No matter which side of the transaction you're on, you don't want to give up more than you have to.
After months of searching for the perfect home, making some offers, and maybe even competing with other buyers, you finally have a deal on your dream home. It took some negotiations, but you and the seller have come to terms.
Or have you?
Too often, getting a signed contract and putting your money into escrow is the beginning of what can become yet another round of negotiations. Here are five things every home buyer and seller should know about last-minute negotiations or credits.
Buyers may ask for credits based on property inspections.
Usually, a real estate contract either provides for a property inspection, or buyers inspect before signing. Depending on the property and the issues, a buyer might also have a particular type of inspection for the sewer line, septic, pool or roof.
These inspections can bring to light issues that the buyer couldn’t possibly have known about before making an offer. Once inspected, the buyer may still be interested in pursuing the sale. But given the needed repairs they will probably want to re-negotiate the price by asking for credits or a reduction in the purchase price.
Sellers should consider having a property inspection before listing.
The goal is to avoid negotiations once you’re under contract, because they’re not going to be in your favor. If you know the roof is near the end of its life or the furnace breaks from time to time, let it be known upfront, because rarely can you “sneak” something past the buyer.
You might even go as far as having your property inspected before listing the home. This way, you can address any issues, and make the inspection report available to buyers. They can come up with their best offer upfront, knowing what they’re getting.
If you have an inspection report or are otherwise assured your property is in great shape, you could even ask for an “as-is” clause in the contract. Although it’s not necessarily enforceable, it will send a strong message to the buyers that you aren’t open to more negotiation.
Sellers may try to avoid giving credits by having work done before escrow closes.
After inspections, the seller might agree to have work done before the closing. Or the seller may require that a payment is given directly to a contractor for the purpose of performing the specific, required work and nothing else.
These agreements help protect the seller, because buyers sometimes ask for credits just to help offset the closing costs — and never intends to do the repair work.
It also protects the seller if initial estimates for needed work turn out to have been overstated.
Buyers who ask for credits just to get the price down may be taking a chance.
Sometimes the buyer concedes on the purchase price thinking they can come back after the property inspection and ask for an additional concession.
The buyer may even feel empowered now that they’ve completed a series of inspections and are just weeks away from closing. The seller isn’t going to go back to the drawing board with a new buyer over a few more dollars, right?
Actually, they might. If it’s a strong buyer’s market, there’s a good chance the buyer can pull it off, but if it’s more of a neutral or a seller’s market, the seller may call your bluff. They’re assuming that you’re the one who, having invested all this time and money on inspections and an appraisal, isn’t going to walk away over a few dollars.
Buyers nearly always ask for credits, so sellers should give themselves some cushion.
You should also leave some additional room for negotiation when you’re in escrow. Always assume the buyer will ask for minor repair work — they nearly always do, even if there are no major issues. If you leave some cushion for yourself, you’ll feel better about the deal, and you’ll have protected yourself against the inevitable.
Conversely, the last thing you want is to be blindsided by a buyer asking for a few thousand dollars credit — just when you think the deal is finally done.
Whether you've lived in your home for a day or a decade, buckle up — homeownership can be a wild ride
You may live in your home for two years, or you may hunker down for two decades. But no matter how long you call it yours, you’ll likely experience these four key stages of homeownership — from the day you get your keys to the day you hand them off to your home’s new owner.
Read on to learn more about what to expect from each phase.
Phase 1: Starting out
The “sold” sign is posted, your belongings are packed, and the day finally arrives — you get the keys to your new home. You open the front door, and possibilities abound. How will you decorate? Where will that new couch go? Which rooms will the kids choose?
This first phase is all about unpacking, settling in, and getting to know your new home. If you’ve upsized from a smaller home, you may be tempted to jump in and start filling all that extra space.
And while you may be eager to make your mark on your new home’s interior (or exterior), Diana Bohn, a Seattle-based agent with Windermere Real Estate, warns against making extensive changes to a home right after moving in.
“It’s always good to be in your home for a year or so before knocking down any walls,” she explains. “Get your furniture in there, unpack, and see how the home lives. It’s hard to know how the space is going to feel until you’ve been there for a while. Go through all the seasons at least once.”
Phase 2: Settling in
It may take you a few months to move into the second phase — or even a few years (we won’t judge if you still have packed boxes gathering dust after a year or two). But this phase is when your house becomes a home, and you start enjoying your everyday life in the space.
You’ve figured out where all your belongings should go, you’ve done the bulk of your decorating, and you’re getting to know your neighbors and a few local hangouts. You’ve likely celebrated the holidays in your home a time or two, welcomed out-of-town guests, and gotten to know (and love?) your home’s unique quirks.
Phase 3: Fixing up
If the housing market continues its current upward trend, it’s likely that, after even a few years in your home, you’re sitting on some equity. So what should you do with it? Phase 3 is often the time when homeowners can take advantage of equity they’ve gained.
First, if you bought an older home, it may be time to update some of your home’s major systems — think furnace, roof, or windows. Portland, OR-based mortgage broker Lauren Green of Green Family Mortgage recommends researching two options for financing home improvements: home equity lines of credit (HELOC) and cash-out refinances.
“Many people have no idea they can access their home’s equity,” Green says. “They think the only way to take advantage of their home’s increased value is to sell it, but in reality, there are some great ways to access the equity in your home while still living in it.”
Second, after living in your home for a few years, you probably have a better idea of the renovations that would really make your home work for your lifestyle.
“There are lots of reasons why someone may decide to remodel instead of sell and look for a new home,” says Tyler Coke, project manager and business development manager at Marrone & Marrone, a custom home builder and remodeler in the Bay Area. “One thing that appeals to many homeowners is the custom aspect of it. You can design and create exactly the type of space that fits your lifestyle and speaks to how you use your home.”
Phase 4: Moving on
When will you know it’s time to move on? And what will prompt you to move somewhere new?
