Nolo’s Real Estate Tips for Home Buyers

I love "best" lists, because they're usually:
1) short and snappy.
2) based on a decent amount of research, and
3) give you a sense (maybe artificial) that the world can be ranked in an orderly way.

And this seems to be the season for best lists. For example, Forbes magazine has named its ten best retirement spots. Yes, Florida is on there, but not in the first three, which include:
1) Montgomery County, Pennsylvania
2) Nassau County, New York, and
3) Pima County, Arizona.

U.S. News & World Report magazine has named its 2009 ten best places to live in the U.S. based on factors like strong economies, low costs of living, access to healthcare and education, and recreation. Its top three are:
1) Albuquerque, New Mexico
2) Auburn, Alabama, and
3) Austin, Texas.
(Apparently, use of the letter "A" in the name was a criterion as well.)

And not to be outdone, Kiplinger's magazine has named the ten top U.S. cities for stable employment and new career opportunities. Start packing your bags for:
1) Huntsville, Alabama
2) Albuquerque, New Mexico, or
3) Washington, D.C.

Hey, Albuquerque made two out of the three lists! Maybe I should start packing.

It seems like every media outlet in the country is now talking about the opportunity that low home prices create for first-time buyers.

On KQED radio this morning, I heard a report on how military families in Southern California are able to afford homes for the first time in about a decade -- and getting mortgages cheaper than their rent.

USA TODAY tells us, in an article by Stephanie Armour, that first-time buyers are finding bargains and helping to perk up home sales.

And CBS news reports that Florida buyers interested in waterfront property are flocking to foreclosure boat tours!

With all this news coverage, these hints of a trend could turn into a self-fulfilling prophecy. People will see that others are buying homes and figure they'd better not wait any longer until prices rise, causing more people to get into the market, causing prices to rise, and so forth. I'm just watching, not advising...

That's right, I'm now the owner of a new (but old, made of recycled wood), Audubon-specification-compliant wren house.

Actually, I think I spent more time with this choice than with the house I'm living in. As with human houses, the particular bird houses I was checking out were all unique, made by Berkeley Rustic Birdhouses. I had to carefully consider price range, size (the entry, in particular, can't be too big if you want to attract wrens), aesthetics, and -- trying to get into the mindset of a small bird here -- which one might feel like "home." Sound familiar?

Mounting it became another lesson in home ownership -- there's nothing so valuable as a friendly neighbor with power tools! (Thanks, Joe.)

Now I'm suddenly shifting into the mindset of a home seller. Will any birds take a look? Will they peer inside in delight and say, "This is it!" or just look for signs to the next open house? I'm told it could take a year or more (for one thing, the birds need to feel sure I'm not going to move this new object tomorrow), but of course I want some to move in right now...

With the economy down, you might assume you can no longer afford the "luxury" of a home built using green construction techniques and materials. But the latest reports show that other buyers who've done the math are still convinced that the energy-saving features of green construction make it a good deal.

See, for example, this article by Mari Saito in the Philadelphia Business Journal, describing one condo buyer's shock that her monthly electricity bill went from about $280 per month in her former loft to just $76.

And in a related article by Diane M. Fiske, the Journal describes how one local developer is coming up with efficient ways to build homes that are both affordable and energy-saving. An important part of the strategy is the use of SIPS, or "standard insulated panels." These panels are made of wood (either young farmed trees or leftover wood flakes) and a foam insulating material. They're precut to the designer's specifications and put together on site, like a giant puzzle. They're getting high reviews for environmental friendliness (like reduced wood waste) and tight, heat-conserving qualities.

By the way, if you're building your own house, SIPS might be a good option as well. For more information on SIPS, see:

• http://www.toolbase.org/Technology-Inventory/Whole-House-Systems/structural-insulated-panels
• http://www.sips.org/content/technical/index.cfm?pageId=20
• http://www.usa-sips.com/faq.htm
  

by Mark Nash

[Guest blogger Mark Nash, author of four real estate books including the classic 1001 Tips for Buying and Selling a Home, has completed his annual survey of 839 real estate agents in all fifty states in the U.S. and the eight provinces of Canada. Nash's survey is distributed each fall to subscribers through his monthly electronic newsletter, 1001 Real Estate Tips.
 
