Beware the HELOC

Does this rapidly-inflating real estate market look suspiciously familiar?

With many communities in our country still feeling less than financially recovered from the recession, we have to wonder if the more fortunate (i.e. prosperous) communities have learned any lessons from the bust.

Some financial analysts insist that we are NOT headed for another bubble because banks are no longer giving away money as feely as they were in the early 2000’s. However, another reason that we (collectively) got in trouble is because homeowners used their property as ATM’s by borrowing against their equity from an inflated market. It seems as if that part of the equation might repeat itself.

Because interest rates have remained so low for so long, most homeowners who want to refinance to a lower loan rate, have already done so. That means that financial institutions need to find a way to replace the income they were making from refi’s. Some of the large banks have begun encouraging homeowners to once again tap into their equity by applying for a HELOC — Home Equity Line of Credit — to finance things like second homes, vacations, college tuition, etc.  The beauty of a HELOC is that it can be used for any purpose you wish, or simply left as an open line of credit. Much like a credit card, there are no payments to make until you access that credit. Unlike a credit card, your home is used as collateral.

Bankers know that most people who apply for a HELOC, even if they don’t intend to access the credit, will eventually do so. It’s simply human nature. Make no mistake, a HELOC is the equivalent of a second mortgage.  When home prices stop their drastic rise, or perhaps even go down, those who have added a HELOC to their first mortgage could find themselves underwater. I.e. the total of the loans against the property could be more than the property is worth. Or, at the very least, the lack of remaining equity could thwart plans to purchase another home.

I’m not saying that it is never a good idea to utilize a HELOC — it may very well make financial sense for you — but I am cautioning homeowners to consider how it might impact you if home prices don’t continue their current meteoric rise.

If you’d like to know more, give me a call at 206-708-9800, or talk to a trusted lender.

If you know of anyone who is thinking of selling their home, I would appreciate the opportunity to tell them about my services!

Posted 4/1/16

Multiple offers from a home seller’s POV

If you haven’t sold your home recently, you might be interested to hear a bit about what that experience is like in the current Seattle market.

Once a home has been prepped for sale — which takes very little work in such a strong seller’s market — the agent and homeowner agree on a list price based on sales of comparable properties. This is easier said than done when homes are selling so quickly at ever-escalating prices.

If the agent and seller anticipate multiple offers, they often set an offer review date. That date is usually 5-7 days after the home goes on the market. This strategy typically nets a higher sale price for the seller than if they accept the first offer that comes in.

Appropriately priced homes in West Seattle currently receive anywhere from 3 to 15 offers that meet or exceed the list price and are not contingent on inspection. I.e., buyers have either pre-inspected the property or waived inspection. This essentially results in “As Is” sales.

It is not unusual to receive all-cash offers and/or offers with down payments of 30-50%.

The agent then prepares an analysis of all the offers to determine which are the strongest.You may be surprised to hear that the highest offer price doesn’t always constitute the strongest offer.

Each agent goes about this analysis in their own way. My process consists of creating a spreadsheet showing a side-by-side comparison of the offers on 24 separate criteria!  

A “strong” offer is one that has the best chance of closing quickly and without incident. For instance, if there is a loan involved, the lender should have a good track record for closing on time. The chosen offer will typically have a combination of a high purchase price, reliable financing, and a contract with few, if any, contingencies (i.e. “outs” for the buyer).

The seller also wants to ensure that the buyer will go through with the purchase even if the house does not appraise for the full amount of the offer price. This means that the buyer has the financial means to pay the difference between the appraised value and the offer price, in cash.

Once buyers and sellers have reached Mutual Acceptance — and disappointed the 2 to 14 other buyers — the sale will usually close in 30-45 days when a loan is involved, or as quickly as one week for an all cash sale.

After that, the seller often gets to experience the process in reverse, which is why many homeowners are reluctant to sell.

Any questions? Comments?

If you are ready to buy or sell, give me a call at 206-708-9800

Posted 4/1/16

Homeownership still linked to wealth building

In good times and in bad, homeownership consistently maintains a strong link to the building of personal wealth for Americans. This is the conclusion reached by researchers at The Harvard Joint Center for Housing Studies, after revisiting their previous study from 2009.

 

The report citing the updated analysis, “upholds the bottom-line result from the earlier paper: that homeownership was associated with significant gains in household wealth, even when viewed across the tumultuous housing crisis period of 1999-2013.”

 

The authors reached identical conclusions from both generations of the report.  Namely:

  1. Even during market downturns with extremely volatile house prices, a majority of the home owners who were able to stay current on their mortgages, created substantial wealth for themselves in the process;
  2. Renters who bought homes and stayed current on their mortgages through the recession had some of the largest gains in wealth; and
  3. Renters who bought homes but weren’t able to maintain their payments, were no worse off financially than before they purchased a home.