“Usually, it’s some kind of transition that causes people to sell,” says Bohn. “A new job, a growing family, or downsizing once the kids move out. In big cities, we’re also seeing people moving from more centrally located neighborhoods to farther-flung suburbs, where their money will get them more.”
Whatever your reason for putting your home on the market, the day you sign on the dotted line and close your front door for the last time is likely to be a bittersweet moment. But change can be good, and the next time you buy a home, you’ll be well-versed in all four phases and know just what you’re looking for.
Dwell shares insider tips after consulting architects, DIY home builders and shipping container experts from around the world.
You’ve decided to join the shipping container revolution. Your plans are drawn up, your site is prepared and your welding torch is ready to transform a discarded steel box into the durable, stylish and sustainable home of your dreams. Now what?
To help you get started, we asked architects, DIY home builders and shipping container experts from around the world for their insider tips on bringing home the best possible container for your building needs.
The first step, they agree, is to find a reputable distributor. “Shipping companies don’t want people calling them for one or 10 containers. They prefer to sell to dealers,” says Barry Naef, director of the ISBU Association (ISBU stands for intermodal steel building units, the term for containers used specifically for construction).
He recommends checking the extensive international list of dealers on the Eco Green Sources website. And don’t despair if you live far from the ocean. Thanks to a network of inland distribution hubs, says Naef, “there are as many [containers] in the mid-U.S. and Canada as there are at the ports, at nearly the same prices.” A dealer can help arrange for overland transport of your container via 18-wheeler truck.
Other sourcing options exist, too. In Zambia, a local NGO supplied Tokyo-based architect Mikiko Endo with old containers it had used to transport donations (she transformed them into maternity clinic housing). In Israel, architect Galit Golany purchased a refurbished container from a prefab construction company, then fixed up the turnkey unit with timber cladding, roofing, a deck and stone base.
Stephen Shoup, founder of Oakland’s building Lab, agrees that looking for a distributor that will do some basic modifications prior to sale is a good idea.
“It’s tons of fun to be standing there with a plasma cutter and a welder and be hacking into these things and pasting them back together, but if you’re encountering engineering issues, then you’re going to need licensed welders. That cost is much more controllable when done at the fabrication shop or shipyard,” says Shoup.
Another option is to purchase a container manufactured specifically for building, like the ones from Toronto-based MEKA or Silhouette Spice in Tokyo. These can be cheaply transported using existing global shipping networks, but are tailor-made to meet building codes (Japan’s are especially strict).
If you do decide to purchase a genuine seafaring container, you’ll need to keep a number of factors in mind. First is size. Although dimensions are generally standardized, your safest bet for projects that join multiple units is to purchase a single brand (perhaps one whose logo you fancy). Houston-based architect Christopher Robertson, who has designed both upscale residential and disaster-relief housing using containers, recommends choosing “high cubes” (HQ), which are about a foot taller than standard, because the smaller size can feel claustrophobic after installing insulation. Lengths vary from 8 to 53 feet, with 20 feet and 40 feet being the most common.
Whichever you choose, Robertson cautions that the costs of transportation and modification quickly add up. “There’s a real misconception that building with containers is absurdly inexpensive. Unfortunately, that’s not true at all,” he says.
Assuming you’re still hooked on the many other benefits of container construction, you’ll need to think about age and condition. Options range from virtually unscathed “one-trippers” to eight-to-10-year-old retired containers, with varying degrees of rust, dents and warping. Your choice depends on your design goals.
For Brook van der Linde, an artist who built a DIY container home with her husband in Asheville, cost and sustainability were more important than perfect condition. “Our goal was to use materials that were headed for the landfill. Our containers were constructed in 2005 so they had a good long life going to China and back,” she says.
Robertson, on the other hand, sought out one-trippers for his residential project. “They’re a little more expensive but they look a lot better,” he explains. “If they start having a lot of dings and rusts, you lose the aesthetic pleasure.”
Although a container’s history is trackable via its serial number, the best way to assess its condition is through a visual once-over prior to purchase. Arrive at the lot armed with a level to check for excessive warping and a checklist of potential problems, such as holes, dents, damaged door seals, and corrosion (a little rust is par for the course). Don’t forget to use your nose, as well. The wood flooring of most containers is treated with toxic pesticides, which you’ll need to seal or remove, and others may have been used to transport unpleasantly odiferous contents.
Finally, once you’ve made your choice, take a deep breath. The toughest — and most enjoyable — phase of building your container home is still to come.
Your partner’s credit history can influence your future interest rate.
Whether you’re a seasoned or first-time home buyer, be prepared to know your FICO score and have a firm understanding of your credit history. And if you’re buying with another person, their credit history can affect your joint home purchase.
What is a FICO score?
First things first — what’s a FICO score and why does it matter? FICO is an acronym for the Fair Isaac Corporation, the company that developed the most commonly used credit scoring system. Everyone is assigned a number ranging from 300 to 850. The number assesses your credit worthiness through previous payment history, current debt, length of credit history, types of credit and new credit. For the purpose of buying a home or obtaining a loan, it’s the score most commonly used by lenders to determine the borrower’s level of risk. Many people simply refer to the FICO score as “credit score,” so we’ll do that moving forward.
Which score do lenders look at?
Typically, your lender will look at three credit scores reported from each of the three credit bureaus — Experian, TransUnion and Equifax — and then take the median score of the three for your application. Borrowers should hope for at least a 680, which is generally the minimum score for getting approved for conventional loans. For borrowers with lower credit scores, FHA loans allow a 580 score, or even as low as 500 if a 10 percent down payment is made. In any case, the higher the score, the better interest rate you’ll be offered.
Should I apply with my spouse or alone?
Deciding whether or not to include a spouse or a co-borrower on a mortgage application often comes down to whether it makes the most financial sense.
