NO Turkey for You!
Don't buy a Turkey this Holiday Season -- a real estate turkey, that is! What you serve for a family feast is your business, but if you're going to be hosting your clan in a new home, you want to make sure you aren't serving turkey while living in one!
Most of the growing body of real estate regulation and legal case law has to do with the flaws that exist in every home, whether brand new construction or previously owned. You see it on TV: renovation shows are full of the unpleasant surprises the new buyers find when they rip out a wall, widen a doorway, or modernize an old house. Buying a renovated home can mean you're going to discover hidden turkeys, disguised by new materials.
So, how does a buyer -- especially a first-time buyer -- keep from making a big mistake and buying a house that turns out to be a big, expensive turkey?
1. Use a Realtor. We are experienced, and know many of the warning signs when something isn't right. We can advise you on the proper course to take, the right inspections to have, and on an effective negotiation strategy to follow that will yield the best results to safeguard you and your financial health.
2. Use the internet to its full potential. Most jurisdictions in Maryland have computerized and opened their housing department databases to internet search. In Baltimore City, at least, you can call up each address and see what building permits have been issued recently, get an idea of the scope of the work that was done, and what stage the work is in. If there's been a lot of recent updating, and no permits pulled, you know you need to double down and find out who did it, if its up to code, and if the workers were licensed. If the seller balks at providing that information, listen to the 'gobble, gobble' of the turkey, and run away!
3. Buy a Home Warranty. Home warranties are insurance policies that cover unexpected repairs so that if something faulty slips through the inspection process and then breaks, you are only responsible for a small deductible.
One last caution: all homes -- even new ones -- have issues. The best thing a buyer can do is make sure that they are not relying on the seller or the seller's disclosures for their security. Getting the names of the licensed contractors who did the renovations, or the full details on the new home warranty, are vital steps you should not skip! That way you have someone you can hold accountable in the weeks and months after the purchase for things that go wrong which shouldn't. The Home Warranty is the next line of defense for turkeys that no one could see coming. Protect yourself, and you'll sleep easier through the year… and enjoy having a turkey on the table!
Say "Boo!" to Paying Rent!
Downtown Baltimore is alive these days. Like a zombie rising to a Halloween full moon, the hulks of old, dead office buildings have been brought to life once more as chic downtown flats. The streets that used to die at 5pm now are alive into the night as stores, restaurants, art galleries and even live theater opens their doors. Its happened so quickly over the last five to seven years that its downright spooky!
But, this new life comes with a price: an industry website, rentjungle.com, calculates that Baltimore rental costs have increased by 7% in just the last six months. A two bedroom apartment now will set the tenants back between $1,210 and $1,275 each month in rent.
That same $1,275 monthly payment (at 3.85% interest on a thirty year mortgage) would satisfy a monthly mortgage payment on a $271,900 loan! The median price of Baltimore sales, according to Zillow is $184,500. At the same interest rate mentioned above, that $184,500 loan amount would require a payment of only $865 a month. What would you do with an extra $410 a month?
Even under such great advantages, the number of renters converting to buyers right now is very low. In many areas its a buyer's market -- which means the buyer's negotiation strength is at its highest point in over a year. A qualified buyer looking for homes right now has one of the highest level of inventory we have seen in years, incredibly low interest rates, high negotiation strength… so why are they so scarce?
One reason may be student loan debt. The cost of education and the staggering loan payments that some college graduates are saddled with may be keeping them from buying the new home that would save them money in the long run. That debt is also lowering their credit scores, which means that they cannot qualify for the best, lowest interest rates available.
A second reason may just be fear. The recent stock market correction, a sluggish economic recovery, the upcoming election and even the Ebola scare may be giving people a sense of uncertainty and fear of what is coming next.
Don't let fear keep you from home ownership. Use this Halloween as your starting point! No more housing ghouls and goblins! A good Realtor will be your "GhostBuster," and help you avoid the Frankenstein houses! Are you ready to put a stake in the heart of that blood-sucking rental payment? Say "Boo!" to paying rent!
The Autumn Checklist
Colder weather is just a few weeks away. Ugh. For homeowners, that means a checklist of items to take care of before it arrives: things that if addressed now can save time and money later on. The Fall Checklist is one of those "perks" of homeownership. If you don't want to deal with this kind of preventive maintenance, then perhaps you should look at a condo or HOA where property managers take care of the exterior of the property!
