Nolo’s Real Estate Tips for Home Buyers

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

Mon, 30 Aug 2010 17:44:08 -0800

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.

Condo Owners' Rights When the Neighbors Smoke?

Wed, 25 Aug 2010 10:04:23 -0800

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.

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

Sun, 22 Aug 2010 14:02:51 -0800

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:

ADVANTAGES TO DOING WORK RIGHT AWAY:
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)

DISADVANTAGES TO DOING WORK RIGHT AWAY:
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?"

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!

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

Thu, 19 Aug 2010 08:39:07 -0800

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.

Selling Your House: When Should You Move Out?

Wed, 11 Aug 2010 09:08:50 -0800

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.

Need to Move for Work? Consider Renting, Not Selling Home

Fri, 30 Jul 2010 11:48:01 -0800

As this recent article in the Washington Post by Michael A. Fletcher describes, a number of unemployed Americans are finding that, even if jobs are available in other cities, they can't sell their homes -- or can't sell them for enough to cover their mortgages -- leaving them, effectively, stuck.

Surprisingly, however, the article doesn't mention the possibility of renting out the space until house values improve. This won't work for everyone, but it can work well for those living in areas where rents have actually risen or held steady since the real estate bust. In many cases, demand has actually been driven up by the numbers of people foreclosed upon or otherwise unable to qualify for a mortgage.

For example, check out this July 27 Bloomberg article by Prashant Ghopal, stating that, "U.S. apartment landlords are seeing a surge in rentals as mounting foreclosures reduce homeownership and an improving job market for young adults encourages them to find their own places to live."

Still, even at a decent rent, the amount might not cover the mortgage and other expenses. You'd need to run some numbers. For help with that, see Nolo's award-winning book, First-Time Landlord: Your Guide to Renting Out a Single-Family Home, and the free article, "What It's Like Being a Landlord."

Buying Into a Homeowners' Association = Buying Uncertainty

Wed, 28 Jul 2010 12:04:54 -0800

Sometimes a personal story is the most powerful way to illustrate the importance of certain tidbits of advice.

For example, if you've read any of Nolo's books on homebuying (such as Nolo's Essential Guide to Buying Your First Home), you've heard us say a million times that it's important to read the fine print in the Covenants, Conditions, & Restrictions provided by the homeowners' association (HOA) of your soon-to-be newly purchased condo or townhouse.

But, as a friend of mine buying a condo recently commented to me, "There were 300 pages of documents -- I'm not sure I ever would have read the whole thing!"

Good thing for her, the condo seller (of this existing complex, built in the 1980s) was not only a member of the condo board, but was upfront in making his seller's disclosures. He revealed that, on top of the regular homeowners' dues, there was a probable special assessment coming down the pike -- alarmingly enough, of an uncertain amount in the neighborhood of $10,000 to $20,000 per homeowner.

The problem is that various of the condo owners' roofs have started to leak, and not just because the roofs are old. (They'd already budgeted into the regular homeowners dues for regular roof replacements.) Apparently when the condos were originally built, someone didn't do the roofs correctly, and the flaws are starting to take a toll.

What's a condo buyer to do in this situation? My friend asked for and received a credit of $10,000 to be put into the escrow account at closing, but she's also researching madly, talking to contractors and people within the HOA about the likely costs of replacing over 100 roofs - or maybe just replacing individual roofs as they leak (a choice that the HOA members are still considering).

She may not get the answer before closing time -- but you can bet she'll be an active member of the homeowners' association, and attend all the meetings, to watch how this plays out!

Home Staging: Even Homer Simpson Can't Resist!

Tue, 27 Jul 2010 11:56:00 -0800

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?".

Uh Oh, Could Your New Neighbors Be Russian Spies?

Fri, 23 Jul 2010 18:29:08 -0800

It has happened to some homebuyers; the neighbors turn out to be NOT WHO THEY APPEARED TO BE. Luckily, late-night host David Letterman has supplied this handy list of Top Ten Signs That Your Neighbor is a Russian spy. Yup, if your mail carriers keep mysteriously dying of polonium poisoning, you just might want to investigate further.