There’s not a ton of wiggle room when it comes to qualifying for a loan. You typically qualify or you don’t. If the only way you can qualify for the loan is by applying jointly to include the total income of both borrowers, then that might be your only option. But even if your credit and income are good enough to qualify for a loan on your own, applying together still might be a better option, as each scenario has its tradeoffs.
My partner has bad credit
When applying jointly, lenders use the lowest credit score of the two borrowers. So, if your median score is a 780 but your partner’s is a 620, lenders will base interest rates off that lower score. This is when it might make more sense to apply on your own.
The downside in applying alone, however, limits you to just your income and not the combined amount from you and your partner. While your credit score might be better, having a lender evaluate you on only your income could lower the total loan amount you qualify for.
If having your name on the home is a big deal, don’t worry. You can still be on the title of the home, just not on the mortgage.
This helpful document contains a wealth of information.
Among the dozens of records that serve to inform or disclose to the buyer significant knowledge about the property, the title report is one of the most important. It documents ownership, vesting, and detail regarding anything recorded against the home, such as liens, encroachments, or easements.
The title company compiles the report from a search of county records to issue title insurance, and any liens against the property are listed as “exceptions” to a title policy.
Here are three important pieces of the title report you should review carefully.
The legal description
The legal description is everything you won’t see in any real estate agent marketing or advertising. It’s the written description of the property’s location and the boundaries of the property in relation to the nearby streets and intersections.
In the case of a condominium or planned unit development (PUD), the legal description will include the property’s interest in any common areas, exclusive or non-exclusive easements, and details on any parking or storage that conveys with the property.
Here’s an example of a legal description from a preliminary title report of a property:
“Beginning at a point on the Westerly line of Fifth Avenue, distant thereon 250 feet Southerly from the Southerly line of Balboa Street; running thence Southerly along the Westerly line of Fifth Avenue 25 feet; thence at a right angle Westerly 120 feet,” and so on.
Legalese? Absolutely. But it’s precise, and necessary.
Property taxes always show up as the primary “lien” on a title report. A property cannot be transferred to a new owner with outstanding property taxes due.
As the top lien, the report will indicate whether taxes are due or paid in full. Taxes must be settled before any debt holder gets paid.
Mortgage liens are generally listed directly below property taxes, and they’re always ordered first, second, and third. The largest lien holder generally takes first position.
When a sale closes, the liens must be paid in the order that they appear on the title report. In the case of a short sale, there are not enough proceeds from the sale to pay off the property taxes and all of the lien holders. So one or more lenders will get “shorted” by the amount they’re owed. In order for the sale to close, the lender must agree to the short payoff.
Though this list is in no way exclusive, there are a variety of other items that could show up on a title report outside of taxes and loans.
Easements. If another property owner has access to the property via an easement, it would be recorded on the title report. This stays on the report until both parties agree to remove it. The title company can pull the original easement agreement for review.
CC&Rs. In the case of a condo or PUD, there are Covenants, Conditions and Restrictions (CC&Rs), recorded against the property. Any new buyer purchases subject to the rules and regulations documented in the CC&Rs. This is why it’s important for potential buyers to pull these from the report and review them. Once you’re the owner, you’re subject to those rules.
Restrictions, historic oversights, planning requirements. From time to time, there will be items on the preliminary title report that aren’t run of the mill. If the home is located in a historic district and therefore subject to the rules and restrictions of that community, it will show up on the title. In this case, if there are restrictions about changing the facade of a house or requirements that facade alterations comply with a local historical oversight committee led by the local planning department, a potential buyer needs to know this.
The last word
As a potential buyer, you and your agent or real estate attorney should scrutinize the preliminary title report. You want the title to be delivered as clean as possible.
If the property is subject to special items, or there are issues on the title that would affect your home-ownership, you need to know and understand them thoroughly before you close.
Do you need one? Do they pocket the whole commission? Let’s set the facts straight.
Buyers and sellers often enter the market with misconceptions about real estate agents — how we work, how the process works and what the agency relationship is all about.
It’s helpful to point out, without getting too far into the weeds, that in any one real estate transaction, there are most likely two agents: one for the buyer and one for the seller.
Here are five myths (and five truths) about working with both buyer’s and seller’s agents.
1. Agents get a 6 percent commission, no matter what
Most people assume that their agent is pocketing the entire commission. That would be nice, but it’s just not accurate.
First, it’s helpful to know that the seller pays the commission, and they split it four ways: between the two brokerages and the two agents.
Finally, the brokerage commission isn’t fixed or set in stone, and sellers can sometimes negotiate it.
2. Once you start with an agent, you’re stuck with them
If you’re a seller, you sign a contract with the real estate agent and their brokerage. That contract includes a term — typically six months to a year. Once you sign the agreement, you could, in fact, be “stuck” with their agent through the term. But that’s not always the case.
If things aren’t working out, it’s possible to ask the agent or the brokerage manager to release you from the agreement early.
Buyers are rarely under a contract. In fact, buyer’s agents work for free until their clients find a home. It can be as quick as a month, or it can take up to a year or more. And sometimes a buyer never purchases a house, and the agent doesn’t get paid.
Before jumping into an agent’s car and asking them to play tour guide, consider a sit-down consultation or a call, and read their online reviews to see if they’re the right fit.
Otherwise, start slow, and if you don’t feel comfortable, let them know early on — it’s more difficult to break up with your agent if too much time passes.
3. It’s OK for buyers to use the home’s selling agent
Today’s buyers get most things on demand, from food to a ride to the airport. When it comes to real estate, buyers now assume they need only their smartphone to purchase a home, since most property listings live online.
First-time buyers or buyers new to an area don’t know what they don’t know, and they need an advocate.
The listing agent represents the seller’s interests and has a fiduciary responsibility to negotiate the best price and terms for the seller. So, working directly with the selling agent presents a conflict of interest — in favor of the seller.
