5 Steps to Avoid Buying a Money Pit

5 Steps to Avoid Buying a Money Pit

What did Cary Grant, Tom Hanks and Richard Pryor have in common? They all starred in hilarious movies with plots built around their money pit homes (“Mr. Blandings Builds His Dream House” [1948], “The Money Pit” [1986] and “Moving” [1988], respectively).

But buying a home that turns out to need much more extensive (and expensive) repairs than originally thought is only funny in the movies. In real life, buying a money pit can nearly drive a new homeowner to lose their mind - and their shirt.

Fortunately, there are a number of real-life strategies that real-world buyers can act on to prevent their own home-buying plot line from including an unfunny lemon of a home. Here are 5 of my personal favorite steps that will help you avoid buying a money pit.

1. Attend Inspections. There are lots of things you can outsource and rely on your professional representatives to do when you’re buying a home, but I’d suggest you keep attending your home, pest and roof or other specialty inspections on your own personal to-do list. When you’re there in person, the inspector is able to physically show you the items that may need repair, and give you their professional opinion of how serious and large needed repairs may actually be at a level of clarity a written report may lack.

Sometimes, written inspection reports convey minor items (like reversed hot and cold faucets) as a red-flagged health and safety issue, and more major items (like a problematic foundation) as something that needs further inspection. If you are at the inspection in the flesh, you can brief the inspector on what level of cost and effort you consider major (and vice versa), and ask them to help you understand roughly where the property overall and any individual repairs needed fall, from that perspective.

2. Read the Reports and Disclosures. Attending your inspection is just the first step. Reading the inspectors’ reports is critical to avoiding a money pit - both the reports generated by your own inspectors, and any reports and disclosures provided to you by the seller. Things to watch for and investigate further in the sellers’ reports and disclosures include:

• repairs the seller completed themselves,
• repeated repairs to the same home system,
• water and leakage issues, and
• any reports of non-functioning mechanical or other systems in the home.

In your inspectors’ reports, make sure to notice:

• repair estimates they offer,
• items that seem like they will have to be completed soon (versus upgrades you can do over the long run)
• items that seem like they might run into big ticket dollar amounts, and
• especially watch for any recommendations that you get a specialist to look at something - some of the largest potential repairs are often dealt with in this way by a general property inspector.

It behooves you to follow up on your reading of reports and disclosures by working with your agent to:

• list your questions and concerns,
• ask the inspector(s) and seller any follow-up questions you have,
• obtain follow-up inspections (including obtaining an extension of your inspection contingency, if needed) and
• obtaining reliable repair estimates.

3. Get Multiple Repair Bids. While your pest, roof and other inspection specialists may offer you a repair cost estimate with your report, most general property inspectors do not - many states even forbid it by law. Money pits often occur when buyers take a place knowing it needs what they thought was a little work, that actually turns out to be a much more costly or involved repair, once the actual repair contractor takes a look or starts the work.

Avoid surprises by getting multiple repair bids from reputable contractors while you are still within the inspection contingency time frame of your contract. These repair estimates can also provide the basis for any renegotiation you and your agent choose to initiate with the seller for price reduction, repairs or increased closing cost credits.

4. Stop Overconfidence In Its Tracks. Having managed two extensive remodeling projects myself, I can vouch - unless you are a construction professional (and sometimes even then!), all but the most minor home improvement or repair projects tends to take more time and money to do yourself than you expect at the outset. (With my own two hands, I took down wallpaper and painted a room in January of 2002, and am still experiencing symptoms of post-traumatic stress disorder. One room, people.)

Even if you expect to cut costs by doing some work yourself, I urge you to contact and obtain bids on the repairs and upgrades you plan from actual professionals, so you can at least be armed with the information about what it will cost to get them done if you can’t complete them for any reason.

