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20% Downpayments Don’t Always Make Cents

November 9, 2011 By Leave a Comment

down_paymentDespite the “doom and gloom” in today’s headlines, in the current economic climate, homeownership is more affordable than ever, thanks to low interest rates and lower home values. For those buyers who manage to have a 20% (or more) downpayment, they believe this will get them the lowest monthly mortgage payment. However, simply because buyers can afford to put down this amount does not necessarily mean they should.

Those buyers who have saved enough to put 20%—or more—down on the purchase of a home may want to consider another approach—preserving some of their cash for savings, investing or other purposes. It may sound counterintuitive, but with today’s interest rates and the competitive pricing of private mortgage insurance (MI), borrowers can retain some of their money by putting less money down on a home—say only 10%—and still get a low monthly payment.

Real estate professionals have a responsibility to all home buyers to help them evaluate their purchasing power based on existing assets as well as future need. The right counsel can help home buyers leverage their current assets while keeping sufficient reserve for any immediate or future financial needs, not to mention all the trips to the local big box hardware store that seem to come standard for any new homeowner.

As a real estate professional, I guide my home buyers throughout the transaction process. At the very beginning, it is imperative to look at the borrower’s overall financial picture—taking into consideration current cash flow, debt and all future financial obligations.

leveraging-SmallIt is important to think beyond just interest rates and downpayment, as these are not the only keys to securing the lowest possible mortgage payment. By having a general understanding of the current financing options, you can better understand what a buyer can responsibly afford, which, in some instances may be more than they think.

While I am not a financial advisor, by asking these types of questions, I help make sure my buyers better frame conversations with their loan officer.

While in the past the adage was, “The more you borrow, the more you leverage,” in today’s financial times, the scenario is much different. Today, borrowers can leverage private MI to put as little as 5% down on a home and still have a competitive payment. And for those potential buyers who have stayed out of the market over worries of declining property values, they can still purchase a home without funneling all of their available cash into the downpayment. By utilizing this strategy, home buyers are able to leverage their current assets, while still keeping sufficient cash reserve.

So, while putting 20% down on a home doesn’t always make sense (or dollars), buying at a time of high affordability does. And by understanding the current financing options available to buyers, and helping them discuss what those options mean for their downpayment needs or monthly payments,I help point them in the right direction with their loan officer, overcome their investment fears and make the sale, all while helping them achieve their goals.

I’m here to help – 206-713-3244 or email me.

Filed Under: Economy, Real Estate, Real Estate Investment Tagged With: , ,

What home feature adds $43,000 to its price, what reduces it by $24,000?

November 8, 2011 By Leave a Comment

The average new home is 2,150 sf

In a Southern suburb, a home’s value increases by around $43,000 by having a third full bathroom in a single family home, according to the National Association of Home Builders’ updated home price estimator and economic model that compares the four regions in America to enable home buyers, home builders, home owners and developers to compare the impact of physical features on a home’s price.

The results of the national economic model are interesting – the “standard” new single family home has 2,150 square feet, has three bedrooms, two and a half bathrooms, garage, fireplace, central air, separate dining and three miscellaneous rooms in a neighborhood where groceries are within 15 minutes from the home.

New home prices are typically higher in the Northeast and West than the Southeast and Southern regions and the lowest prices tend to be outside of a metro area, but according to the NAHB, “In general, the estimator finds that suburbs show higher prices than their companion central cities, which include the areas inside the city limits and not just a central business district or downtown area.”

How features impact a home’s price

Take for example a standard new home in a suburb in the South- it costs on average $203,874. Put that home on the waterfront and the price jumps by $90,000. Put the home near public transportation and you add another $26,000. Add 500sf of living space which adds an average $13,000 to the home price, but adding another bedroom or miscellaneous room adds less than $10,000 in value.

What can hurt a home’s price? Take out that fireplace of that Southern suburban home and you’re looking at reducing a home’s value by an average (and shocking) $24,000. Foreclosures are having an impact on home values without a doubt- an abandoned building within half a block knocks $28,000 off of a home’s value. Without shopping nearby, metal bars on windows, poor roads or bad smells can hurt a homes value by more than $6,000.