An excellent buyer’s agent lives and breathes their local market. They’ve likely been inside and know the history of dozens of homes nearby. They’re connected to the community, and they know the best inspectors, lenders, architects and attorneys.
They’ve facilitated many transactions, which means they know all the red flags and can tell you when to run away from (or toward) a home.
4. One agent is just as good as the next
Many people think of “agent” as a generic term and that all agents are created equal.
A great local agent can make an incredible difference, so never settle. The right agent can save you time and money, keep you out of trouble and protect you.
Consider an agent who has lived and worked in the same town for ten years. They know the streets like the back of their hand. They have deep relationships with the other local agents. They have the inside track on upcoming deals and past transactions that can’t be explained by looking at data online.
Compare that agent to one who’s visiting an area for the first time and needs their GPS to get around. Some agents aren’t forthright and might be more interested in making a sale. Many others care more about building a long-term relationship with you, because their business is based off referrals.
5. You can’t buy a for sale by owner (FSBO) home if you have an agent
In a previous generation, sellers who wouldn’t deal with any agents tried to sell their home directly to a buyer to save the commission.
Smart sellers understand that real estate is complicated and that most buyers have separate representation. And many FSBO sellers will offer payment to a buyer’s agent as an incentive to bring their buyer clients to the home.
If you see an FSBO, don’t be afraid to ask your agent to step in. Most of the time the seller will compensate them, and you can benefit from their knowledge and experience.
The sign just went up next door. How does your neighbor's impending sale affect you?
Most people think their real estate concerns end once they’ve closed on and moved into their new homes. But when a neighbor’s house goes on the market, there can be some important implications for you.
Here are some tips for staying real estate aware.
1. Document important disclosure items
For the most part, good fences make good neighbors. But sometimes the folks on the other side of the fence don’t cooperate, and unresolved neighbor conflicts tend to arise when one of the homes goes on the market.
Have a property line dispute? Or an issue with a broken fence and you want the new buyer to know about it? While sellers in most states have a duty to disclose issues to potential buyers, not all areas require this.
Do your new neighbor-to-be a favor and alert the seller’s agent to anything the buyer needs to know about your neighbor’s property.
2. See things differently
Open houses allow buyers to spend some time exploring a home, but these events also present you with a chance to see your home from your neighbor’s perspective.
Once at a busy open house in San Francisco’s Noe Valley neighborhood, an open house visitor made a somewhat obvious beeline for the back of the house. He immediately got on the phone and started talking with someone about where he was standing, giving orders to move left and right.
It turned out this visitor lived in the home behind, and he was checking to see the neighbor’s view into his home.
The open house is your chance to check your home’s paint job from the neighbor’s yard or simply to see your home from a different perspective.
3. Know and learn the market in real time
Typical sellers claim and save their home online, but they also keep searches going after the fact. Why? To keep tabs on the market, see the comps and have a real-time sense of what’s happening nearby.
Just like when you were a buyer, knowing about the area and types of homes in the market is a good move for any homeowner. Take a neighboring home for sale as an opportunity to see what the market bears. You can also learn about the latest trends in home design.
Speaking to a real estate agent can keep you informed of changes to property taxes or how assessments are changing in your town. A smart real estate agent, working their listing, will be an incredible resource to would-be clients down the road. Leverage their experience when your neighbor sells.
Take note when your neighbor goes to sell their home. It’s not just a time to nose around, but to document, inspect or learn from the home sale. Some homes get listed once in a lifetime — take advantage of the opportunity.
True or false: All real estate advice is good advice. (Hint: Well ... it depends.)
Everyone has advice about the real estate market, but not all of that unsolicited information is true. So when it comes time to list your home, you’ll need to separate fact from fiction.
Below we’ve identified the top five real estate myths — and debunked them so you can hop on the fast track to selling your property.
Myth #1: I need to redo my kitchen and bathroom before selling
Truth: While kitchens and bathrooms can increase the value of a home, you won’t get a large return on investment if you do a major renovation just before selling.
Minor renovations, on the other hand, may help you sell your home for a higher price. New countertops or new appliances may be just the kind of bait you need to reel in a buyer. Check out comparable listings in your neighborhood, and see what work you need to do to compete in the market.
Myth #2: My home’s exterior isn’t as important as the interior
Truth: Home buyers often make snap judgments based simply on a home’s exterior. Therefore, curb appeal is very important.
“A lot of buyers search online or drive by properties before they even enlist my services,” says Bic DeCaro, a real estate agent at Westgate Realty Group in Falls Church, VA. “If the yard is cluttered or the driveway is all broken up, there’s a chance they won’t ever enter the house — they’ll just keep driving.”
The good news is that it doesn’t cost a bundle to improve your home’s exterior. Start by cutting the grass, trimming the hedges and clearing away any clutter. Then, for less than $50, you could put up new house numbers, paint the front door, plant some flowers or install a new, more stylish porch light.
Myth #3: If my house is clean, I don’t need to stage it
Truth: Clean and tidy is a good first step, but professional home stagers have raised the bar. Tossing dirty laundry in the closet and sweeping the front steps just aren’t enough anymore.
Stagers make homes appeal to a broad range of tastes. They can skillfully identify ways to highlight your home’s best features and compensate for its shortcomings. They might, for example, recommend removing blinds from a window with a great view or replacing a double bed with a twin to make a bedroom look bigger.
Of course, you don’t have to hire a professional stager. But if you don’t, be ready to use some of their tactics to get your home ready for sale — especially if staging is a trend where you live. An unstaged house will pale when compared to others on the market.
Myth #4: Granite and stainless steel appliances are old news
Truth: The majority of home shoppers still want granite counters and stainless steel appliances. Quartz, marble and concrete counters also have wide appeal.