1. Cleaning gutters. As leaves fall they clog rainwater evacuation systems like gutters, downspouts, drains, etc. and that causes water to back up and overflow during those long cold rains that autumn brings. As winter arrives that back up can freeze, causing ice dams in downspouts and leaving pools of ice on steps and sidewalks. Water can also back up under shingles and leak into attics.
2. Roofing checkup. Most roofing types can use an annual check up before winter comes to make sure that shingles have not been blown away, broken, or otherwise damaged by summer storms, tree branches and strong winds. Particularly on roof surfaces where snow can sit, thaw and refreeze.
3. Landscaping wind down. Most plant materials used in lawns, beds or other residential landscaping need some attention as frost either kills them off entirely or sends them into their winter sleep. Cutting back dead or dying foliage, reseeding, feeding and fertilizing... and raking!
4. The fall furnace checkup. Every furnace needs cleaning, tuning and a thorough once over before the weather requires it to be 'on duty' 24/7. Not only does this keep you from a midnight breakdown and a cold night before you can get a technician to repair it, it also makes the furnace more efficient and lowers utility bills.
When a house has been maintained annually over the course of your ownership, it shows better to a potential buyer when it comes time to sell. So, taking care of the fall checklist helps now, and helps you profit later. That's a win-win!
Water, Water Everywhere
The thorough drenching that we experienced earlier this month in the Baltimore region probably caused its share of backed up drains and flooded basements, not to mention ruined furniture, stained drywall and wet storage boxes. Even the cavemen had to deal with water intrusion into their caves. We humans simply cannot escape it, no matter how hard we try, because Mother Nature does her best to break down our shelters and rain on our heads.
This is why, in real estate transactions, water comes up over and over as one of the most contested issues, whether your basement walls are stone, block or concrete. What should a buyer expect? What should a seller worry about?
1. Is your "basement" really just a cellar? Many homes in Baltimore have at least part of their basement with its original dirt floor, or a walkway dug out and retaining walls holding the soil back. When the soil outside is soggy, water will naturally seep into the soil beneath the house. Installing a vapor barrier (which is a fancy name for heavy plastic sheeting, installed by a professional) will keep the moisture in the soil and not let it be absorbed by the beams and subfloor. This will keep the musty smell out of the main house and also reduce the likelihood of termites and other wood-eating pests. Have the house treated annually to make sure these unwelcome houseguests don't sneak in and start snacking on your underpinnings.
2. What *is* a wet basement? This is a whole lot harder to answer than it seems. Modern concrete foundations have the potential to be the most waterproof, as long as they have not become cracked and allow water to come in. Block foundations, which were popular for about fifty years, from 1940 to 1990 can absorb moisture and deteriorate over time, letting more water in over the years. If your house was built before 1940, most likely your foundation walls are made up of a mix of stone and brick. These older basement walls were never meant to be 100% water tight: there is a certain exchange of moisture between the walls and the soil on the other side that will naturally occur, and very little human intervention can stop it. Basements in this time period were not meant to become finished space, and the building technology of the time couldn't aspire to make them watertight.
So does your basement just have damp walls, or after a moderate rain does water actually pool and turn your man cave into Lake Huron?
If you just have damp walls, consider yourself lucky and buy a dehumidifier to reduce the amount of humidity and condensation. Paint the walls with Drylock if you really want to reduce the amount of seepage to the absolute minimum, but remember you most likely will not be able to completely eliminate it. Do not drywall over them — that's how mold starts!
If, however, you need a canoe to do your laundry after a storm… congratulations… you have a wet basement. In this case, the best most homeowners can do is to make sure water does not pool next to the foundation and flow into the basement in great quantity. Here is your four item action list:
-- Make sure your landscaping has graded the soil to run water away from the foundation.
-- Take your downspouts out of the old underground pipes meant to carry water to the street and add extensions that run the rain water out into the yard at least six feet, or until the grading does run water away from the house.
-- Have your main drain cleaned: you'd be surprised how many older houses in Baltimore have at least some of their rainwater flowing into the grey water drains that empty into the sewer.
