Nolo’s Real Estate Tips for Home Buyers

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. 

Continuing on with the theme of popular culture depictions of real estate (my last blog posting sent you to David Letterman's Top Ten List), I hope you took note that home staging has truly "arrived" -- it made it onto The Simpsons!
 
That's right, in the episode that aired last Sunday, the town of Springfield was in financial crisis, and the house next door to the Simpson's was put on the market -- by just one of the many families moving to Detroit "in search of a better life."
 
Bart and Lisa soon notice delicious aromas of baking cookies wafting their way. But sensible Marge assures them that this is just a ploy by the sellers to make people subconsciously want to buy the house. Bart wonders, "What kind of a big fat moron would fall for that?"
 
Enter Homer Simpson, zombie-like, moaning, "Cookies! Must buy house!" He follows that with a litany of lines like, "Get loan preapproved," "Offer over asking," and "waive inspections," but I may not have the lines exactly right, since I can watch this episode only so many times at the office without others wanting to trade their jobs for mine.
 
But you can watch the whole thing, at Hulu.
 
Be sure to hang in their for the next best line in the episode -- when Bart introduces himself to the neighbor, saying, "You've no doubt read about me on your nuisance neighbor disclosure."

If you're a seller looking for more information on staging, check out Nolo's article, "Should You Hire a Home Stager?". 
 
 

Surveys have been fairly consistent over the last year or so, showing that most home sellers believe that their real estate agents are recommending a list price that's too low. (And why, one wonders, would an agent do that, given that it automatically lowers their commission?)

Check out the HomeGain survey for the 2nd quarter of 2010, showing that no fewer than 77% of homeowners think their homes are worth more than the recommended agent listing price!

The hurdles are no doubt both psychological and financial. Sellers want to get as much out of their house as possible for the next step in their life, can't believe that real estate has dropped in value as much as it has, and have come to love certain aspects of their house while also having become blind to the down sides or the years of wear and deferred maintenance.

Unfortunately, buyers will be coming in with a shrewd eye, and a down market is no time to count on a buyer falling in love with the place and overbidding. As discussed in our book Selling a House in a Tough Market, a house that's overpriced tends to sit on the market until buyers assume you must be desperate, giving them leverage to underbid  -- and the house ends up selling for even less than it could have had the original price been more reasonable.

For more information on setting the right price, see Nolo's free online article, "Listing Your House: What Price Should You Set?"

Interesting article by Alyssa Abkowitz in the May 2010 issue of SmartMoney, called "Wanted: Single Women Home Buyers." Abkowitz discusses what new-home builders are doing these days to attract customers their way -- specifically female customers, who are often either the "deciders," or, increasingly, are buying solo.

Okay, so if you've got double X chromosomes, now's a good time to stop and test yourself: What are the most important home features to you? And what cool features do you wish homes had, but rarely seem to encounter?

Actually, some of the items that today's builders are rolling out "just for you" seem fairly predictable, like giant walk-in closets, enhanced home safety and security features, and attention to aesthetic details.

Some, as Abkowitz points out, seem like things that any reasonable person would want, such as kitchens that open into the family room, walk-in pantries, and drop-zones for groceries. (Yay for drop zones! In my house, they're called "chairs.")

And then there are the really granular, sometimes oddball features: wall-mounted gift-wrapping stations with retractable shelves; "serenity packages" that features walls padded with noise-muffling material and bathrooms with hidden storage right in the walls for reading materials and feminine hygiene products; and a special hairdryer-ready drawer with the plug included. Wow, things I never knew I wanted!

Come to think of it, having read too many Victorian novels as a kid, those hidden drawers sound really appealing. Some hidden bookshelves and passageways would be nice, too. And how about a dumbwaiter?  





 


 

The sun is shining, you're hoping to buy a new house -- but you're stuck at your desk, and haven't seen an open house sign in your neighborhood in weeks. Here's some diversion while you wait: a new article on Nolo's website, "Online Fun for Home Buyers." 

If you're among the homeowners worried about continuing to make mortgage payments, you've probably noticed all the media discussion offering up short sales as a way to "save" yourself from the horror and the damage to your credit rating caused by a foreclosure. I've been guilty of talking up the benefits of this option myself.

A quick definition: Short sales are when the seller of a home that has dropped in value to less than what the seller owes on the mortgage finds a buyer willing to pay the current market value of the property, and they get the bank or lender's permission to accept the sale proceeds as a payoff of the mortgage.

But I won't be promoting the short sale option any more, at least not without some major caveats. I recently attended a continuing legal education seminar at which a group of lawyers who spend their every day working with distressed homeowners discussed the "dark side" of short sales. Here, in a plain-English nutshell, is what they described:

1) A short sale is not significantly better for your credit rating than a foreclosure.

2) Even though the lenders express willingness to cancel the lien on the property following the short sale, many have started sneaking difficult-to-understand language into the short sale contract allowing them to come after the home seller for the remainder of what was owed on the loan! (That's despite law in the state of California, at least, that seems not to allow such behavior -- but someone's going to have to sue to make this crystal clear).