“Most shoppers just want to steer away from anything that looks dated,” says Dru Bloomfield, a real estate agent with RE/MAX Platinum Living in Scottsdale, AZ. “When you a design a space, you need to decide if you’re doing it for yourself or for resale potential.”
She suggests that if you’re not planning to move anytime soon, decorate any way you like. But if you’re planning to put your home on the market within the next couple of years, stick to elements that have mass appeal.
“I recently sold a house where the kitchen had been remodeled 12 years ago, and everybody thought it had just been done because the owners had chosen timeless elements: dark maple cabinets, granite counters and stainless steel appliances.”
Myth #5: Home shoppers can ignore paint colors they don’t like
Truth: Moving is a lot of work, and while many home buyers realize they could take on the task of painting walls, they simply don’t want to.
That’s why one of the most important things you can do to update your home is apply a fresh coat of neutral paint. Neutral colors also help a property stand out in online photographs, which is where most potential buyers will get their first impression of your property.
Hiring a professional to paint the interior of a 2,000-square-foot house will cost about $3,000 to $6,000, depending on labor costs in your region. You could buy the paint and do the job yourself for $300 to $500. Either way, if a fresh coat of paint helps your home stand out in a crowded market, it’s probably a worthwhile investment.
Want to create wealth through homeownership? Build equity.
Home equity is the percentage of your home’s value that you own, and it’s key to building wealth through home ownership. Let’s take a closer look at how to build home equity without blowing your budget — and how to access it when you need it.
How much equity do you have?
Equity is easy to calculate when you first buy a home because it’s basically your down payment. For example, if you put $11,250 down on a $225,000 home, your down payment is 5 percent and so is your equity.
From 2016 to the first quarter of 2018, most first-time home buyers in the U.S. started with about 7-percent equity, according to Inside Mortgage Finance. This is encouraging because it shows you don’t need to spend years saving for 20 percent down or more before you buy. Repeat home buyers started with more equity, at about 17 percent.
How to build your equity
Here are six ways your home can create wealth for you. Some require time, money — or both. A lender can help you decide what works best for you.
1. Let your home appreciate
Building equity through appreciation can take little time or a lot, depending on the market. With home prices going up like they have in recent years, appreciation has been a boon for many home owners.
Zillow research indicates that the median home value grew from $185,000 in April 2016 to $216,000 in April 2018. If you bought a home for $185,000 in April 2016 with a down payment of $12,950, your beginning 7-percent equity would have grown to 23 percent by April 2018.
We calculate this by subtracting your current loan balance ($165,600) from your home’s current value ($216,000). Then we divide the difference by your home’s current value. One-eighth of this additional 16 percent equity is from paying down your mortgage, and the rest is market appreciation.
If you waited two years and bought the same home in April 2018 with a 20-percent down payment of $43,200, you started off with 20-percent equity. You also used 3.3 times more cash to make the purchase. And here’s the kicker: Your total monthly housing cost would be the same — about $1,050 in both cases.
This example illustrates two things:
First, the power of home appreciation. It’s a lot like buying stock and benefiting as its value goes up. But there’s also a difference: While you’ll pay capital gains on rising stock value, you’re exempt from paying taxes on primary-home capital gains up to $250,000, or $500,000 for married couples.
Second, waiting to “save enough” isn’t the primary factor in determining if you can afford to buy a home. When it comes to qualifying for a loan, lenders do indeed look at your down payment. They’ll also want to know how much you’ll have in cash reserves after closing. But there are lots of options for low down payments that require minimal reserves.
Your monthly budget is the primary factor lenders consider when deciding whether you can afford a home. Lenders will allow you to spend between 43 percent and 49 percent of your income on monthly bills, which is actually on the high side and could strain your budget.
Since 2016, most first-time buyers have spent about 38 percent of their income on housing and other debt, which is a pretty safe cap for budgeting.
2. Make a larger down payment
You can do this but, as we’ve seen, waiting to save extra cash can go against your broader financial interests if you lose the chance to build equity through appreciation. Therefore, you must strike a balance among down payment, monthly budget and savings for other priorities. A good lender can provide rate and market insight to help you do this.
3. Use financial windfalls
Take advantage of work bonuses, family gifts and inheritances to pay down your mortgage. If you do pay down in lump sums, see if your lender will recalculate (or “recast”) your payment based on the new, lower balance.
4. Make biweekly payments
Make mortgage payments every two weeks instead of once a month. Over the course of a year, this will add up to 13 monthly payments instead of 12. You’ll build equity faster and shave five to six years off a 30-year mortgage. Just make sure your lender isn’t charging extra for processing semimonthly payments.
5. Cut your loan term in half
Take out a 15-year mortgage instead of a 30-year mortgage, and you’ll build equity twice as fast. Two caveats here: You’ll have a significantly higher monthly payment and, because of that, you may have a tougher time qualifying.
6. Make home improvements
New appliances or cosmetic features like paint are unlikely to increase value. Only big improvements like new kitchens, or additional bathrooms or other rooms will add meaningful value. Make sure the cost of such improvements will create the added value you’re looking for.
How to use your equity
You must borrow or sell your home to use your equity. The three most well-known ways to get to your equity through borrowing are a home equity line of credit (HELOC), home equity loan or cash-out refinance. Compare the pros and cons of each.
Rates are rising right now, so these borrowing options might cost more in the future. Talk to your lender to determine the best approach for you.
This landmark legislation passed 50 years ago — learn your rights and how to defend them.
If you’ve searched for a new place to live recently, you’ve likely seen the Equal Housing Opportunity logo (an equal sign inside a house) on a landlord’s, real estate agent’s or lender’s paperwork.
But the Fair Housing Act is more than just a logo. It’s a federal law designed to protect renters and buyers from discrimination.
Here are some key points to know about the Fair Housing Act when you’re searching for a place to live.
What is the Fair Housing Act?
