August 2010 Archives

August 30, 2010

Buyers of Newly Constructed Homes, Beware the Resale Commission Clause!

If you're buying a new condo, townhouse, or other home in a new development, you'll have plenty of paperwork to read over before you sign on the dotted line. Of course, it's always a good idea to read it all carefully, but who doesn't start yawning after a while?

There's a new clause being snuck into these contracts, however, that should make you wake up and reach for your red pen. It provides that you'll have to pay the builder a 1% transfer fee when next you sell the property, and so will anyone else who sells the place, for the next 99 years! (Can you picture the builder's grandchildren rubbing their hands?) For more details, see this article provided by the National Association of Realtors.

The number "one" as a percentage sounds small and insignificant, but I wouldn't want to shell out $2,500 to the builder if I were to sell my house for $250,000, $5,000 if it goes for $500,000, and so forth. I'll bet you don't either. So look for that clause, and demand that it be stricken from the builder's contract. Every contract can be amended, and while the market's slow, you've got the upper hand in deciding what you'll accept in there. 
August 25, 2010

Condo Owners' Rights When the Neighbors Smoke?

This is one of those issues you'd think would have been settled by now: Does a condo owner have a right to expect that his or her unit will be free of secondhand smoke from nearby units? And if so, can the owner demand a remedy, perhaps that the condo association pay to seal off their unit (which may be impossible) or that the neighbors simply stop smoking in their home?

Given the wide range of other things that condo associations typically govern, from the size of owners' dogs to the color of their house paint, you might even expect that smoking rules would be written into the typical Covenants, Conditions, and Restrictions (CC&Rs; the government document for homeowner associations).

Apparently not. In fact, as described in the article, "Battle Over Smoking in Condos Catches Fire in Florida," by I.M. Stackel of the Daily Business Review , the issue is just making its way to the forefront of public attention -- mostly via the court system.

Until it's resolved, both condo buyers and sellers need to put it high on their list of issues to address before the sale is finalized. Buyers who want to either avoid neighbors' smoke or have the right to smoke themselves should carefully read the CC&Rs, ask questions of the sellers, and talk to the neighbors' about others' experiences there.

Sellers who know that their unit is subject to the entry of secondhand smoke will want to disclose this to buyers. Yes, it might turn some buyers off, but as we explain in detail in Selling Your House in a Tough Market, that's better than facing a lawsuit later.
August 22, 2010

Home Repairs: Deal With Before You Move In, or After?

Like many homebuyers, we discovered during the course of the inspections that our new home-to-be wasn't entirely perfect -- in fact, it really needed a whole new foundation if we wanted a decent chance of surviving the next earthquake. (Not too surprising for a house that's nearly 100 years old.)

That led us to the same question many others have dealt with: Do the work right away, in the midst of all the craziness of moving, or wait a bit?

Of course, for some people, there's no choice, because their mortgage lender insists that the work be done before funding the loan. But our lender wasn't requiring this. So for us, the pros and cons looked something like this:

1) Our lives were already in chaos, why not add a little more?
2) Once the work was done, we'd be able to settle in, hang paintings, and repaint if we wanted to, without having to undo it all and repaint over new cracks in the walls after the foundation work was done.
3) We could avoid buying earthquake insurance (which many homeowners with solid new foundations forgo)

1) The weather. It was one of the rainiest winters in my memory, which would have made it nearly impossible to store things outside that would have, but for the foundation work, normally been in the basement.
2) We didn't know anyone who'd need a house-sitter in January -- whereas, by waiting, we could house-sit for friends on summer vacations if the noise and chaos of construction got to be too much.
3) We'd have a chance to regroup, cash-wise. We moved into our new house before selling the old, which was already a financial challenge. We didn't want to be down to our last dollar when the inevitable new costs arose ("Hey, how about we replace your old, cracking floor slab while we're at it?")

So, three against three -- and we decided to wait. Mostly glad we did. We keep looking at the surrounding chaos, with a trench all around the house, deep holes underneath, and dirt piles in our back yard, and saying, "Can you imagine doing this in the rain?" fdn.JPG 

But it does sometimes feel like we're moving all over again. And we did end up house-sitting for friends. (Thanks, guys.)