Cheat sheet:

Below is an easy to read summary of the information above (remember, all of this serves as an example of a Southern suburb for illustrative purposes). Visit the NAHB’s home price estimator and economic model to learn more about feature values in your market.

  1. The average new single family home has 2,150 square feet and is a 3/2.5.
  2. The average new home has a garage, fireplace, separate dining and three miscellaneous rooms.
  3. The average new home is in a neighborhood where groceries are within 15 minutes.
  4. A full third bathroom adds $43,00 to a home’s value.
  5. The average new home in a Southern suburb is $203,874.
  6. Being waterfront adds $90,000 to a home’s value.
  7. Being near public transportation adds $26,000 to a home’s value.
  8. Adding 500sf of living space adds $13,000.
  9. BUT, if that extra space is a bedroom or miscellaneous room, it adds under $10,000.
  10. Removing a fireplace reduces home values by $24,000.
  11. An abandoned building within half a block reduces a home’s value by $28,000.
  12. Without shopping nearby, metal bars on windows, poor roads or bad smells can hurt a homes value by more than $6,000.

See what you can get in Bellevue.

Filed Under: Architecture, Home Remodel, Real Estate Tagged With: ,

14 Post-Recession Real Estate Terms, Translated

November 8, 2011 By Leave a Comment

By now, you’ve probably heard the age-old rules of thumb about translating home listings from real estate lingo to plain English: ‘cozy’ = tiny, ‘needs TLC’ = needs massive repairs, and ‘all original details’ could mean beautiful moldings or moldy linoleum, depending on the home.

Almost everything about the real estate market has changed over the last few years, though, so I thought it may be time to update the real estate lingo decoder that accounts for those changes in the market.(That’s a picture of Ralphie getting his decoder ring in the mail, by the by.)

To that end, here are 14 line items of real estate jargon, divided into 2 buckets and decoded for the post-recession house hunter.

Bucket #1: Transaction signals. Distressed properties – foreclosures and short sales – make up about a third of the homes currently on the market, and these transactions have their own unique flow, timelines and challenges compared with “regular” equity sales. So, it only makes sense that listing agents have developed a set of abbreviations to brief prospective buyers on what they can expect and should be prepared for if they make an effort to buy such a home, with just a glance at the listing:

1. REO: Real estate owned by the bank/mortgage servicer, this acronym refers to homes that were foreclosed and repossessed by the former owner’s bank. It also signals that buying this property will involve doing a deal with the bank; possibly dealing with a different escrow timeline, offer process or contract forms than a non-REO sale; and almost always taking the place in as-is condition, among other things. Oh, yeah – and it might also involve one more thing: a great deal.

2. S/S, Subject to bank approval: What once stood for stainless steel is now being used to describe a short sale – a property whose seller anticipates will net them less than they owe on the home. Short sales are often described as “subject to bank approval,” which simply points out the obvious truth about these transactions, that the seller has very little control over whether the bank will allow the transaction or what price and terms the bank will approve of, and that the transaction might very well take the better part of your natural life could take 6 months or longer to close. Talk to your agent for more details about short sales, and to determine how you can tell the success-prone short sales from those that are less likely to close.

3. Pre-approved short sale: Many knowledgeable agents say no short sale is truly “pre-approved” unless and until the bank looks at a specific buyer’s offer and the seller’s financials at the same time, but some listing agents designate a short sale as “pre-approved” when a previous short sale application was approved at a given price, but fell out of contract for some other reason.

4. Motivated seller: This is a perennial term in listing parlance, but against the backdrop of the current market, translates to something like, “Have mercy on me.” I kid – this phrase often signals a seller’s flexibility in pricing and/or urgency in timing.

5. Coveted: In a word, “expensive.” No, seriously, even on today’s market, many locales have a neighborhood (or a few) which have been relatively recession-proof, have been fairly immune to the foreclosure epidemic and have seen home values continue to rise. If you see the word ‘coveted’ in a listing, chances are you’re house hunting in that sort of neighborhood, or there’s something about the individual property the home’s seller is trying to position as unique and desirable, as compared to competing listings (i.e., the view, location of the lot, or floor plan).