Content of the updated report can be found at Update on Homeownership Wealth Trajectories Through the Housing Boom and Bust.

Authors of the report commented that, “Taken together, the study’s findings of both the remarkably and persistently low wealth levels of the typical renter and the potential for wealth accumulation when homeownership is maintained underscore the need for policies both to support sustained homeownership as well as to help renters find ways to build wealth outside of homeownership.”

To quote Yogi Berra, “It’s deja vu all over again.”

FSBO vs. Agent: What’s a homeowner to do?

When the real estate market gets this red-hot in favor of sellers, many homeowners begin to wonder why they should hire an agent to help them sell their home. After all, homes are flying off the shelf and practically selling themselves. Why not just do it yourself and save the commission?

It’s a fair and reasonable question. My response is, selling a home isn’t as simple as it looks. Where the purchase and sale of real estate is concerned, what you don’t know can really hurt you. Here’s how.

1) The key to getting top dollar for your property is market exposure, because competition is what drives up the price of your home. Like it or not, the Multiple Listing Service (MLS) is the most efficient and effective means of advertising the sale of your home. Agents pay (some would say, handsomely) to be members of the MLS in order to have this advantage. Non-members (i.e. the general public) are not able to list their property on the MLS. Granted, there are companies such as “MLS for Owners” that allow homeowners to use their license to list property, but that only solves one of the potential problems.

2) A typical Purchase and Sale Agreement (aka, sales contract) consists of approximately 25 pages of legal documents, detailing everything from contingencies to timelines to loan terms. “Time is of the essence” means exactly that. One missed deadline can void a sale.

3) Agents perform a myriad of essential tasks behind the scenes that can only be learned through study and experience. Even brokers with decades of experience will tell you that they learn something new with every transaction. A home owner may be fortunate enough to get a smooth, simple sale, but when something goes wrong, a professional really earns their money.

4) We live in a litigious society. If an unrepresented seller makes a mistake, the blowback can be much more costly than the commission.

Obviously, I’m biased, but I hope I have provided food for thought.

Fiberglass attic insulation is a worthwhile upgrade

If you are looking for a relatively inexpensive upgrade project for your home that will warm your cockles as well as add resale value, look up! Up into your attic, that is. Adding fiberglass insulation to your attic may not be sexy, but it’s a good investment for now and the future.

According to the “Remodeling 2016 Cost vs. Value Report”, the nationwide average cost of the project is about $1,300, with an expected return of about $1500 upon resale. That translates into a recouped cost of 116%. Best of all, until you do sell, your home’s interior will increase in the kind of cozy comfort we all enjoy, while reducing your heating bill.

This is the first year the report looked at attic insulation and it grabbed the report’s number one spot in terms of project costs recouped. 

Source: nar@enews.realtor.org  NAR Green Council

posted 2/19/16

Home prices show no signs of slowing

If you are thinking of buying a house, but waiting for the home prices to stop climbing, you may as well hunker down.

Recent statistics from the FHFA (Federal Housing Finance Agency) show that although home prices were expected to slow by the end of last summer, they have now risen for 17 consecutive quarters. Nationwide, the increase in August averaged 8%, rather than the 3 to 5 percent economists had predicted.

“The long-anticipated slowdown in home price appreciation did not occur in the third quarter,” said FHFA Principal Economist Andrew Leventis. “The factors that have contributed to extraordinary price growth over the last few years — low interest rates, tight inventories, strong buyer confidence, and improving income growth — continued to drive prices upward in much of the country. However, as prices continue to rise, reduced affordability will be a stronger market headwind,” Leventis said.

Translation? It means that the old adage “time is money” is truer than ever. The longer you wait to purchase a home, the less buying power you will have unless your income increases at a faster clip than home prices. When home mortgage interest rates rise (rumor has it that the Federal Reserve Board has an itchy trigger finger), your buying power will shrink even further.

So if you are serious about wanting to buy a home in the coming 3 to 6 months, your best move is to find a skilled real estate broker (that would be me, 206-708-9800) who can point you to a reputable lender, who can then get you pre-approved for a home loan.

Once you know how much you qualify for, we can get to work finding you a home.

Posted 11/29/15

Aging in place

Reports show that by the year 2030, the 65+ year-old population in this country will more than double — from 35 million to 73 million! (Source: Bipartisan Policy Center Report)

Increasingly, the majority of seniors express the desire to stay in their current homes as long as their health allows. But many of them may find that reaching the goal of “aging in place” requires modifying the structure of their existing home to include features that make independent living a safer option.

