Nolo’s Real Estate Tips for Home Buyers

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.

The January 2010 issue of Smart Money magazine has a fascinating article on the impact that Internet sites such as Zillow have on negotiations over home prices.

When websites such as Zillow first rolled out their databases of comparable home prices -- where you can simply type in an address and get a "Zestimate" of the house's worth -- most industry experts thought it was cute, but essentially irrelevant.

No database that pulls together public sales records can, after all, incorporate knowledge of street desirability, views, charm, and other such factors that play into a buyer's willingness to pay more or less for a, say, "2 bedroom 1 bath." And pricing houses isn't an exact science, but depends on buyer psychology -- what the market will bear.

But what if buyer psychology is being molded by websites showing comparable values, so that the online data becomes a self-fulfilling prophecy? That's in essence what the Smart Money article is suggesting, with stories of deals going awry because the buyer insists that the house is worth no more than its Zestimate -- or being suspicious when the Zestimate is far higher than the list price.

What's a home seller to do? Start by looking at how your house fares on the online databases, then at what you can do to change it. Zillow does allow sellers to enter certain data about their home, such as renovations and home features, and add some descriptions to entice buyers. (You need to register, then enter your home address to get to its "detail page," then look for the tabs allowing you to edit the data.) I just did it for my house -- with no immediate changes to my Zestimate, but they warn that it may take some time. I'll check back in when I find out!

I visited my first foreclosure open house recently. What a disaster -- sloping floors, peeling linoleum, a bad smell coming from the refrigerator (which was an imposing item itself, all black with a giant "Oakland Raiders" sticker on it), a hole in the living room floor, and so forth.

But the image that really sticks with me is the wadded up packet of ketchup (like you'd get from a fast food outlet) sitting on the kitchen counter. It would have been the easiest thing in the world for the agent to pick up and throw away.

True, it wouldn't have made a penny of difference to the home's (negligible) value, but I wouldn't have gone away with such an extreme a feeling of "No one involved in this transaction gives a darn." Which is why I say that details matter.

Whether you're buying or selling a home, you have reason to be concerned that the deal will fall apart for reasons that weren't a problem a year or two ago; specifically, that the appraiser (usually sent by the buyer's lender) will assign the house a value that's significantly lower than the agreed-upon sale price. The lender will then refuse to loan more than the house is "worth," and the deal may end right there.

Part of the issue is the new-ish federal Home Valuation Code of Conduct (passed by Congress in 2008), which requires that appraisals be done by someone chosen by an independent third party.

According to recent reports by the National Association of Realtors (NAR), 37% of its surveyed members had "experienced at least one lost sale as a result of the new Home Valuation Code of Conduct, with seven out of 10 reporting an increased use of out-of-area appraisers. Seventy percent of NAR appraiser members said consumers were paying higher fees, while 85 percent report a perceived reduction in appraisal quality."

To get a more personal picture of what's happening, check out these news stories of heartbroken buyers and sellers, from Florida to Arizona to San Francisco.

As more and more people are pointing out, however, a faulty appraisal shouldn't -- and needn't -- derail your sale. Appraisers operate under a set of national rules known as the Uniform Standards of Professional Appraisal Practice. You can read them yourself -- they're not very long -- by going to The Appraisal Foundation's website. (But do so using Internet Explorer rather than another browser, or you'll just get a blank screen for the standards.)

Of particular note is the section of the standards called "COMPETENCY." Take a look, for example, at where it says  the appraiser must understand the nuances of the local market. If your appraiser doesn't, you have grounds to demand that another appraiser be sent to evaluate the house you're planning to buy or sell. With everyone in the transaction probably demanding the same thing, the third party is likely to listen.  

Thanks go to Money magazine's annual "Best List" for mentioning this website in its "Best Way Not to Sell Your House" category: Lovelylisting.com.

My coworkers have probably wondering why I've been giggling at my desk for the last ten minutes, and this is it. The website collects listing photos that would cause most home buyers to run in the other direction; you'll see photos dedicated to showing off giant cracks in the flooring, cleaning equipment seemingly tumbling down a steep staircase, obviously Photoshopped giant tulips in an otherwise drab yard, and more.

There were times when I was writing our recent book, Selling Your House in a Tough Market, that I worried our advice about making the place look good was too obvious to merit space on the page... but I've just put those fears to rest.

It's no secret that now is not the best time in recent history to sell a house. Prices are down in most areas of the U.S., buyers are taking their time and asking for lots of concessions, and the economy is keeping everyone cautious.

But life moves on, and many people can't wait for a turnaround to sell their home -- particularly those moving to a place where they can find work, moving to a retirement home, or needing a bigger house for a growing family.

That's why we wrote our most recent Nolo book, Selling Your House in a Tough Market. The book provides advice on key aspects of the process, like getting to know the local market (some are better than others for sellers), setting the right price (so the house doesn't stagnate on the market), staging it to look its best, and much more. And you can hear free tips from the authors, Alayna Schroeder and me, Ilona Bray, by listening to a podcast interview (click here).