6. BOM, often accompanied by “No fault of the house:” Homes go in and fall out of escrows on today’s market constantly, often due to things the seller has no control over. BOM indicates a home that was in contract to be sold, but is now “Back on the Market.” “No fault of the house” may describe a situation in which the buyer lost interest in the home after a long short sale process or failed to get final loan approval, as contrasted to a situation in which the home’s inspection turned up deal-killing problems or the property failed to appraise at the purchase price.

7. Not a short sale, not a foreclosure. Sellers on “regular” equity transactions are often more negotiable on items like price and repairs, and are certainly able to close the transaction (i.e., let the buyer move in) sooner than sellers of REOs and short sale properties. Some also pride themselves on having maintained their homes in better condition than the distressed homes on the market. For buyers that seek quick certainty and closure, non-distressed homes can be especially attractive.

Bucket #2: Show Me The Money. The government’s role in financing homes has grown exponentially over the housing recession, so the alphabet soup of government housing and home financing agencies, their guidelines and programs is now more important to understand than ever.

8. OO/NOO: Owner-Occupied and Non-Owner Occupied – You’ll see this on listings in two different ways. First, the vast majority of home loans must comply with government loan insurance guidelines, including guidelines around how much of a condo complex must be owner-occupied (i.e., 75 percent, minimum, in most cases). Also, some bank-owned property sellers will consider offers from owners who plan to occupy the property if they buy it as much as a week or 10 days before they will look at NOO or investor offers.

9. FHA: Short for the Federal Housing Administration, which backs the popular 3.5 percent down home loan program. FHA guidelines also include somewhat strict condition and homeowners’ association dictates, so if a home’s seller notes that they are not taking FHA loans, they might be saying that the property has condition or other issues which disqualify it for FHA financing.

10. Fannie, Freddie: Fannie Mae and Freddie Mac, federally controlled company/agency hybrids that now back most non-FHA (conventional) home loans, and thus provide the guidelines most Conventional loans must meet, including guidelines around seller incentives like how much closing cost credit a buyer can receive.

11. DPA/DAP: Down-Payment Assistance or Down-Payment Assistance Program

12. FTH/FTB: First-time homebuyer/First-time buyer – cities, states and large employers like universities tend to be the last bastion of these programs which offer mortgage financing or down payment assistance, usually to people who have not owned a home in the relevant city or state anytime in the preceding 3 years.

13. HUD: The federal department of Housing and Urban Development, which governs the guidelines for FHA loans, acts as a seller of homes which were foreclosed on and repossessed for non-payment of FHA-backed loans, and publishes the Good Faith Estimate and settlement statement forms every buyer and borrower will be provided at the time they shop for a loan and close their home purchase, respectively.

14. HFA: Short for Housing Finance Administration, this acronym refers to a loose body of state
and regional agencies which offer an array of financing and counseling programs that varies by state, from down payment assistance for first time buyers to the Hardest Hit Funds that offer foreclosure relief assistance and principal reducing loan modifications to unemployed and underwater homeowners in the states hardest hit by the foreclosure crisis.

I’m here to help – 209-713-3244 or email me.

Filed Under: Real Estate Tagged With: ,

How Appraisals Are Derailing Home Sales

November 7, 2011 By Leave a Comment

New requirements are resulting in more cancelled or delayed contracts.

appraisal2When the appraiser’s number is different than the selling price the buyer and seller had agreed to, and  unless the buyer agreed to put up more money, or the seller to lower the price, the deal is dead.

In the past, appraisals rarely disrupted a home sale. But new requirements and a difficult housing market are doing just that. Year-to-date through September, one third of realtors have said appraisals resulted in buyers and sellers delaying or canceling contracts or renegotiating to a lower sales price, according to the National Association of Realtors. That’s up from 29% in all of 2010 and up from less than 10% prior to 2009.

Indeed, lenders say they’re requiring more thorough home appraisals. Appraisers determine the value of a home largely by reviewing the prices at which similar homes nearby sold for in recent months. During the housing boom, appraisers could cite as few as three recently sold homes; today, lenders are often requiring two to three times that, says David Stevens, president and CEO of the Mortgage Bankers Association. To meet that quota, appraisers say they sometimes have to use homes that aren’t similar and may be foreclosures or short sales, though they are taking into account what this property would have sold for if it wasn’t a distressed sale, says a spokesman for the Appraisal Institute, an association of real estate appraisers. "Appraisers have become much more cautious," says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla.