5. Prioritize Price Reductions and Credits over Seller Repairs. For the most part, I feel that buyers will select their own materials and repair contractors with more care and are generally more deeply invested in ensuring that repairs are completed to their satisfaction than an outgoing seller. If you are negotiating with your home’s seller over repairs that need to happen, discuss with your agent whether it might make sense to ask for a price reduction or a closing cost credit to offset the cost of the repairs so you can have them completed to your standards, and with the materials and by the contractors of your choice, after closing.

5 Home Improvement Projects that Will Get You Top Dollar For Your Home « Rob Smith | Real Estate for the Real World

5 Home Improvement Projects that Will Get You Top Dollar For Your Home

POSTED ON SEPTEMBER 29TH, 2011

It’s
a highly competitive market for home sellers right now. More homes to
compete with means that the impression your homes makes – from the curb,and
on the inside – matter now more than ever. You can increase your
chances of selling faster – and at today’s top dollar – by investing in a
select few home improvement projects that have been shown to make a big
impact on buyers.

Bad
news alert: it might cost you a little time, effort and cash. The good
news, though, is that the best projects for quickly increasing your
home’s resale value tend to be cosmetic and fairly simple and
inexpensive to do. Here are five projects with big-time return on
investment for home sellers-to-be, in terms of their power to attract
buyers, and to attract dollars from those buyers.

1. Painting:
Adding a fresh coat of paint to ceilings and walls is a tried and true
way to increase your home’s appeal to buyers. Go for white or neutral
tones that help lighten your rooms. (Now is not the time to show off
your fascination with fuschia and limegreen.) Buyers will have an
easier time envisioning how they will infuse their own personalities
into your home if they’re looking at a relatively blank slate.

Painting
lightens and brightens rooms, instantly removes scuffs and dings and
gives every room a fresh, polished feel.

Fresh
exterior paint – even if your time or cash budget limits your efforts
to accents like eaves, shutters, doors and trims – is also a quick,
inexpensive way to polish the look of your home from the curb.

2. Landscaping: Everything
you’ve heard about curb appeal is true. First impressions matter –
especially if your house is one of eight or nine a buyer has seen in one
day. Buyers will be more excited to look at the inside your home if the
outside looks clean, charming and inviting. Mow the lawn, trim the
hedges, pull the weeds and plant some flowers, bushes or shrubs for the
biggest impact – and be diligent about keeping your landscaping very
well-manicured throughout the time your home is on the market.

Be
sure to keep it low-key, relatively low maintenance and neutral,
though. This is not the time to indulge your personal fantasies of
living in an exotic paradise, unless that matches the existing look and
feel of your home, nor is it the time to install a time-intensive
English garden that buyers will love, but not want to take on. Think
clean, simple and elegant for the biggest boost in value.

3. Cleaning and de-cluttering: Start by removing all your family photos from the walls and all sorts of tchochkes and clutter from the tops of tables, desks, dressers and counters. Buyers want to be able to envision their
lives in the house, not yours. Personal items – and the visual clutter they create – have been shown time and
time again to block buyers’ ability to create this vision.

Also,
remember that buyers are coming to see the house and evaluate its space, not to bear witness to all the fabulous furniture that means so much to you (no matter how amazing your personal taste). Remove furniture that
takes up too much space and fills up rooms. Get rid of clutter such as
clothes, boxes, piles of mail and other items.

And then clean – and keep cleaning obsessively, the entire time your place is on the market. Kitchens, bathrooms and bedrooms should look unlived in when they are shown. And don’t forget to clean less obvious places like windows, walls, doors and and
floors, to dust off shelves and furniture, and to polish appliances.

4. Plumbing repairs and water stain/damage repair: Paying
a plumber to make a few stops throughout your home can be well worth
the investment. Leaky faucet in the master bathroom? Get it fixed. Does
the space under your kitchen sink look like a science experiment? Leaks
and water stains definitely provoke disgust and exasperation on the part
of the buyers you want and need to impress. And they can be pretty
cost effective to fix – ask your agent for a referral, if you need one.