On a more serious note, when home shopping, it's worth asking both the home seller and passersby you meet in the neighborhood about your neighbors' personalities and activities before you close the deal. Some states' disclosure forms will ask the seller to provide potentially neighbor-related information, such as local nuisances or legal disputes concerning the property. But others leave it to up the up to the seller's conscience as to whether they fill in the "Other" box.

There's nothing to stop you from knocking on your potential new neighbors' doors, introducing yourself, and taking your own measure of their personalities. In most cases, a Russian accent means you should look forward to some pleasant evenings over borscht, blini, or vodka. But, as Letterman warns, think twice if they hand you a business card where "Russian Spy" is crossed out and "Landscaper" is scribbled in . . . .

For more information on checking out the neighborhood and the neighbors when choosing a new place to call your own, see Nolo's Essential Guide to Buying Your First Home.

Could Your Home Attract an Out-of-State Buyer?

Mon, 19 Jul 2010 14:29:01 -0800

A couple years ago, while visiting Ithaca, New York, I talked to a seller whose home had been on the market for several weeks, with no bites. She looked resigned, but then brightened up, saying, "We're hoping one of those California buyers will come along!"

It was probably a far-fetched hope -- and yet one worth having. After all, a study by Brigham Young University showed that, across the country, out-of -state buyers tend to pay 5% more for homes than in-state folks. (Thanks to SmartMoney magazine for reporting on this, in an article called The Psychology of Real Estate, in its August, 2010 issue.) This phenomenon especially holds true (of course) in areas where real estate prices are lower compared to, say, California, New York City, or upscale communities in other states.

Too bad there's not much you can do to persuade someone to move across the country to buy your home.

But, on the chance that some Californian or New Yorker is already looking in your general area, it's worth making sure that your house is easy to find.

The Internet is already a huge help in this endeavor. Just by having your agent list your house on the Multiple Listing Service (MLS), you'll have taken the first step toward findability. You might also consider placing classified ads in whatever large municipal newspaper an out-of-towner is likely to look at, in addition to advertising in the small, local papers that will probably bring in most of your potential local buyers.

For actual visitors to your home, assume that some will know nothing about the area, and be creative in providing information about nearby amenities. If, for example, leisure magazines or other media have written guides or reviews about your area -- perhaps about dining at nearby restaurants or enjoying nearby parks or neighborhood walks -- make color copies of the articles to display at your open houses.

After that, you'll have to trust to luck! But rest assured that, as you read this, some Californian is probably turning to his or her spouse/partner and saying, "Do you realize that if we sold our tiny two-bedroom here, we'd have enough to buy a mansion in, say, Ithaca?"

Home Sellers Continue to Overvalue Their Homes

Thu, 15 Jul 2010 10:51:08 -0800

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?"

Will Trees Improve Your Home's Value and Livability?

Fri, 09 Jul 2010 16:58:10 -0800

The National Association of Realtors recently reminded its members that each tree a person plants around a home can add an estimated $630 to the home's value. (That's according to a 2002 study by the USDA Forest Service.) And trees can save on energy costs, too. The U.S. Department of Energy says that, due to shading of the home in summer and protecting it from winds and weather in winter, well-planted trees can save homeowners between $100 and $250 a year.

Personally, what I like best about trees is the pleasant view they create out the window, with filtered light and sneak peaks into the lives of birds, squirrels, and occasionally the cats who chase them.

So if you've got the space to plant some trees, here's the best news of all: Buying a tree doesn't have to break the bank. By joining the Arbor Day Foundation, you become eligible to receive ten free trees, specially selected to grow well in your geographic area.

But before you start planting, a few cautions apply. For starters, it's important to do your research on how fast your chosen tree will grow -- sometimes it's faster than you think -- and what that will mean for both your own property and any neighboring ones. In some common interest developments, for example, the rules forbid you to block another neighbor's view.