-- Finally, cover old window wells because they can act like a funnel in a heavy rainstorm and bring water back through the basement wall.
3. Do I need a professional waterproofer? If you have gone through the steps I've outlined above and you still need a snorkel to go into the basement after a storm, then the answer is "yes." There are some houses that either were built over a spring, or have some serious water table issues near the harbor, for example, and only a professional can truly solve the problem. Take a look at an old map of Baltimore and you'll see dozens of creeks and springs that have miraculously disappeared from view. They're still there! Today they are just covered over, and your basement might be one of the places they will overflow into when there's a downpour. Let the waterproofer stake their reputation on fixing it, and then when it comes time to sell, disclose the facts and the fix to the buyer.
Dreading a heavy rainstorm is no fun. Experiment with some of these fixes, and you can at least improve your home's situation, if not solve the problem. Try it!
Furnishing Your New Home on a Budget
If you are thinking about buying a new home, or a second home, one of the major expenses that can strain your budget after the sale is furnishing it. Most new home buyers are "upsizing" their home: they have outgrown their apartment or their previous house and need more space. More space equals more furniture and fittings, and not everyone's budget allows them to go out and spend thousands more on brand new, top of the line items. So, here are a few suggestions I've come across over the years that can help you make that new space into your home, without endangering your solvency!
1. New, but cheap. If you only need temporary stuff that will last for a few years until your finances recover from the purchase, there are a wide variety of stores and outlets that will fulfill that need. The best known is probably IKEA, but there are a number of non-chain stores that can order directly from the manufacturer and get nice-looking inexpensive furniture. Be aware, however, that if you bought an older home many of the new furniture manufacturers produce mostly oversized pieces that fit well in the suburban McMansions currently being built, but that may be a problem inside your 1920s bungalow. Be sure to ask about the availability of split box springs to help you get the bed up the stairs, and slimmed down chairs and sofas to fit through older, narrow doorways. Measure clearances several times to make sure you know what can squeeze through, and what cannot.
2. Furniture clearance centers. There are a number of local stores that act as clearing houses for hotels as they go through their periodic redecorations and upgrades. My favorite is the Overstock Outlet, which has two locations in the Baltimore area, and routinely re-sells bedroom and living room furniture from some very expensive hotel chains. Their prices are incredibly reasonable, and you can also find the lamps, wall hangings, televisions, and even appliances that were in the rooms as well. They have begun offering new housewares and the direct order of new furniture, too. Each time you go by, you'll see something new, so start getting in the habit of making regular visits. You can find them online and on Facebook for more information.
3. Auction sales. If you're willing to be a little more adventurous still, the opportunity to attend an estate auction sale can save a huge amount of money, and still give you quality furniture. The estate auction is where most used furniture stores and antique stores find their goods (which is why I have NOT included them on this list). The prices at auctions can be the equivalent of wholesale prices or even less, compared to the retail prices at the used furniture/antique dealer. Auctions can be a bit of a surprise -- sometimes the estate has lots of quality goods, sometimes not -- so there is now a website, auctionzip dot com, that helps you get a preview of where and when the best auctions are coming up in your area, with pictures of some of the items that will be available.
You may want to attend one or two auctions to get a feel for how the bidding works, because the live auction process can be intimidating. Sometimes you can end up paying more than you planned for a particular piece, if you let your competitive nature carry you away during the bidding. Be sure to read any fine print in the auction notice as well, to make sure there isn't a buyer's premium added to the "hammer" price.
I have seen estate auctions where dining room sets, bedroom sets -- all kinds of furniture and housewares -- were sold at ridiculously low prices, all because there was not a large enough audience, or not the right buyers in the audience for those pieces. Make sure you can arrange for someone to help you haul away your booty if you do come up as the successful bidder: most auctions require the removal of the goods as soon as possible.
After the adventure of negotiating and buying a new or second home… why not make the furnishing of it an adventure as well? Have fun!
How to Hire the Right Home Inspector
Once both buyer and seller have fully agreed to the terms of a sale and signed a written agreement, there are two things that need to happen as soon as possible. First, the buyer needs to finalize their loan application. Second, the buyer needs to hire a qualified home inspector and schedule the inspection. There's normally a specified time period during which the buyer is required to have the home inspection completed, routinely about two weeks from the date the contract was signed.