5. Staging: Staging your home can make a dramatic difference in the price for which your home sells. Good staging is equal parts:

(a) removing your personal belongings and replacing it with more artwork, decor and cleaner-looking furniture,

(b) and tweaking the home’s paint, wall coverings and even landscaping to show the place in its very best light.

When
done well, staging can convert your home from just another listing on a
buyer’s list to the setting for a fresh, new start to the fresh, new
life of their dreams. Professional stagers, in particular, have special
skills and materials they use, from convincing you to get rid of a bunch
of things you value (but read: junk to a buyer), to items like
mirrors, plants, art work, lamps, pillows and even furniture that tells a
visual story of the life buyers can fantasize about living in your
home.

Talk
to your agent about staging – some agents have the skill to do this on
their own, while others might have a professional stager they frequently
work with.

In
some cases, you might want to take on even larger projects. Before you
go that route, talk with a local real estate agent; they are
well-positioned to know what sort of updates and features will make the
most impact on local buyers. Not all major, non-cosmetic upgrades to
your home will create a significant difference in the price it commands,
so take advantage of your agent’s expertise as you make decisions about
whichproperty preparation investments to make (and which to forego).

The Top 3 Real Estate Deal-Killers - and How Buyers Can Avoid Them - Business Insider | Attorney Profiles

The Top 3 Real Estate Deal-Killers - and How Buyers Can Avoid Them

Once upon a time, homebuying was a much less dramatic affair then it is today. The house hunt was fun, if suspenseful, and then there was another exciting whirlwind of inspections, closing and moving in. Today, though, as soon as buyers get the gumption to jump off the rent vs. buy fence, they find themselves on another edge - the edge of their seats, through the entire escrow process waiting to see what obstacle will emerge next, and whether their transaction will survive it.

Deals get killed all the time, and buyers can't relax until they have keys actually in hand. Here are three of the most common real estate deal-killers, and some steps buyers can take to deactivate them.

1. Appraisal too low. Some buyers incorrectly believe that the best thing that could happen to them is for the property to appraise below the agreed-upon purchase price, expecting that a low appraisal forces the seller to bring the price down. In fact, so many of today’s sellers are barely breaking even, that a low appraisal is probably the most common deal-killer around. If an appraisal comes in just a tad bit lower than the contract price, usually the seller will come down if they can, or the buyer will kick in a few extra bucks. But when it comes in 5, 10 or even 20 percent low, most sellers can't - and most buyers won't .

Low appraisals also seem like the most difficult deal-killer to avoid, as this process is entirely out of both buyer's and seller's control. But there are two things buyers can do to minimize the risk. First, check the comps - i.e., recent comparable homes that have sold in the area - before making an offer; your agent will help you do this. Then, don't make an offer bizarrely above the average range of the comparables, even if the property has multiple offers, unless you're prepared to deal with a low appraisal a couple of weeks out.

Also, consider working with a local mortgage broker who also originates loans through its own bank (vs. walking into a large bank's branch off the street); these lenders have the ability to choose from a smaller pool of appraisers that they know are qualified and knowledgeable about your area.

2. Property condition dramas. When the market melted down, lenders found themselves with a lot of decrepit homes on their hands. This explains two things: (1) why lenders are more concerned about property condition now than ever, and (2) the raggedy condition of so many of the "distressed' homes on the market. Homes that have extensive wood rot, dangerous decks or electrical systems, or peeling paint and missing systems (sinks, stoves and the like) are highly unlikely to pass muster when the appraiser walks through, even if they do qualify as being worth the purchase price. And while an individual seller might be willing to do some work, many just can't afford to; short sale and REO sellers simply refuse to make fixes, 9 times out of 10.

Prevention is the best medicine for curing this transaction ailment. If you are buying a short sale or REO property, be aware that when the selling bank says as-is, it really means as-is. Ask your mortgage broker and agent to brief you on what sort of shape your lender will require your home to be in, at minimum, and keep that standard in mind during your house hunt. Your agent can help manage your expectations about which properties will and won't likely pass muster.