Also check on whether the particular species of tree's roots are known for invading, say, concrete plumbing pipes. And you might want to avoid trees with special needs, like the Coast live oak in my back yard, which can't be watered all summer -- meaning nothing else in my yard can be, either.

Tree placement is another important consideration. For example, a tree that loses its leaves shouldn't be put too close to the house if you don't want to be cleaning out the gutters frequently. And if you plant a tree near your property line, and the trunk grows over the boundary, the law says that your neighbor will then own part of the tree. Even if the trunk doesn't grow this wide, realize that other tree issues -- falling leaves, ownership of overhanging fruit, and dropped limbs -- are a common source of neighbor disputes. To help forestall or deal with these, see the free "Trees and Neighbors FAQ" on Nolo's website, or buy the excellent, plain-English reference, Neighbor Law: Fences, Trees, Boundaries & Noise, by Cora Jordan and Emily Doskow (Nolo).

Closing of Home Sale Delayed by Lender: Now What?

Wed, 07 Jul 2010 09:17:01 -0800

Once upon a time, a buyer and seller could set a closing date and expect that, barring a few hours' panic about some little item, that would be the date upon which the home purchase would be completed and ownership change hands.

Those days are, for many home buyers and sellers, gone. The main problem seems to be that the lenders have gotten so nervous that, even after preapproving a buyer and demanding scads of paperwork -- bank statements, pay stubs, gift letters, bank statements from people giving you gifts, explanations from employers about why your income has changed over the past year, and so forth -- they've developed a tendency to come up with last minute requests for yet more paperwork.

Or, in some cases, lenders reportedly want to wait for pending home sales to close, in order to make sure they've got the absolute latest figures on comparable home prices. (How's that going to work if all the lenders do the same thing?)

In a similar situation, the buyer's mortgage broker may still actually be shopping the buyer's loan around to different lenders, each of which is seeing the buyer's paperwork for the first time, and coming up with its own requirements.

One real estate agent I spoke with recently said he'd been involved with a home sale in which the lender's demands delayed the closing by 17 days! What can you, as a home buyer or seller, do to avoid such messes?

If you're the buyer, I recommend getting everything together for your loan paperwork as soon as possible, then checking with your broker or lender regularly to follow up. Ask lots of questions, like "What's the next step for my application," "When should I expect to hear confirmation that it's going as planned," "What are all the possible ways to reach you," and "Do you have any upcoming vacation plans?" Don't take vague reassurances that the loan will close on time at face value.

If you're the seller, don't accept a purchase offer until you've checked out the buyer's finances and ascertained that the loan upon which your sale is contingent is realistic (at an appropriate interest rate, and hopefully based on a down payment of 20% or more).

Once you're in contract, ask your agent to keep in regular touch with the buyer's agent about how the loan approvals are going -- and be prepared for the possibility that you'll be paying for your home's mortgage, utilities, and so forth, longer than you expected. If there is a delay, don't rush to cancel the sale -- instead, consider charging the buyer a daily fee in order to keep the contract in force -- your purchase contract may even provide for this. You might even want to start renting the place to the buyers, if they're desperate for a place to live -- better that they pay you rent than pay hotel bills. (Sign a separate rental agreement for this, too.)

No matter which side of the table you're on, remember that patience and persistence is key. Blaming the other party may not be appropriate. Ten years from now, those few days' difference won't seem like so much.

Your Car Insurer: Don't Delay in Telling It You've Moved!

Fri, 02 Jul 2010 08:54:26 -0800

You've probably got a long list of places to advise of your move to a new home, such as your doctor's office, kids' school, magazine and alumni subscriptions, gym, and more. It's the kind of task that's easy to put off as you unpack.

But here's a good reason to tell your car insurer right away -- if you've moved to a better neighborhood, it may lower your rates! That's right, a zip code considered "safer" can equal lower car insurance premiums. If you've already paid, you'll get a rebate for the remainder of the year. Not that you could use any extra cash right now . . . .

New Home Construction Catering to Women!?

Tue, 22 Jun 2010 14:15:40 -0800

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?