year history of managing investment properties, purchase rent loss insurance coverage for at least six months of gross monthly rent and any negative rental income from any rental properties must be considered as debt in the debt-to-income ratio. (Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits. Check out Tax Deductions For Rental Property Owners.)

4. Price to Income Ratio
This ratio compared the median household price in an area to the median household income. Before the housing bubble burst, the price-to-income ratio in the U.S. was 2.75, while at the end of 2010 the ratio was 1.71. The average between 1989-2003 is 1.92 according to Fiserv, Inc., Federal Housing Finance Agency, Moody's Analytics.

5. Price to Rent Ratio
The price-to-rent ratio is a calculation that compares median home prices and median rents in a particular market. Simply divide the median house price by the median annual rent to generate a ratio. At the peak of the U.S. market in 2006, the ratio for the U.S. was 18.46. The ratio dropped to 11.34 by the end of 2010. The long-term average (from 1989 to 2003) was 9.56. As a general rule of thumb, consumers should consider buying when the ratio is under 15 and rent when it is above 20. Markets with a high price/rent ratio usually do not offer as good an investment opportunity. (Thinking of buying a home? We look at the initial and ongoing costs as well as the benefits. Check out To Rent or Buy? The Financial Issues.)

6. Gross Rental Yield
The gross rental yield for an individual property can be found by dividing the annual rent collected by the total property cost, then multiplying that number by 100 to get the percentage. The total property cost includes the purchase price, all closing costs and renovation costs.

7. Capitalization Rate
A more valuable number than the gross rental yield is the capitalization rate, also known as the cap rate or net rental yield, because this figure includes operating expenses for the property. This can be calculated by starting with the annual rent and subtracting annual expenses, then dividing that number by the total property cost and multiplying the resulting number by 100 for the percentage. Total rental property expenses include repair costs, taxes, landlord insurance, vacancy costs and agent fees.

8. Cash Flow
If you can cover the mortgage principal, interest, taxes and insurance with the monthly rent, you are in good shape as a landlord. Just make sure you have cash reserves in hand to cover that payment in case you have a vacancy or need to cover unexpected maintenance costs. Negative cash flow, which occurs most often when an investor has borrowed too much to buy the property, can result in a default on the loan unless you are able to sell the property for a profit.

The Bottom Line
Once you have made all these calculations, you can make an informed decision about whether a particular property will be a valuable investment.

Top 10 Deal Breakers & How To Avoid Them

Top 10 Deal Breakers & How To Avoid Them

May 23, 2011|Buyers,Sellers

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Your buyers have found the home of their dreams, started packing their stuff and have mentally moved in when suddenly a challenge arises that could put a serious wrench in the home buying process. In today’s market, finding the home is only the start of a transaction that can have many stumbling blocks along the way.

Here are the top 10 deal breakers buyers and sellers encounter that can impact the sale of a home:

1. Fixtures and Personal Property Pitfalls

I can’t tell you how many times I have seen deals falter because of disagreements over silly stuff like who gets the fireplace screen, the wall sconces or the appliances. For some buyers and sellers it can be difficult to distinguish between personal property and fixtures that come with the house. I once had someone try to take a beloved bathtub. Like the buyer wouldn’t notice?

How to avoid it- Disputes over fixtures and personal property are common. It is important to educate your client about the difference between attached appliances and personal property but there are times when the lines get blurred. Wall mounted flat screen TVs are frequently an issue. If something is really special to a homeowner, recommend the sellers remove the item before you put the house on the market. Have a beloved chandelier? Replace it before you start showing the home with an acceptable alternative. If this isn’t possible, exclude it in MLS along with frequently confused items like that flat screen and make sure it is excluded at the time the offer is written as well. Buyers should investigate and include any items that are important to them.

2. The dreaded ex-wife/husband

There may be many reasons to dread an ex, but when it comes to selling a property, it can impact the sale of a home. We often see situations where the owners got divorced but he/she didn’t sign off. Finding this out late in the process can be problematic, especially when one of the parties no longer has a financial interest in selling the home. This scenario along with other clouds on the title can take time to clear. Bank owned properties often come with title issues such as unpaid garbage fines that can impact your closing.

How to avoid it: Get a preliminary title report as soon as possible and be sure to ask your seller if there are any potential claims on the title.

3. Buyers Buying “Stuff”

Your first time home buyers are moving into their new home. They don’t have a washer and dryer of their own and the local appliance store is offering a smoking deal – get a store credit card, and save 15% on the purchase of your new appliances! Sound like a steal? It might just kill your deal.