3. Loan approval takes too long. Every buyer knows they must get preapproved for a mortgage before they start house hunting, but many don't know that preapproval is just the first in a long list of steps that have to happen before the loan becomes a sure thing. In fact, it's common now for buyers to get their loan preapproval many months before they end up in contract, and lots can change in the interim - further extending the time it may take for their loan approval to come in.

It's common for contracts to include a standard loan contingency period of 17 days, give or take a few. But the appraisal might take longer than that to come in, or the underwriter might have lots of questions and seemingly random nitpicks about the appraisal, or about you: they want to see your driver's license, then your marriage license, then your divorce decree, and after that, a letter from your employer agreeing that you'll be keeping your job even though you're moving an hour away. It never seems like they ask for everything at once, thus it can take longer than 17 days to obtain all the requested items, turn them in and get the underwriter to sign off on them.

Until you get that green light, it's foolhardy to remove your loan contingency, as that step renders your earnest money deposit non-refundable, under most contracts. Many a buyer is forced to either secure an extension from the seller or to let the transaction die, rather than forfeiting their deposit funds. And again, some sellers understand and will play ball, but bank sellers can be particularly resistant to loan contingency extensions, especially if there are backup offers on the table.

Best practice for buyers to minimize the chances of an overtime loan approval process killing the deal? Be ready: be ready for lots of bizarre documentation requests, be ready to provide things you've already been asked for, and be ready to do so quick-like - without pushing back. The faster you can turn around the things the underwriter wants, the better.

Also, it can be very helpful to work with a mortgage broker and agent that have worked together before and have close communications, so that your agent can stay abreast of any and all loan process glitches and keep the listing agent apprised of the legitimate reasons you may need an extension throughout the contingency period, rather than assuring them everything's speeding along then having to ask for a last-minute extension.

4 Buyer Incentives that Sell Homes

4 Buyer Incentives that Sell Homes

On today’s market, it’s pretty easy for a seller to find themselves in a serious state of stuck: home stuck on the market with no bites from buyers, and family stuck in the home until the home sells. And that doesn’t even account for the feeling of stuck that comes from having gone just about as low as you can go on price without turning your transaction into a short sale. If you’re trying to sell, and you’ve lowered the price but still find your home struggling to compete against a bunch of other, similiarly priced homes with similar features, selling can seem difficult at best, impossible at worst.
The worst part of this particular flavor of stuck is the feeling that the whole situation is out of your control, that there’s nothing within your power that will move your home off the market. You’ve already painted the place, replaced the carpet, tricked out the curb appeal and lowered the price as far as you can go. So what else is a seller to do?

Offer incentives.

Incentives are perks – they can be big or little – that a seller offers to their home’s eventual buyer. The most outlandish incentives are the ones that make the headlines, like the Ferrari one Malibu owner threw in with the sale of their condo last year, or the year’s worth of cookies that actor George Hamilton reportedly negotiated into the sale of his home from a bakery owner. But the incentives with the most power to get your home sold tend to be much less exciting perks thatactually fill a real need the average home buyer has.

Here are four basic, incentives you should consider offering if you’re having a hard time getting your home sold:

1. Interest rate buy-down. When you hear sellers say they will “pay points,” what they are doing is offering to award the buyer a certain number of percentage points of the sales price, which will, in turn, be paid to the buyer’s lender as discount points that bring the buyer’s interest rate down. For the buyer, this is a big deal, as it decreases the pressure they feel to guess the right day to lock in their interest rate (a common source of serious stress among buyers), and sends the message that if they buy your home, they’ll automatically beat the market rate. And what buyer doesn’t want that?!

Seller-paid rate buy-downs also save buyers money on their monthly payment over the entire lifetime of their loan, and the seller-paid points are usually tax deductible, to the buyer, the next time they file taxes. You can see why these incentives are so powerful at attracting buyers!