The home inspection profession, and the home inspection process itself, is a fairly new addition to the home buying process. The idea of a certified professional working for the buyer to evaluate the operating condition of the home's various systems has really evolved substantially in the last twenty years or so, as part of the entire Buyer Agency movement around the country. The Home Inspection field now has professional organizations to set best practices and a code of conduct, and the State of Maryland recently put requirements and a regulatory regime in place to license home inspectors. Here are some points to keep in mind as you go through the process of interviewing and hiring a Home Inspector:
1. Make sure the home inspectors you interview are licensed by the state and a member of one of the professional organizations. The two national home inspection associations are ASHI (American Society of Home Inspectors, established 1976) and NAHI (National Association of Home Inspectors, established 1987). Check the state website online to make sure their state license is still valid.
2. Ask for a sample of their inspection reports. Is it a computer printout with photos so that you can refer back to it easily, or is it a compilation of carbonless copies of a handwritten scrawl that no one can read? Since this document forms the basis of repair requests, and evaluating those repairs, the whole transaction depends upon everyone being able to read and understand what the inspector found.
3. Find out if they have other professional qualifications that might make sections of their report more accurate than others. Ideally, a home inspector is meant to be a generalist. He or she is not there to give definitive evaluations of whether or not a particular item is faulty, dangerous and needs to be replaced. Rather, the home inspection report should always flag what items the home inspector believes should be evaluated more thoroughly by the licensed professional in that trade. For instance, an electrical panel that has some irregular items should show up in the inspection report as recommending a licensed electrician to evaluate and certify that the circuitry is in good order. However, if the inspector has experience (and a valid state license) as a roofer, plumber, electrician or structural engineer, that adds extra weight and professional integrity to those sections of the home inspection report. That can skip a step and save time in the evaluation and repair of the item.
Finally, a word of caution to you as the buyer: heed the wording of the real estate contract. A home inspection requested repair should not be an item of a routine maintenance or cosmetic nature. Mixing repair requests for significant defects or malfunctions in mechanical systems with a request to clean the gutters will only make the negotiation process more difficult, and could result in a seller's refusal to take your requests seriously.
The time it takes to resolve home inspection issues is the most difficult period in the life of any contract to buy and sell a property. If you make sure that you and the professionals you hire have reasonable expectations and real professionalism as you enter that danger zone, before you know it you'll be at the table, closing the deal, and walking away with the keys!
Why HGTV is NOT "Reality"
"Reality Television" has taken over our broadcast and cable programming… its everywhere! I think that most people know that "The Bachelor" is fairly artificial, and that "Real Housewives of (Fill in City Here)" are not really housewives. We even learned last year that the boys in the bayou hunting ducks didn't really look like that before the TV show was created, although they may have been just as bigoted. Judging from the dozens of real estate related Reality TV shows that are out there, there are a lot of folks who are vicariously enjoying the perils of house hunting -- in the US and overseas, and who tune in for hours to watch people struggle to buy, renovate, flip and make a profit on a rotten little pit of a house that they turn into a palace in less than one hour of television viewing. There may even be a few people whose house hunting fantasies involve a set of hunky twins who are Realtor/Contractors because they want their own personal "Property Brothers" experience.
I find these shows entertaining, too, but as a Realtor I'm finding that they are leading their devoted followers to have unrealistic expectations of the property buying experience when they want to buy a house in real life. Keep in mind that I was the featured Realtor on an episode of HGTV's "House Hunters." (Episode #1713 first aired in 2005, and repeated in re-runs for many years thereafter.) I could disclose a host of ways in which my episode was staged for the camera and for the viewers' suspense, but the fact that these programs try to make the real estate process suspenseful or entertaining is not what misinforms buyers. However, there are three main ways that "reality" real estate TV is leading buyers to disappointment in the real world.
1. Buyers DO lose their chosen home when they make unrealistic demands. Many of these programs emphasize the stressful, suspenseful negotiation process once the buyer has chosen which property they want to buy. And they always seem to get it! There's a very good reason for that: the buyers' chosen property is already under contract and nearly to settlement before anything is filmed. TV producers want to make sure that if they invest in a camera crew and several days filming that there is almost certainly going to be a sale and an episode that results from the sale, so the showings of other potential properties are staged after the fact. But in "real life," if buyers mishandle the negotiation process, they will lose their chosen property and will have to keep looking.