A foundation removal is a big deal -- there was dust pouring through cracks in the house we didn't know existed. It was shooting up behind the mantel! And the downstairs plumbing had to be disconnected for nearly a week.

Does this lead me to any advice for others? Nope, I'm afraid there no universal answer. Wait, there's a better way to put that: There's no wrong answer. Do what feels more comfortable, and expect some chaos either way!

August 19, 2010

Tempted to Set a High List Price and Wait? Three Reasons Not To

Setting a list price for your home is definitely tougher than it used to be, what with market fluctuations, a lack of many comparable sales to go by, and that lingering feeling that, if buyers were willing to pay so much more a few years ago, why shouldn't they soon be willing to do the same?

Add to this the knowledge that houses aren't exactly flying off the shelves -- sellers wait many weeks, if not months, for an offer (depending on the house and the local area) -- and you've isolated the germs causing the pernicious "Let's just wait" syndrome. Sellers falling prey to this tell themselves, "I'm not in a hurry, we'll just set the price as high as we think it should be, and then wait as long as it takes for someone to fall in love with the place."

If I knew how to add audio to this blog, a "backfire" sound might make fitting accompaniment to each of these three reasons why such a strategy doesn't work:

  • It's a gamble you could lose a lot of time and money on. Time will be ticking by as you wait for that perfect (or naive) buyer to come along, and time is the enemy of your list price. The longer a house sits on the market, the more buyers will figure you're desperate, and start underbidding. You eventually may have to sell for less than what you thought was the minimum possible.
  • The appraiser may not share the buyer's enthusiasm. Even if you do have a buyer who falls in love with your place and isn't savvy enough to realize that the relatively low values of comparable properties and the lack of competing bidders give them every justification to bid less than you're asking, that buyer probably needs to get a loan. And lenders these days don't hand out money without making absolutely sure that the house is worth what's being paid for it, as judged by an appraiser. If the appraiser sent by the lender says your house isn't worth what the buyer is offering, the deal may fall through -- unless the buyer pays all cash, but good luck finding that buyer.
  • You'll drive your real estate agent crazy. Agents have seen more use of this strategy lately than they care to. They're already edgy about the amount of time they put in for no return in this down market, which puts working with a client whose house won't sell in the foreseeable future low on their priority list. You want an agent who's enthusiastically marketing your home, not rolling his/her eyes every time you call. For more on that from the agent's perspective, see this recent column in Inman News by Teresa Boardman.  
The solution? Evaluate the comparable prices carefully and set a price that you think is fair -- or even a little low. You may even generate some excitement about your house being a bargain -- thus bringing in competing bidders.

August 11, 2010

Selling Your House: When Should You Move Out?

The ideal when you're selling a house is to move out before you put it on the market, in order to get it nicely decluttered, cleaned, and perhaps staged before you say, "Ta Da!" and show it to prospective buyers.

But that's not practical or financially possible for everyone. You might be waiting to buy or to move into your next house. You may even be less than eager to move, for example if you're saying goodbye to a beloved abode before moving into a smaller retirement space.

Most buyers will, however, expect you to be completely out of the place by closing day. In fact, they might start to regard the house as theirs even before closing. Nevertheless, there are ways to stretch out your stay a little farther.

Some sellers, for example, when negotiating the purchase contract, build in a few days of extra possession just in case the buyers don't successfully close the deal (an increasingly common scenario, with lenders especially prone to last minute rejections of loan requests). Or if you're moving into a rental property that won't become available until the first of the months, you may need a few extra days to close the gap.

Other sellers negotiate for an even longer stay, for example from 60 to 90 days after escrow closes, in order to give them enough time to complete the purchase of another house and move.

You won't normally get to stay in your house for free, however. The new owners will (except in the hottest of markets, where they were competing against other bidders) expect you to pay rent, possibly an upfront security deposit, and to sign a rental agreement covering the length and other  terms of your stay. For more information on such agreements, see Nolo's free online articles on Signing a Lease or Rental Agreement

Also, don't forget to get in touch with your homeowners' insurance agent, to make sure that you're covered -- either by a continuation of your current policy, or by a new, short-term renters' policy.