Also known as the Civil Rights Act of 1968, the Fair Housing Act was signed into law by President Lyndon B. Johnson just days after the assassination of Martin Luther King Jr., who had championed the cause for many years.
The act prohibits housing discrimination based on race, color, religion, national origin, sex, disability and familial status (sex was added in 1974, and disability and familial status were added in 1988).
At the time the act was signed, overt housing discrimination was a huge problem throughout the country, including the attempted segregation of whole neighborhoods and the outright rejection of qualified renters based on race and other factors.
Today, much of the discrimination in the housing market is less obvious, but it’s still an unfortunate reality.
According to the National Fair Housing Alliance (NFHA), over 25,000 housing discrimination complaints were filed with the federal government and local and national fair housing agencies in 2017. Over half of the complaints were based on disability, followed by race at 20 percent.
But these numbers reflect only reported incidents. The NFHA estimates that over 4 million instances of housing discrimination occur annually, but many people don’t realize they’ve been discriminated against — or know what steps to take when it happens.
What does housing discrimination look like?
Most of the people you encounter in your home search, including real estate agents, sellers, landlords, property management companies and lenders, are bound to Fair Housing Act regulations and additional state and local laws, based on where you live or are looking to live.
Fair Housing Act violations can occur in all phases of buying and renting, including in advertising, while you search, throughout the application process, in financing or credit checks, and during eviction proceedings.
Here are a few examples of discrimination people in protected classes have encountered:
What do I do if I’ve been discriminated against?
If you’ve been discriminated against in any of the ways above, or if you suspect that other actions taken by a property manager, landlord, real estate agent, broker or lender may be discriminatory, there are many resources at your disposal.
In early 2011, you may remember there was a lull in foreclosure activity – a lull that was prompted by nationwide scrutiny into lenders’ home-seizure practices. But in more recent months, as barriers that have been holding foreclosures back have been removed, banks, anxious to rid their books of long-delinquent mortgage loans, have been stepping up foreclosures — all over the country.
Granted, we’re well below the peak levels we saw from 2007-2010, but even so, consider this: In March, 2012, foreclosure filings were reported on nearly 200,000 properties — that’s 7.4 out of every 10,000 homes. With many more foreclosures in the pipeline, here’s how to avoid becoming a statistic:
Buy a home you can truly afford
Ok, so this is an obvious point, but reiterating the numbers is never a bad idea: Your housing costs (mortgage, insurance, taxes) should be no more than 25-28% of your monthly take-home pay. Use Zillow’s affordability and mortgage calculators. They’ll estimate the monthly costs of home ownership within the context of your monthly budget. If the payments seem too unruly (Give them a test drive!), you may need to come up with a larger down payment or shelve your purchase plans altogether.
Contact your lender immediately!
Doesn’t look like you’re going to be able to make that payment .. again? You need to let your lender know about your financial woes immediately, and, ideally, while your head is still above water and your credit is in tact.
Consider temporary relief
If you think that your inability to your make your mortgage payments is going to be temporary, see what kind of temporary relief your mortgage servicer can offer. They may be willing to accept reduced payments over a certain period of time; they may allow you to skip payments over a certain period of time; they may extend the grace period for late payments. Just remember: these solutions are temporary, so in the interim, try to find new ways to slash spending and save more. You must also prioritize your bills, paying attention to the ones that are the most essential.
Look into a modification
If your financial situation has permanently changed, then temporary relief is not going help much. You may need to have your loan modified. And while there are many different ways to do a modification, they generally incorporate interest rate cuts, term extensions and principle reductions – or a combination of these methods. Yes, there is a lot of paperwork involved, and yes, it can be complicated, but banks are under pressure to do these modifications and as a result, we are seeing higher success rates: the average savings, per modification, is about $500 a month. To see if you are eligible for a modification, go to makinghomeaffordable.gov.
Explore a short sale
If you’re underwater (as 23% of homeowners are today), cash-strapped, desperate for relief, and foreclosure is looking imminent/speed is of the essence, then you might want to consider a short sale. This where you’re selling your home, for less than what you owe on it, to your mortgage lender. The upside: No more negative equity burden; it’s not as damaging to your credit as a foreclosure is; you can purchase a home again in as little as 3 yrs; and you’re selling your home with your pride in tact.
The scent of freshly baked cookies wafting through the house? Check. Eager agent milling about? Check. Blue paper shoe covers that make you look decidedly Smurf-like? Check.
Ah, the joys of the open house …
The crowd at open houses is usually a mix of nosy neighbors (“I’ve always wanted to get a peek at their backyard …”), habitual house hunters (you know, the ones who are “just looking”), and, of course, serious buyers. If you fall into the serious buyer camp, you might be interested in an article in the Real Estate Guide that covers what you should and shouldn’t do at open houses.
As the article says, open houses can be a great opportunity for gathering information on the house and the neighborhood. The agent showing the house can give you some good info, and the neighbors who will inevitably pop in are a fantastic resource. They might even be able to give you the scoop on other neighbors who are about to sell their homes.
While it’s good to chat up the agent and the neighbors, it’s important to remember to keep your opinions on the house to yourself (stuff one of those cookies in your mouth, if you have to!). Remember, you might be negotiating with the seller’s agent later, so you don’t want them to know how much you adore this house, thus reducing your negotiating leverage. Conversely, if you voice criticisms about the home, that might also come back to bite you later.
Thinking about buying new construction? The article also covers what you should look for and ask when visiting a developer’s open house.
Summer is peak season for home selling—but also for barbecues, vacations, and long, lazy beach days. In other words, there are lots of things to distract even the most diligent would-be buyers. And that’s not even counting those dog days when it’s too hot to even venture out to view homes.
But for home sellers who are eager to drum up an offer before Labor Day, having their sale sidelined isn't an option. And luckily, there's plenty you can do to lure buyers through your door. Check out these five smart tips for getting buyers to brave the heat and squeeze your house into their summer schedule.