2. Sometimes buyers DO NOT find the "perfect house." On Reality TV, there's a lot of talk about the "perfect house." Buyers come to their Realtor with a checklist of things they "must have" and they usually find it all. And at the end of their program, as the credits roll up the screen, there are shots of their pretty new house, decorated and furnished perfectly, and you hear the happy buyer(s) talking about how their lives will be forever changed for the better by this new, perfect environment. In real life, though, buyers often have to realize that they want more than they can afford. The "perfect house" that fulfills all of their "must have" items either doesn't exist, or it might not be located where they want it. In nearly every successful home purchase there must be compromise in some way; some feature or condition that will have to be added or renovated or put on hold until the next house. The purchasers are still thrilled by their new home, but as the credits roll on the end of their buying experience, its not quite what they saw on their favorite episode. And that's OK. Buying the house was still the right decision.
3. Reality TV basically ignores the financial "stuff." I have never seen an episode of Reality TV that brings a mortgage officer or other financial professional in to explain a financing problem, or how the buyers came up with that "budget" that gets splashed up on the screen at the beginning of the show. Even when a problem arises that will make their purchase or renovation cost more than expected, the buyers somehow find a mysterious way to make up the difference (after the required scene of complaining about it). The financing of the purchase is a huge part of the real life equation, and Reality TV would do the public a great service by focusing on how people make these decisions, what the basic possibilities and rules are, and what alternatives may sound a little shady and worthy of caution.
Enjoy these Reality TV shows for what they are: staged recreations of a much-shortened and sanitized version of the process, created specifically for your entertainment. And when its time for you to enter into a real estate transaction in real life, whether as a buyer or a seller, turn the television off.
Save the MID
Tax day has arrived again, and hopefully you're one of the people who over withheld your wages -- despite the ongoing advice not to -- and you're awaiting your refund. I know a lot of folks who do that just to ease the pain of tax day. The rest of us, especially those of us who are officially self-employed, had to write a check. So while the pain is fresh… while the ink stains are still on your fingertips… sit down and write your representative and tell them to make sure that they save the tax deduction for mortgage interest on a primary residence (MID).
Its hard to believe that anyone is serious about removing or reducing it, but its true. There are a group of people in Washington who believe that the MID is an unwarranted subsidy for the middle class and working people and that we'd all be better off if it were repealed, or greatly reduced. These are the same people who want to collapse the housing market by getting rid of Fannie Mae, Freddie Mac and the FHA. They also tend to be the same people who never saw a tax break for the wealthy that they didn't love, desperately. Go figure.
Whether or not you have currently invested in your own home, you have a stake in this decision and the priority it gives to home ownership. The data over time proves that home ownership is one of the greatest sources of personal wealth creation in the United States. The system of mortgage insurance and ownership reward represented by the MID and those three government agencies reflect a stabilizing structure that made home ownership available to a broad segment of the American public from the end of the Great Depression right up to the crash of the housing market that began in 2007.
The National Association of Realtors did a study on Housing Wealth Effects in 2004, which looked at the difference between household wealth for owners and renters in the period between 1984 and 1999. Since this does not include the period of the housing bubble, its results can be seen as closer to the average return you might expect over normal times. The study concluded that "a typical renter household in 1984 had accumulated $42,000 in net wealth by 1999, but a typical owner household in 1984 had accumulated $167,000 over the same period. Marital status, age, race and ethnicity, initial wealth and household income … accounted for only $20,000 of the net $125,000 accumulated wealth difference." That $105,000 difference is, almost without exception, due to home equity from both paying down the balance of the mortgage and the appreciation of the value of the property over time.
The most fair-handed 'reform' of the MID would be to omit it for the very wealthy and leave it for the rest of us. But, the Republican Tea Party budget recently released by gym-bunny Paul Ryan is just the latest policy document that would sacrifice this set of Federal priorities so that more tax breaks could go to the top 1% of America's über-wealthy. Its unlikely they would support taking one away.