2. Closing cost credit. Many buyers trying to break into the market while prices are low are already scraping the bottom of their savings account barrels to come up with their down payment money. With most home loans, the buyer will have to come with anywhere from 3 to 6 percent of the loan amount, in cash, on top of their down payment, to cover closing costs like loan fees, escrow services and title or mortgage insurance. (And strangely enough, the buyers putting the 3.5 percent minimum down payment on an FHA loan are likely to have to come up with the higher end of the closing cost range, 6 percent, to cover their mortgage insurance.)

Some smart sellers (and their agents) include in their home’s listing and marketing materials the offer to pay a credit of 3, 4, 5 or even 6 percent of the home’s sale price at closing, to defray the buyer’s closing costs. A closing cost credit is a great financial help to buyers and a strong differentiator that can make your home much more attractive than nearby listings. Your listing agent can help you run the numbers on how much of a credit you can afford to offer, and how to make an overall package – listing price and credit – that will be maximally magnetic to prospective buyers.

1. HOA dues credit. If you are selling a home that is in a homeowners’ association (HOA) that charges monthly or even annual dues, then surely you recall buying that home and being overwhelmed at the prospect of going from rent being your sole monthly housing expense, to having a laundry list of expenses starting with your mortgage, including property taxes and insurance and then having HOA dues as the unpleasant cherry on top.

One way to overcome that concern in the minds of buyers and to differentiate your unit from all the other, similar units for sale in your complex is to offer a credit at closing that covers the buyer’s HOA dues for 6 months, a year, or even longer. Talk with your agent about how to do this strategically, in a way that will offer the maximum lure for buyers but will not run afoul of any guidelines for seller credits imposed by the buyer’s lender.

2. Broker incentives. Some savvy sellers who can’t afford to offer buyers several percentage points’ worth of the proceeds of sale toward closing costs take a different route, offering to pay a bonus percentage point (or more) in incentives to the eventual buyer’s broker or agent – on top of the commission, rather than to the buyer themselves. Over 90 percent of buyers who are ready, willing and able to buy a home on today’s market are represented by a broker. And brokers have to sort through sometimes hundreds of pretty similar listings to decide which ones to show a buyer any given Sunday.

Offering a broker’s incentive makes your home stand out among all those listings to the brokers and agents who put buyer’s property tours together. While these aren’t “buyer incentives,” strictly speaking, but they do operate to boost the number of buyers that come view your home – in turn, boosting your home’s likelihood of getting an offer.

Home Alarm Monitoring: 10 Security Threats that Scare Homeowners

Home Alarm Monitoring: 10 Security Threats that Scare Homeowners:

10 Security Threats that Scare Homeowners

Home ownership is something many American’s take for granted and for others is just a dream. What some don’t realize is that owning a home comes with a whole new set of responsibilities and problems. This is why homeowner insurance is so important and required by mortgage holders. Here are 10 of the security threats that scare homeowners.

1. Burglary – The first thing that comes to mind when mentioning security threats is burglary. The risk of being robbed is higher in some areas than others, but even in low risk areas, the threat is there. Many homeowners invest in security systems to prevent break-ins.
2. Fire – The biggest threat to any homeowner is fire. Even if a fire is caught and put out, the damage to the home and its contents is devastating. Nothing can prepare you for the overwhelming loss of your home and possessions to a house fire. Smoke detectors, fire extinguishers and even sprinkler systems can be purchased to help prevent fires from consuming your home.
3. Floods – The threat of flooding is so prevalent in most of the county that there is a national flood insurance program provided by the federal government. Since some areas only flood about every 100 years, people can live in an area for generations without knowing they have a threat. Water damage in a home is very expensive and difficult to repair.
4. Earthquakes – Another natural disaster that threatens homeowner’s security is earthquakes. Although more prevalent in fault zones, earthquakes can happen just about anywhere and cause extensive damage to homes. People who live in high risk areas must follow special building codes to help their homes withstand minor earthquakes.
5. Storms – Homeowners always keep a close eye on weather conditions. Hurricanes and tornadoes can cause the most devastating damage, but even a strong thunderstorm can be a major threat. Strong winds and lightening can do quite a bit of damage to your home and cause power outages.
6. Lawsuits – Unfortunately, another big threat to a homeowner’s security is lawsuits. Anyone who injures themselves while on your property can sue for damages even if the accident was entirely their fault. People who don’t have insurance to cover awarded damages are at risk of losing their homes.
7. Unemployment – Most people have mortgage payments that consume a large part of their monthly income. If they lose their job or are unable to work because of illness or injury, they may not be able to keep up the payments and risk defaulting on their loans.
8. Identity theft – Another security threat that scares homeowners is identity theft. If not discovered quickly, a person’s credit can be destroyed and huge credit card bills can be racked up. Some may be forced to sell their homes to cover the costs and be unable to purchase another because of their bad credit rating.
9. Vandalism – Something that many homeowners don’t anticipate is the threat of vandalism. Unfortunately, there are unscrupulous people who don’t have any respect for other people’s property. A broken window may be covered by the insurance, but is still a big headache to repair.
10. Winter – People who live in cold climates need to be concerned about damage to their homes in the winter. Sub-freezing temperatures can cause plumbing pipes to freeze and heavy snows can collapse a roof. If a homeowner goes on vacation to escape the cold weather, they need to make sure the furnace doesn’t quit and let their house freeze up.