To be sure, a more thorough appraisal process does have its benefits. It lets a buyer know whether they’re offering too much to buy a particular home. "For buyers, the appraisal is a check and balance — it’s there to ensure the buyer isn’t overpaying and the lender isn’t over-lending," says McCabe.

It may also make houses cheaper for buyers — though not without more hassle. If the appraisal value comes in below the agreed buying price, the lender will typically offer a smaller mortgage. For example, on the house that Rogers sold, the buyer would have gotten a mortgage for $358,400, or 80% of $448,000. But when the appraisal value came in at $430,000, the lender adjusted the mortgage amount to 80% of the appraisal figure, or $344,000. The contract the buyer and the seller had signed, however, stated the higher buying price of $448,000, and the buyer (and potentially the seller) had the option to decide if they wanted to make up the $18,000 difference.

Typical solutions include having the buyer paying that difference out of pocket or the seller lowering his price — or both. And sellers often do lower their prices: For example, during the three months ending September, 13% of realtors reported contracts were renegotiated to a lower sales price, compared to 10% who said contracts were canceled and the 8% who said contracts were delayed, according to the NAR.

How sellers can prepare:

Before putting their home on the market, sellers should research what similar homes near them are selling for by looking at online listings, visiting open houses and speaking with realtors, says Rogers. "It’s always good to get more than one opinion," he says. They can also ask for their own home appraisal, which could give them a sense of how close (or far off) the figures are. The cost of an appraisal varies but typically ranges from $250 to $600.

How buyers can protect themselves:

When buyers make an offer, they should include statements in the contract guaranteeing they’ll receive their initial down payment (typically 3% to 5% of the agreed buying price of the home) back if full mortgage financing doesn’t come through for the agreed price or the appraisal value is below the offer that’s in the contract, says McCabe. Separately, the buyer (who’s required to pay for the home appraisal) should ask for the appraisal report and look at what properties the appraiser used as comparisons, says Rogers. It should, he says, include homes that are in the same neighborhood and the same style. In other words, a colonial home shouldn’t be compared to a ranch.

What to do if appraisal value comes in below the purchase price:

In this situation, experts say buyers have several options. If they’re no longer interested in the home, they can walk away. (However, without a contingency clause — see previous section — they risk losing their initial down payment.) But if they still intend to buy the house and they can prove the report excluded similar, nearby properties or had some other issue, they can appeal or ask their lender for a second appraisal.

If those strategies don’t work, the buyer and the seller can consider working out an agreement on their own. Lastly, to report a problem with an appraiser, consumers can contact their state’s appraisal board.

Have you experienced a low appraisal? How did you address that? Let me know how I can help – 206-713-3244 or email me.

Filed Under: Economy, Real Estate Tagged With:

10 design flaws in the average home

November 7, 2011 By Leave a Comment

Monopoly House BlockGood design doesn’t have to be froufrou. It can be simple and useful in its beauty, making use of natural elements. Often it’s a matter of looking to things that are important to you apart from conventional ideas and to what the idea of home means to you and your family.

Poor planning and small budgets can lead to design mistakes, but often flaws become apparent as newer and better ways of home planning and construction come into favor.

We’ve chosen 10 common design flaws to highlight in this article, listed in no particular order. If you find some of these problems in your home, take heart. You’re not alone, and there are ways to resolve the situation. Carpenters and handymen have been around for thousands of years, and many do-it-yourself experts learned about home improvement while coming up with workable solutions for design flaws and getting hooked on the problem solving itself.

Read more here.

Filed Under: Architecture, Real Estate Tagged With:

Economy Alters How Americans Are Moving

November 2, 2011 By Leave a Comment

1028-web-MIGRATE2

click for larger view

The continuing economic downturn has drastically altered the internal migration habits of Americans, turning the flood of migrants into the Sun Belt and out of states like New York, Massachusetts and California into a relative trickle, an analysis of recent federal data confirms.

Essentially, millions of Americans have become frozen in place, researchers say, unable to sell their homes and unsure they would find jobs elsewhere anyway.