1. Embrace 'rush hour' traffic
Long weekends out of town are the stuff summer dreams are made of. But they're also the reason many Saturday and Sunday afternoon open houses end up nearly empty. Choosing an alternative time frame may turn that around.
"During the summer months, I've found holding 'rush hour' open houses to be hugely successful," says Lindsay Bacigalupo, Engel & Völkers Minneapolis. "For example, Minnesota is full of lakes and so many residents here go up north for the weekend to enjoy time at their cabin. That's why I hold open houses on Thursdays from 4 to 6 p.m.—it creates an opportunity for buyers to view it during a time that might be more convenient."
2. Turn your open house into a summer party
Let's face it: Heading to a barbecue or pool party sounds a whole lot more fun than an open house. If you can't beat 'em, why not join 'em?
"Advertise it as a party instead of simply an open house," says Brett Fischer, associate broker at Lee & Associates Residential in New York, NY.
In other words, put together a gathering that feels more like a celebration than a sales pitch. Try serving up refreshments outside like lemonade and iced tea on trays, or fire up the grill to serve summer-themed appetizers or sliders.
Timing can make a difference here, too: Rather than holding your soirée in the middle of the day, wait until the evening when the temperature's bearable and people are ready to venture out and kick back at a house party.
3. Shine a spotlight on the outdoor space
Nothing's more appealing on a scorching summer day than a backyard pool. Play up this feature and other outdoor amenities to convince buyers this is the warm weather oasis they deserve.
"The long days of summer make for the perfect opportunity to highlight the exterior living spaces of the property," says Than Merrill, a real estate investor and CEO of the real estate education company FortuneBuilders. "Make additional effort to keep patio areas, the pool, and outdoor furniture extra-clean. Incorporate tasteful props such as cushions, towels, lanterns, and string lights to help spur the imagination of your guests."
Mark Cianciullli, a real estate agent at the CREM Group, recalls how setting the stage paid off by getting potential buyers to envision themselves enjoying the amenities he's featured.
"It was a hillside home that had a beautiful view of the city below, especially at night when the city was lit up. So I decided to have a 'summer nights'–themed open house where I set up bistro lights in the backyard and floating candles in the pool and served wine and cheese," he says. "It was such a charming atmosphere that the ultimate buyer wanted the house so bad so she could re-create those kinds of settings for parties or just hanging out with her family and friends."
4. Create a community event
Sometimes getting a home sold is a matter of enlisting the help of those who already live in the neighborhood. Merrill recommends hosting a summer block party at the front of the property, rather than in the backyard, to invite more attention and foot traffic from neighbors and others passing by.
"Prepare a theme, such as a luau or a summer barbecue, with entertainment for kids," he suggests. "Make sure to design and pass out event fliers around the neighborhood days in advance. Consider renting food trucks, including a snow cone or ice cream truck, to help serve your guests. As you mingle with guests, invite them to take a tour of the property and ask them to spread the word to friends and neighbors."
This concept translates to urban areas as well.
"New York City is famous for its residents fleeing the city on weekends, so real estate professionals have to get creative," explains Mable Ivory at Engel & Völkers in New York. "So this week, I hosted a community event called 'Sunset Soiree in the South Bronx.' Attendees could preview my listing, a penthouse on the Grand Concourse, while enjoying Bronx and Manhattan skyline views at sunset. We provided live music from Bronx native Pernell Walker, custom-designed 'Bronx Bomber' cocktails and bites, and had a raffle for 'The Bronx Rox' gift basket. It was more than just an open house, but a way for the community to get together and celebrate their neighborhood."
5. Advertise early, often, and offline
Spreading the word about an open house is always key to getting people in the door, but never more so than that stretch between Memorial Day and Labor Day.
"Summer is a crazy season, and often people become unplugged from their devices," says Jennifer Brownhill, regional marketing manager of CLV Group. "So advertising online well in advance will help give people the heads-up to clear their schedule for this day."
To capture more eyeballs offline, plant signs on roadways headed toward the beach, campgrounds, and other popular summer destinations. Add extras like balloons to draw even more attention.
"Buyers know that it doesn't take long to tour the home," says Alex Hubler of Keller Williams Premier Realty Lake Minnetonka, MN. Advertise how your home's just five minutes off the highway, and "people can pop in quick if they're on their way somewhere, rather than taking the whole day to tour homes."
If you've ever gotten ready to sell a home, you know that in order to fetch top dollar, you need to get your place in good shape. But that costs money—hiring contractors, painters, and other pros—so you might be wondering: Why not save some cash by tackling a few of these fix-its myself?
That's fine and good if you know what you're doing. But unless your DIY skills are fairly advanced, experts agree that this is one of the biggest mistakes a home seller can make. If you bungle the job, you might end up making things worse, and shelling out even more money down the road.
"You have to ask yourself: Is it likely to do more harm than good?" says Dan Bawden, chairman of the National Association of Home Builders Remodelers
To help you separate the tasks you can tackle from those best left to the pros, here are some DIYs to avoid when preparing to sell your home.
If you have rooms that need a fresh coat of paint, go for it, says Bawden. But if you have cracks in the drywall from a shifting foundation or a little depression from years of doorknob slams, it's worth it to hire a pro.
"In my house, I wouldn't do the Sheetrock," says Bawden. "I'd hire someone to fix plaster or drywall. If you don't get the texture just right, when you paint the wall, the repair is going to stick out like a sore thumb."
You don't want your "fix" to look worse than the original problem. Contract out the drywall repair, then DIY the paint job afterward.
"I’ve been in the construction business for years, and I don’t mess with anything inside an HVAC," says Bawden.
The heating and cooling systems in your house are complex, and often connected to both electrical and gas. Making a mistake could mean blowing out the entire system, setting you up for a much more expensive repair in the end.