What's In, What's Out with Home Buyers illuminates what's popular or what sours homebuyers in both the home purchase or sale transaction, and home decor. Compiled annually from the trenches, it offers a spectrum of tips that cover the reality of buying a home, and design no-nos and buyer must-haves for home sellers. More than 450 media outlets in North America utilized Nash's 2008 edition. For interviews, call Mark at 773-610-2074 or email him at Mark.Nash (at) cbexchange (dot) com. --Eds.]
 
IN
 

• Sidelined home buyers. Family or lifestyle additions, or changes made in buyers' households in the last three years are forcing those waiting out the market transition to finally get off the fence and say, "It's time for our family to buy the new home that suits our new needs."
• Home uplifts. Not a big renovation, but some new finishes that can visually hold over stay-put home sellers. Not a gut, rehab-to-the-studs new kitchen, but new flooring, countertops, and/or appliances.
  
• Collaborative home pricing. The old days of home sellers configuring a home's price are out. What's new is that the seller, along with their agent, looks at closed comparables, sets a price, then the buyer and their agent can agree or disagree -- but in the end, a mortgage lender and their appraiser will set the price, as they are assuming the most risk in the transaction.
• Balanced reporting by real estate and personal finance journalists. Consumers learned in 2008 that the "doom and gloom" residential real estate market headlines don't apply to all markets. What's been lost in the foreclosure hype is that there are still stories of homes selling in short market times (as little as 3 days), homes selling at full price, and some selling with multiple contracts on the table. Existing home sales will be 5.02 million for 2008, versus 5.652 million for 2007 -- a decrease of just over eleven percent, considerably less that the recent correction in the U.S. stock market -- and this realistic view shows that over five million people purchased a home despite the dire headlines of 2008.
• Creative home seller financing. Exhausted home sellers are turning to self-financing to move properties. Installment sale contracts and lease-to-own are the most popular and effective ways for sellers to begin to receive income from a property that has languished on the market in 2008.
  

Continue reading "What's In, What's Out with Home Buyers in 2009?" »

If you've been waiting on the sidelines for the price of houses to hit rock bottom, you may have already missed the moment. The National Association of Realtors (NAR) just reported that existing-home sales last quarter went up from the first quarter of 2008 in 13
states.

True, most of the increase can be attributed to people who couldn't resist a super-bargain, like on foreclosed homes in Northern California and Florida. But as soon as you have willing buyers, you have competition, which tends to boost prices before too long. And in some areas of the country, prices actually rose in the last quarter -- like in the Yakima, Washington, Binghamton, New York, and Amarillo, Texas, areas.

It's really all just a reminder that timing the real estate market can be harder than it looks. For all the external economic indicators playing a role (unemployment, mortgage interest rates), the final piece of the puzzle is buyer psychology, and when enough homebuyers decide they want in on the market, it can change in an instant.

That takes us right back to the strategy we've always recommended: Look for the house you want to live in for a long time, in a neighborhood where home values tend to remain stable, and at a price that won't have you begging your bank for a break in a few years. Then enjoy it, even if prices go down in the short term, knowing you've got a solid long-term investment.

Ilona Bray

A good credit record and score has always been important, but with the tightening up of the mortgage industry, people with a low score may have a harder time than ever buying a house -- a shame, if you want to take advantage of recent dips in home prices.

But, warns Kenneth Harney, that's no reason to pay money to the various companies that promise to not only raise your credit score, but find you an affordable home in foreclosure and a low-cost mortgage to boot. For details of the consumer complaints and FTC lawsuits that these companies have engendered, see Harney's article in the San Francisco Chronicle.

As for raising your credit score, you'll have to do it the old fashioned way: by paying down your debt, paying bills on time, and more, as discussed in Nolo's article on Credit Scoring.

A recent poll of residents of the world's eight richest cities reveals that over 40% of Tokyo's residents don't want to sacrifice a convenient lifestyle to prevent global warming. While these results may seem startling, consider that the average house size in Tokyo is 64.5 square meters, or 694 square feet (not to mention that many residents probably take public transportation to work, and drive cars that put American gas guzzlers to shame). To really make a positive environmental impact, those of us who are quick to pat ourselves on the back for our eco-friendliness must think beyond bringing our own bags to the store and driving hybrid vehicles.