An analysis of new data from the Census Bureau and the Internal Revenue Service by the Carsey Institute at the University of New Hampshire confirms earlier census assessments of a migration slowdown, but also offers a deeper, state-by-state look at the impact of this shift, which upends, however temporarily, a migration over decades from the snowy North to the sunny South.

The institute’s study compared three years’ worth of data from the Census Bureau’s American Community Survey, which was released early Thursday and covered 2008-10, with the data from 2005-7. Since the survey’s findings are released in three-year increments, this was the first time that researchers had a set of data that included only years since the financial collapse began, allowing them to make a direct comparison to a similar period before the collapse.

Using this and other data from the I.R.S. that many researchers consider even more comprehensive, they found that migration into formerly booming states like Arizona, Florida and Nevada began to slow as soon as the recession hit and continued to shrink even into 2010, when many demographers expected it to level off. At the same time, Massachusetts, New York and California, which had been hemorrhaging people for years, and continued to do so in the three years before the financial collapse, suddenly saw the domestic migration loss shrink by as much as 90 percent.

Mobility always tends to slow in times of economic hardship, and there has been a gradual decline in American mobility for decades. But census numbers released earlier this year showed that domestic migration in 2010 had plummeted substantially since the recession began and reached the lowest level since the government began tracking it in the 1940s.

“When times get really hard it gets really hard for people to up and move,” said Kenneth M. Johnson, the senior demographer at the Carsey Institute, who conducted the analysis. “People who might have left New York for North Carolina are staying put. But that is a very recent change, so that places that had been growing rapidly suddenly aren’t, and the outflow has really slowed down.”

Mr. Johnson said that the same phenomenon could be seen within states, as the growth began to slow in once rapidly growing suburbs, and shrinking cities like Los Angeles and Chicago began to stabilize.

In the last three years, Florida saw its first net migration loss since the 1940s, according to the analysis. According to I.R.S. data, the state had a net migration gain of 209,000 in 2005 but a loss of 30,000 in 2009.

Nevada’s strong migration gains flipped to a net loss of 4,000. Arizona scraped by, ending the decade with a 5,000 net gain, down from 90,000 five years earlier. Maricopa County in Arizona, home to Phoenix, and Clark County in Nevada, home to Las Vegas, two areas that had exploded with growth at the start of the decade, began to see more people move out than move in.

On the other hand, New York had a net loss of 71,000 migrants in 2009, substantially fewer than the 170,000 migrants it lost in 2005. California saw its loss of migrants shrink to 71,000 in 2009, down from 201,000 in 2005.

The I.R.S. data covered the period through the 2009 tax year, but offered a detailed picture of the country in April 2010, when many returns were filed.

The internal migration data does not include those who came to states from other countries or the natural increase of the population through births. Those changes are major drivers for overall population growth and continued to make the Sun Belt and Western states the biggest population gainers of the decade. And young people, who have long been the most reliable group of new migrants to cities, also appear to be less willing to move to the cities in the Sun Belt.

In an analysis of the American Community Survey data made public on Thursday, William Frey, a senior demographer at the Brookings Institution, found that large metropolitan areas with once-flourishing economies, like Atlanta, Phoenix and Riverside, Calif., are no longer magnets for Americans ages 25 to 34.

“These places that were getting real new interest amid the bubble are not seeing that anymore, and in a way it is making people give another place a second look,” Mr. Frey said. “The dynamics of high housing costs on the coasts and relatively affordable inland is starting to change so, in effect, that shuts off the merry-go-round.”

“If nobody can buy or sell their homes, there’s going to be a stagnancy,” he added.

Atlanta, which ranked third as a destination for young people in that age group from 2005 through 2007, sank to No. 23 in the period from 2008 through 2010, according to Mr. Frey’s analysis. Phoenix dropped to No. 17 from second place, and Las Vegas plummeted to No. 35 from 10th place.

The winners were cities like Washington, which skyrocketed to sixth from 44th, Denver, which jumped to first from 12th, and Boston, which is now No. 26, up from No. 45.

Mr. Frey said that, in many ways, young people were staying in the more established cities with a kind of wait-and-see approach to the economy. He said he expected the relocation rates to pick up as soon as there were new housing and job opportunities for young adults.

“They are trying to bide their time in a hip place they know,” he said. “But there is going to be a pent-up demand for migration, because right now people are just putting their lives on hold.”