3) Although common wisdom says that lenders never try to collect on these deficiencies, the experience of these attorneys is that they ALWAYS try to collect -- if not on their own, then by selling the debt to another entity that will try to collect.

My new caveats? Don't even consider a short sale without getting a look at the written documents from your lender and, even better, having them reviewed by an attorney who can discuss the comparative benefits of your various options.

Want to hear a more detailed explanation, straight from the source? I happened to mention this seminar to C.S. Soong of Against the Grain on KPFA radio, and he interviewed William Purdy, one of the lawyer-presenters. You can hear the interview here. 

A recent article in the San Francisco Chronicle sported the headline, "Pace of House Flipping Picks Up." That's right, the investors are back, buying up properties for cheap, fixing them up, and then selling them at a profit.

Does this mean that the real estate market is picking up? Well, it's not exactly a sign of robust economic health, given that the investors are focusing on foreclosure properties.

But it is a reminder that, even in the worst of times, homebuyers need to get to know their local market. There may be more competition out there than you realize, and the investors readily acknowledge that they may be edging out some would-be first-time buyers.

Oh, and while shopping for a house, be sure to notice whether it's being flipped. (It's easy to tell, based on how recently the last sale was recorded.) If so, don't be overly wowed by the new materials -- also check into their quality and level of workmanship. Remember, whoever did the work was out to make money, not to create a home they'd be happy to live in.

For anyone who was counting on getting FHA help with lining up a home mortgage -- via the FHA loan program, in which borrowers who present higher risks than others, most likely due to low credit scores, may qualify for a loan backed by the FHA -- that plan is starting to look a little more tenuous.

The FHA has tightened up its standards, including:

• requiring down payments of at least 10% for anyone whose credit score is less than 580
• cutting the allowable amount of seller financing to 3% of the transaction price, and
• requiring buyers to pay a higher mortgage insurance fee at closing.
  

For a good summary of these provisions and their implications, see Al Heavens's article in the Philadelphia Inquirer, "On the House: FHA alters borrowers' guidelines."

If you're a home seller, don't panic. The changes don't address all borrowers, but only those who were having trouble finding and closing on a loan in the first place. Qualified buyers are still out there, and in some regions of the United States, eager to find a home. Research your local market before drawing any conclusions on whether now is a good time to put your home up for sale. 

This doesn't seem to have made the headlines yet, but I know of at least a few home staging businesses that have gone under of late. Fewer people are selling their homes, so fewer home sellers are hiring stagers.
 
I found out about one such bankruptcy the most direct way possible -- I was in the process of buying a house in which the stager's furniture and decorations were being claimed by the bank foreclosing on the stagers's loan, and everyone was worried about whether the stager's property's fate would be decided in time for the closing.

That actually worked out nicely for me -- we ended up buying all the property from the bank for a very reasonable amount ,and moving into a fully furnished home!  But I may forever feel a twinge of sympathy as I look around at various objects that the stager had painstakingly collected, presumably over years of being in business. In other cases, I've seen ads for entire warehouses of stagers' furniture and property up for sale, cheap.

I'm not a fan of every stager's work, so in part I see this as a market correction rather than a tragedy. But having also recently seen the wonderful work that a home stager did in preparing my house for sale (that would be Ken McHale Design, in Berkeley), I'd encourage sellers to help keep the good ones afloat by hiring them -- and not pulling sneaky maneuvers like bringing them in for a free consultation knowing that you have no intention of paying them for anything more, a common complaint among stagers!

In a tough economy, a house that looks its best really can rise above the general market malaise, and a good stager can work magic in this regard.   

Today we have a guest blog from George Devine, author of For Sale By Owner in California and co-author of How to Buy a House in California. George is also an adjunct professor in the School of Business and Professional Studies at the University of San Francisco.

 

When asked how I'd describe the real estate market as we begin 2010, the word that comes to mind is "caution." Both buyers and sellers are waiting to see what will happen next, and trying to avoid making impulsive or risky decisions.

 

If the current state of the economy and home prices weren't enough to make people cautious, anyone with friends or a newspaper can find instances of how overly eager buyers and sellers got themselves into trouble just a few years back.

For example, when Alan and Jill found their dream house in 2006, and figured  they could stretch their finances just far enough to make the payments, they decided to accept the inspection reports that had already been provided by the sellers and their agents. After all, they reasoned, why spend another several hundred dollars to reinvent the wheel?

 

Almost three years after closing, the home is worth 25% less than what Alan and Jill bought it for and they are saddled with a money pit in terms of needed repairs. Everybody is suing everybody else. Alan and Jill allege the structural pest control inspections were really cover-ups, and both they and the sellers claim their agents failed to protect them.

 

This kind of thing creates a lesson for present-day buyers who - usually with help from protective agents - now more commonly insist on "another set of eyes," by having their own inspections done. For a few hundred dollars, they're buying peace of mind, and possibly opening the door to negotiating an adjustment to the purchase price. With the market still slow, sellers have little choice but to go along with the buyers' wishes in this regard.