Homeowner insurance doesn’t cover all of these security threats, but can help defray the cost of most of them. It’s important to know the degree of risk for any of these threats in your particular circumstances. Home ownership can be somewhat scary, especially in today’s uncertain economic situation. Know what the threats are and take steps to prevent them to make owning your home less risky and more secure.

7 Deadly Sins of Overpricing « gatorrealtors

7 Deadly Sins of Overpricing

7 Deadly Sins of Overpricing

Posted on August 16, 2011 by GatorRealtors

“We can always go down, but we can’t go up.”

If you’re selling your home this statement has probably crossed your lips at least once. But when it comes to setting a pricing strategy for your home, is it a good idea to start high and work your way down, especially in a market flooded with inventory? Probably not, as most experts would advise that the best way to increase your odds of a successful sale is to price your home at fair market value. But, as logical as this advice sounds, for many sellers it is still tempting to tack a few percentage points onto the price to “leave room to negotiate”. To avoid this temptation, let’s take a look at the seven deadly sins of overpricing:

1. Appraisal problems

   Even if you do find a buyer willing to pay an inflated price, the fact is over 90% of buyers use some kind of financing to pay for their home purchase. If your home won’t appraise for the purchase price the sale will likely fail.

2. No showings

   Today’s sophisticated home buyers are well educated about the real estate market. If your home is overpriced they won’t bother looking at it, let alone make you an offer.

3. Branding problems

   When a new listing hits the market, every agent quickly checks the property out to see if it’s a good fit for their clients. If your home is branded as “overpriced”, reigniting interest may take drastic measures.

4. Selling the competition

   Overpricing helps your competition. How? You make their lower prices seem like bargains. Nothing is worse than watching your neighbors put up a sold sign.

5. Stagnation

   The longer your home sits on the market, the more likely it is to become stigmatized or stale. Have you ever seen a property that seems to be perpetually for sale? Do you ever wonder – What’s wrong with that house?

6. Tougher negotiations

   Buyers who do view your home may negotiate harder because the home has been on the market for a longer period of time and because it is overpriced compared to the competition.

7. Lost opportunities

   You will lose a percentage of buyers who are outside of your price point. These are buyers who are looking in the price range that the home will eventually sell for but don’t see the home because the price is above their pre-set budget.

One popular myth is that a great marketing plan will overcome a pricing problem. Nope – spending a zillion dollars on advertising, internet ads, and television spots won’t motivate buyers to pay you more than the home is worth. Another myth is the assumption that a buyer will see your home, fall in love, and write you a check so the competition doesn’t matter. Wrong. Buyers don’t look at homes in isolation. Most look at 10-15 homes before making a buying decision. Because of this, setting a competitive price relative to the competition is an essential component to a successful marketing strategy.