Jennifer Medina reported from Los Angeles, and Sabrina Tavernise from Washington.

Filed Under: Economy, Real Estate Tagged With:

Not All Feet Are The Same

November 1, 2011 By Leave a Comment

feet One of the most misunderstood data points in real estate is square footage. To some this seems like a solid, historically accepted statistic that should be left alone. The reality is that not all feet are created equally.

As someone who consults both buyers and sellers on strategies that include pricing, I have had more than one occasion where square footage has been an issue of consternation.

Though I’m not an appraiser, I do understand the principals by which they establish value. In the Puget Sound, our topography dictates a variety of architecture. We have two-story, ramblers, split-entry, multi-level, townhomes and many more variations of those. Some homes have mountain views, while others look out on one of our gorgeous lakes. Still others look into a school yard or directly to a brick wall. Not all feet are created equally.

To suggest that, if all things being equal (number of bedrooms, baths and size), square footage would offer the key to pricing, is in my opinion a precarious position to take.

The truth is that floorplan rules! Useful (useable) design and flow are imperative to the way the home lives. People make due with the spaces they occupy, however, many of us have said something like, “If only that wall was over there”, or “If only we had a larger kitchen”, or “I wish the laundry room was upstairs”. As an aside – another benefit of our current inventory levels is that buyers have the opportunity to select homes that fit their needs at a pace where there is less compromise than in the frenzy market of 2003-2006.  The floorplan MUST be considered when evaluating the profile buyer (most likely buyer for the property), usefulness of the spaces and subsequently, the value of the property.

Multi-level homes, though fun and interesting, may have a smaller pool of buyers (older families, due to the distance between bedrooms and other layout considerations) which in turn can affect its value, depending on when it is sold. View homes may be more valuable to some than others (ask an appraiser how much a view is worth and you may receive a very long bluff – there IS a value, but determining that number is science and gut mixed with a little Pepto Bismol). Craftsmanship has to play a role in the valuation of a home. Different builders use assorted materials and sub-trades. The quality of materials and appliances cannot be ignored when valuing homes.

As a city or neighborhood ages, we see gentrification. In Seattle, Bellevue and Redmond, comparing homes in neighborhoods that are mixed with original and newly built structures is not for the faint of heart.

Many homes in our area have multi-levels due to where they are placed on the lot. Often these homes have an abundance of stairs and hallways, whereas a well designed rambler will yield the highest return on investment.

This is not to say that there aren’t times to use the square footage data. Identical homes in neighborhoods (unless there are some major differences such as location & condition), and more likely condominiums and townhomes, can benefit from the square footage valuation model. Again, one must consider the updates that may or may not have been done. The most important component in those cases is timing. I have observed and have been a part of selling identical properties only 6 months apart at dramatically different prices. Even the micro-market is affected by variations in the economy and lending.

Though none of this is splitting the atom, I have seen many who deal with home sales and marketing gloss over this point, sometimes putting their seller clients in a less than successful position.

If this resonates with you, let me know how I can help 206-713-3244 or email.

Filed Under: Architecture, Real Estate Tagged With: , , ,

Bang For Your Housing Buck – Interactive

November 1, 2011 By Leave a Comment

Real estate prices have long been a popular topic at parties, around water coolers, on news shows: bring up the cost of a two-bedroom apartment in Manhattan or a waterfront house in Fort Lauderdale, and a heated discussion is bound to ensue. Regardless of the direction of home prices — and the current bleak truth is we’re back to 2002 levels — the fact is that where you’re buying has as big an effect on how big of a home you can afford as your housing budget itself. Median prices range from just $50 per square foot to nearly $400 throughout the country, depending on where you look.bang

So how much house can you buy? To give you an idea, we created this interactive infographic, based on median property values in 63 metro areas in the U.S. Follow the directions below and find out how many square feet you can buy for $250,000, $500,000 and $1 million.

After you’ve played around here, contact me at 206-713-3244 or email to dig deeper.

Filed Under: Real Estate

Microsoft’s Home of the Future

October 27, 2011 By Leave a Comment

Walk through Microsoft’s Home of the Future with Next blogger Steve Clayton to see what your home may soon look like.

Filed Under: Real Estate, Technology Tagged With: , , ,
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