And there's no better time to think about these issues than when buying a home, which leaves a (literally) big footprint. While some features -- energy efficient appliances, CFL light bulbs -- can be added later, some "green" features are permanent. Consider these important factors:

• The size of the home. A few months back, I read an article about a woman in California's Central Valley who installed solar panels on the 3,000 square foot home she lived in, apparently alone. She was quite smug about her positive environmental impact. But she could have had done even better by choosing a smaller home that took fewer resources to build and could be heated and cooled more efficiently.

• The age of the home. Older homes sometimes don't have energy saving features, but can often be adapted to include them. Two years ago I had better insulation sprayed into my attic; it almost paid for itself with the rebate from my utility company, not to mention my lower heating and cooling bills. Again, fewer natural resources are spent when an old home is updated than when a new one is built.

• The size of the lot. A large grassy lot could mean a great place for dogs and kids to play, or it could mean heavy water use, toxic weed killers, and hours of upkeep time. If you don't buy more lot space than you need, you'll save yourself hassle, money, and environmental impact to boot.

Alayna Schroeder

Has residential real estate bottomed out? Or, put another way, is this the time for home seekers to buy? My answer is yes, no, and maybe.

First, the yes: Relative bargains still exist in those certain areas where the foreclosure rate is low and are also located near good transportation links, which can be a great opportunity for today's buyer. I say "relative" because in many of these areas, prices have fallen less than 20% and are unlikely to fall much more. Why? In part, because many up-market sellers can afford to wait out the down market and simply not put their houses up for sale. And then there's the fact that in more affluent neighborhoods, few people took on risky, no-down payment, adjustable rate mortgages in the first place.

But the buying opportunities that exist aren't for everyone. With new mortgages still relatively expensive, you need to make a chunky down payment (often 20% or more) and have adequate, documentable income in order to play in this game. Many younger buyers deal with this by having a more affluent parent make a gift of part of the down payment (perhaps treating this as an advance on an eventual inheritance, to keep siblings from going ballistic), or the parents might guarantee the loan.

Now for the no: In overbuilt subdivisions, such as many in Nevada (especially the Las Vegas area), Florida and California, it's far too early to buy. That's because cash-strapped builders are still dumping new houses on the market, further depressing the prices of those built in the last few years. And with foreclosure rates still rising in many of these areas, prices have further to fall.

Other places to avoid are the lower-income areas of cities and suburbs. Because so many people who could never reasonably afford to make required payments got loans in these areas, this is where the housing bubble was the worst and foreclosure rates the highest. Or, put another way, lenders in these areas will be dumping more and more distressed properties on the market, meaning that prices have only one way to go.

But, as with any advice, there are caveats, exceptions, and qualifications when predicting the direction of real estate markets, especially given the peculiarities of local micro-markets. In short, when some factors point to an improving local market and others still point down, you may be looking at a "maybe" area.

Those McMansion-type newer houses in the outer suburbs are likely suspects for "maybe" areas. In some locations, prices for these 5,000-square-foot behemoths have fallen by a third or more, which would normally indicate a buying opportunity. But the furious rise in gas prices have put this normal conclusion in doubt (except for the few houses in this category that are near good public transit). Otherwise, many buyers suddenly faced with a dauntingly expensive commute are likely to say no, meaning that prices may still drop.

Also, in upscale locales where new houses are priced to reflect their location -- on or near a golf course or near some other large amenity -- you'll want to be sure that the supervising corporation is and will remain solvent, even with a large number of houses remaining unoccupied. Otherwise, you may find yourself overlooking a water-parched rabbit patch, which will do precious little to protect your investment.

Jake Warner, guest blogger

With home values having recently gone down in many parts of the U.S., held steady in others, and even shown gains in a few areas, how are your supposed to know whether you're paying the right price for a home?

We gave a lot of advice for assessing the market in our book (Nolo's Essential Guide to Buying Your First Home) -- things like going to lots of open houses, checking comparable sales prices on sites like Zillow, and asking your real estate agent to prepare a report on sales prices of comparable properties (the "comps").

That advice still holds true -- but as was recently pointed out in an article by Realtor Magazine (a professional publication), it's especially important to pay attention to the prices of pending, rather than closed, sales, for the basic reason that they're the most recent. (And in a falling market, the appropriate price for the house you want to buy may be even less than the most recent pending comps.)

A good real estate agent will present the prices of pending properties to you no matter the market and explain any trends. But it helps if you know what you're looking for -- and, in some cases, what to ask for.

Ilona Bray