Home builders note that about three-quarters of remodeling projects now include aging-related retrofits. Adding grab bars, entrance ramps and main floor bathrooms are high on the list of priorities. Widening doorways and hallways to accommodate wheelchairs and walkers is also a common request. Filling out the list of features that add to safety and convenience are lever-style handles on doors and faucets, plus switches and outlets that are height-appropriate and therefore easily accessible.

One level homes, aka ramblers and/or ranch style homes, are obviously a good choice for older residents because they have few, if any stairs. Many of the existing ramblers were built in the 1950’s and the demand is already outstripping the supply. Moreover, the high cost of land dictates that most new construction is in the form of multi-level homes these days, and that shift is not likely to reverse itself.

Stair lifts are another option to overcome stairs, but one has to wonder, will the next big trend will be home elevators?

You might want to start buying stock now.

Posted 11/18/2015

Estimating the true cost of a fixer-upper

Everyone loves a bargain, but when you are talking about homes, how wise an investment is a fixer-upper?

The answer is, it depends.

Here are some key considerations.

  • How much of the work can you do yourself and how much will you need to contract out? If you can’t do a quality job, don’t attempt it. Repairs that have obviously been done by an amateur do not increase the value of your home. True professionals earn their money, but the expense of hiring them strips away some of your intended savings.
  • Get solid estimates for labor and materials before you make an offer. If you will be hiring a contractor, get him or her to tour the house with you and give you a written estimate. Then add 10-20% to allow for unforeseen problems. They are as certain as the sunrise.
  • Research permit costs and requirements. Remodeling without the mandated permits may save you time and money in the short-run, but you are likely to pay for it down the road. In addition to possible safety hazards, unpermitted work can hurt your resale value, if not squelch a deal altogether. Also, if you are on a tight timeline, a lengthy permitting process can cost you money, and create headaches.
  • Think twice about homes with structural problems. If you are considering an older home (built 50+ years ago) or one with obvious structural defects, spend the money to hire a structural engineer to give you a written assessment of the existing and foreseeable problems.Then get a binding, written estimate for the repairs before you make an offer. You may want to tack on another cushion for potential cost overruns. In my opinion, unless you have money to burn, homes needing major structural work should be left to investors and contractors.
  • Determine the cost of financing. If you will be borrowing money to make the purchase, get pre-approved first. If you will not be occupying the home, you may be required to borrow as an investor. These loans carry a higher interest rate. Keep in mind that a typical home loan will not include additional funds for renovations, so you will need savings, a second loan or some other source to pay the costs of remodeling. A home renovation loan, such as a 203(k) loan, may be at least a partial solution. However, these loans are notoriously difficult to get and administer, and are not likely to cover the full cost.
  • Work with your real estate broker to determine a fair offer price. Once you have a solid estimate for the renovations you want to make, use that figure to decide what your offer price should be. I.e., if the home were in post-remodel condition, what would it be worth in today’s market? Take that number and deduct your cost for renovation to calculate your opinion of the home’s current value. If this is a number that is acceptable to both you and the seller, you’re in business. If it’s not, you’d best move on to another property.
  • Work with an agent who knows how to write a strong offer that will be accepted, while still protecting your interests. The offer should include an inspection contingency that allows you to back out of the deal — with your earnest money intact — if inspections reveal deal-breaking surprises for which the seller is unwilling to negotiate. Don’t forget to have the sewer line or septic system inspected. These repairs, when needed, typically start in the $10K-$20K range. You should also have a financing contingency that protects you in the event that your loan falls through.

If this all sounds like fun to you, then forge ahead and enjoy the ride! If not, I recommend that you find another place to invest your time and money.

Posted Nov. 8, 2015

 

 

Top home decor websites

You are probably familiar with Pinterest as an online source of ideas and inspiration for home redecorating ideas, but there are many others that may also interest you. Here are a few:

Decoist.com

Features stylish, yet reasonably priced ideas such as turning closets into office nooks and creating vertical herb gardens for small balconies and terraces.

DwellingGawker.com

A curated gallery of photos from designers, architects and home owners worldwide.

Houzz.com

Homeowners can post questions on a discussion board to ask professionals about how to solve specific problems or create a particular look.

Remodelista.com

A good jumping-off point for distinct projects such as making use of small spaces or sound-proofing a room.

ApartmentTherapy.com

Info about everything from how to organize closets to how to grow herbs sans a back yard.

Even more:

Curbed.com

Designboom.com

Also, check out my Pinterest board dedicated to space saving ideas for your home.

Enjoy!

Posted 11/5/15