So, while you're wallet is in pain from 2014's tax day, make sure that your representatives make sure you either want to retain this for your use now or in the future, to make sure you have the same opportunity as generations before, to buy a home at reasonable terms and use that interest to reduce your tax burden. Because in Washington these days, silence equals complacence and consent.
Spring is near, we hope, and with it comes the opening round of 2014's real estate market. That means potential buyers have already started making the rounds of real estate websites to see what there is to buy, and sellers have been trying to find out what homes are potential competition for the one they have to sell. If you're in the market this year, you have probably started doing some basic internet searching, too. But can you trust what you find?
Its widely known among real estate professionals that many of the post popular websites are simply not providing an accurate snapshot of the market. Several national publications have done mathematical studies on those "zesty estimates" of market value that some websites promote, but one of the more difficult to prove inaccuracies has to do with current housing inventory. Plainly stated: if you find a house on one of these websites that is supposed to be "for sale"… is it really? How much junk are you pulling up along beside the gems that you really can buy?
I took an informal look at eight of the most popular real estate search engines/websites in this region to get a sense of what a consumer might find out from their inquiries. I went to these sites and did their most basic search: whatever came up on their home page, that's the search I did. And I kept it simple, with only one search criteria: I wanted to find out what was for sale in one zip code here in Baltimore City -- 21218.
Originally, I thought I would only bring up what was officially listed in the Multiple List, but the two largest websites, Zillow and Trulia, also seem to include in their basic search properties that have been advertised by their owners as private "For Sale By Owner" homes. These listing ads are the most unreliable and inaccurate, because there is no one who checks behind this information and makes sure the owners are truthful. Its also the case that their prices are normally the least reasonable of any home listings you'll find on the internet today. Buyer beware!
Here are the results of my searching, done on Friday, March 7. Zillow listed a total of 1,844 properties available in 21218. (Their basic search also includes rentals!) The basic search on Trulia brought up 413.
The next grouping of search results is where most of the big Realtor-driven websites were clustered. These are sites that only list properties that are represented by real estate agents in the multiple list. FSBOs are not there, and rentals are usually a separate search. Realtor dot com brought up 294 such properties in zip code 21218, while REMAX returned 290, Coldwell Banker sifted out 263, Long and Foster found 250, and Listingbook brought up 243. MRISHomes dot com, previously known as "HomesDatabase," returned 237.
The differences in listing totals can be confusing to consumers. Most buyers I've talked with use multiple websites because they find homes on one site that they don't find on another. The real "gold standard" is, of course, the private Multiple Listing Service (MLS) which is available to real estate agents. We pay quarterly fees that provide the funds that update and maintain the MLS, and there are a host of employees who do their best to make sure that the data we get from the MLS is the most accurate and consistent that's possible.
So, how many properties did the MLS say were available for sale in 21218 on March 7? 236.
That's right: 236.
Why did Zillow bring up 1,844? If you remove the 236 valid listings, are there really over 1,600 rental units and FSBOs in that one zip code looking for new residents? Probably not. Zillow's 'kitchen sink' approach of throwing everything at you all at once is just part of the issue when it comes to internet information. Such a pile of data is intimidating to look through, especially when you realize that among the houses that are supposed to be for sale are a lot of houses that have already sold, their listings expired, or they were withdrawn from the market and so are no longer available. It means a lot of wasted time, and a good deal of frustration.
Why did the Realtor-driven websites have the smaller number of inaccuracies? The differences between these sites and the actual number is most likely explained by the frequency with which they refresh their database from the source, and when they remove a property that has gone under contract or has sold. These sites are also national and even international in scope, and so you will lose a bit of accuracy just as a part of the scale of their undertaking: the number of listings they make available, and the number of individual MLS systems with which they have to coordinate data downloads.
Real estate agents are the solution for the inaccuracies of the websites. We are the ones who -- in baseball terms -- bat in the 'cleanup' position. We take the buyers and sellers who have been misguided by some of these inaccuracies and provide the real, local, fresh facts.
The best practice for you, as a consumer who wants accurate and timely information in your home search, is to work with a local Realtor. We can even assist you with buying that For Sale By Owner, if you wish, and can help you make certain the information the owner provides is accurate. Start your search online, of course, by using one of the more accurate sources I pinpointed above. But view it all with suspicion until your Realtor has had the opportunity to confirm it on the local MLS.