Time and again we counsel buyers not to make major purchases before close of escrow such as a new car or major appliances, and time and again, some appliance store has a great “deal” that kills the deal. Any major purchase the impacts your credit can also impact your loan being funded too.

How to avoid it: Regularly remind your buyers to wait on appliance purchases, new car purchases, furniture and more until they the loan has been funded. Tell them to put those credit cards away until the paperwork is recorded.

4. Failure To Disclose

“But Ginger, I didn’t know I had to disclose that the hill behind the house next door came down last spring. It didn’t impact my part of the hill.” I have had to fight with sellers to get them to disclose certain facts about their home, but it is almost always better to over share when it comes to disclosure. Inevitably, a neighbor is going to tell the prospective buyer about the sliding hill, the formerly moldy basement or about the meth lab around the corner.

How to avoid it: When in doubt, disclose, disclose, disclose. Problems always seem much bigger when they are uncovered by a buyer after they are in contract.

5. Appraisal Nightmares

We went through a period of time when appraisals always magically came in at the offer price. For the most part, those times are gone. Appraisals are common deal breakers, and in many transactions, you don’t just have one. Review appraisals of the first appraisal are commonplace.

How to avoid it: Make sure the lender has a qualified appraiser. When possible, accompany the appraiser on the inspection. Prepare your clients in advance that the purchase price may have to be renegotiated or a higher down payment may need to be brought in if the appraisal comes in low.

6. Who Owns What?

Your buyer thinks they are getting a 6000 square foot lot, only to find out that the fence is built on the neighboring property. Or they think they own the driveway, but it is really an easement on property owned by the cranky old neighbor. Lot lines, shared driveways, and fences are common stumbling blocks in a transaction.

How to avoid it: Review the preliminary title report carefully. Legal descriptions aren’t always easy to read, but take the time and effort to have your client do so carefully. Have a title officer walk you through the title report to explain anything unusual. You should have your client go to the city/county authorities to review the items on file. If your client is concerned about the lot boundaries, have them perform a survey. While surveys can be costly, not knowing the actual boundaries can be costlier says Diana Rugh, a Realtor with David Lyng Real Estate, in Santa Cruz County, California. If a client is only concerned about one side of the property, she has her clients perform a partial survey for just the side in question.

7. No permits

In many areas, unpermitted additions or remodels have become serious deal killers. Many cities and towns have implemented pre-sale inspections to fill their dwindling coffers.

How to avoid it: If city/town inspections are required, get them in advance, correct any required issues, and get your clearance. Some municipalities don’t operate on the swiftest timeline, so start as early as you can.

8. Unexpected inspection findings

I used to work with an inspector that other agents called the deal killer and honestly, he was. But he was also a lawsuit saver. When you have a client paying hundreds of thousands if not multiple millions of dollars for a house, they should know what they are buying. I call inspection periods the second negotiation phase of the deal. Inspections are common deal breakers when agreement cannot be reached over repairs. Sarah Stelmok, a Realtor in Fredericksburg, VA almost lost a deal when the home inspection uncovered numerous dead felines in a crawl space. Amazingly enough, she was able to hold it together, the felines were removed and she closed the deal.

How to avoid it: Get inspections before the property is actively on the market. Buyers will probably still get their own, but at least you can resolve serious problems that may send a buyer running in advance. Repairs almost always cost a seller less if the buyer knows about it before they write their offer.

9. The lender changed the rules

This may be hard to imagine, but sometimes you are ready to rock and roll, you got your buyer pre-approved, not just pre-qualified, you are in contract and everything looks great until- poof- the lender changes the rules. Suddenly your buyer can’t meet the lender documentation requirements. This would have been helpful to know in advance.

How to avoid it: Unfortunately, there is not much that can be done to avoid it other than working with a reputable mortgage broker or lender with a solid record of closing transactions. If you represent the buyer, you may want to recommend the buyer leave their loan contingency in place until the loan is funded. If market conditions don’t permit this, make sure your buyer is aware of the ramifications if the loan doesn’t fund.

10. The bank doesn’t care

If the property being purchased is a short sale, the bank is pretty much in charge and they simply don’t care about your timeline. I have heard of people celebrating two and three year anniversaries of working on a short sale. When it comes to short sale timelines, anything goes, or better yet- who knows?!

How to avoid it: The best way to save a deal when a bank is involved is to make sure your buyers have appropriate expectations about the process. Educate them of the pitfalls of working with a bank. You might want to share the handout found in this article on the 5 Most Common Complaints of Short Sale and REO Buyers.

One of the best ways to avoid killing a deal- educating your clients about the entire home buying/selling process to make sure everyone is properly prepped goes a long way to holding deals together.