Furthermore, you'd better believe that potential buyers are going to have their inspector go over the HVAC as thoroughly as possible. Even something relatively simple such as installing a smart thermostat can fry your wiring if done incorrectly. When it comes to your heating and AC, approach with caution.
Unlike installing a refrigerator, stove, or washer and dryer (which can often be a simple DIY task), installing a new dishwasher is complicated.
"The complexities involved with setup, such as installing water and drainage lines under the kitchen sink cabinet, are best handled by a professional," says Doyle James, president of Mr. Rooter plumbing.
Doing this job wrong could mean flooding your kitchen, which will ruin your floors and more. And besides, most big-box stores offer installation for a fairly reasonable price if you're buying new units, or a plumber can handle it for $150 to $500.
"Even if it's not a really massive tree, you'd be surprised how hard it is to dig around the roots," says Bawden.
It's also dangerous, especially if you don't have the tools professionals would use to remove the upper part of the tree before taking out the stump. Do you really want to be that person who puts a tree through your own roof because you were too cheap to hire a tree removal professional? (No, you don't.)
Siding and window fixes
Bawden cautions against DIY siding or window replacement, because water can seep into the walls if you don't reseal the layers properly. It might not be noticeable at first. In fact, you may sell the house not even realizing there is a problem, but down the line, mold and water damage will start to appear.
Not only is that bad karma, it could also be what Bawden calls "lawsuit city."
While replacing a light fixture or ceiling fan could be fine to DIY, experts draws the line at any electrical work involving the breaker box. Not only could you hurt yourself, you could also create a fire hazard, especially if your home isn't brand-new.
"Older homes do not usually have safety devices like ground fault circuit interrupters, making it especially dangerous," explains Shawn McCarthy, owner of Handyman Connection of Colorado Springs.
"You reach the limit pretty quickly," agrees Bawden. "Anything that involves running new wires or repairing faulty wiring should be left to a professional."
Aside from the risk of fire or injury, serious electrical work done by an unlicensed electrician could have code problems, meaning you're likely to get a thumbs-down from the inspector later anyway.
Even if it's just a little fix that the average DIYer could easily do (e.g., hammering down a shingle or two or replacing chimney pipe roof flashing), be cautious.
"It's very easy to get disoriented," says Bawden, especially on a peaked roof. This is why even pro roofers always use a harness in case of falls, so unless you take similar safety measures, steer clear.
Some plumbing tasks are doable: Fixing a running toilet or snaking a slow drain should be in pretty much anybody's comfort zone. The problem with attempting bigger DIY plumbing tasks, though, is that you often don't quite know what you're getting into. Disassembling leaky or blocked under sink pipes, for example, seems simple enough. But according to James, "Pipes are complex and very tricky to reassemble, particularly when they're in close proximity to other plumbing components and machinery, such as dishwashers or garbage disposals."
He notes that what might appear to be a straightforward problem, like low water pressure or a fractured pipe, could actually be a symptom of a larger issue with your system. Plumbing has a way of getting out of hand—i.e., broken pipes, flooding, and worse.
TC On Point
What if the world of real estate advertising and marketing, as we’ve known it for decades, was irretrievably broken? What would it mean for real estate investors and agents? What would it take to get real estate leads and retain clients? What level or care and quality would it require to stay in business and keep growing?
In a recent interview with Inc. Magazine, Seth Godin alluded to the idea that marketing and advertising, as we used to know it, has been broken in large part to too much noise. Perhaps ironically of course, Seth Godin is revered by many as one of the greatest marketers of our time. Seth has recently posed a couple of important thoughts. The first, which can be found in the respective Inc. interview, referred to paying for marketing as a losing strategy. The second, via his blog, asked what if there were no more customers to be had? What if this was the last generation of potential clients – how would you treat them differently?
There may absolutely be challenges in real estate marketing, more competition for attention, and platforms like Facebook may constantly be upping the premium to reach your hard worked for fans, but thankfully traditional channels aren’t dead yet.
Traditional real estate marketing (phone, SMS, yard and bandit signs, direct mail, email, PPC and SEO, print and display advertising) is far from being outdated. All of these types of real estate marketing may have their own cycles, just like the property market as a whole. However, attention is undoubtedly becoming more valuable, as are loyal customers. Few could argue that working with referrals and repeat customers isn’t the highest ROI and most sustainable type of business. So in order to maximize ROI and avoid being held ransom by marketing agencies which control the costs of so many of these channels, what does it take to make your budget go further, get free business and keep them coming back?
Firstly, and perhaps most importantly, real estate companies and independent pros have to realize it is about the customer, not themselves. You have to really, really understand this, and keep it in mind with ever move you make. So make your messaging more about helping consumers, home buyers and sellers and renters and investors, and a lot less about you. Stop bragging and show them what you can do for them. Think creatively. In order to get more out of a real estate marketing budget, it needs to be highly effective. It needs to have viral capability by itself. Consider any paid boost to get it in front of others a bonus.
We are also seeing a return to personal connection. The internet isn’t going away, and in many ways this can actually augment relationship building if engaged accordingly. To cultivate referrals, close new business, retain customers and benefit from repeat business, relationships are important. Seth Godin suggests focusing on building ‘tribes,’ communities and groups that really care about something. This could be helping each other succeed in real estate, or rebuilding their community or beautiful design. It can be done on Facebook, Google+ groups, Twitter, via email, and in person at events.
The bottom line is that paying for marketing is still a reality in the real estate world and can have great returns. It’s just better done with same level of care and quality as if it was the only single message you could afford to send. Sincere marketing is hard to fake, and even harder to stick with. However, those that care enough and care about the long term will find these things helpful.
Buying your first home is an unforgettable experience as a first-time homebuyer, and one you’ll always cherish. But the problem facing many first-time buyers today is home affordability. It’s become a major concern for first-time homebuyers entering the real estate market, especially for millennials, as rising median home prices combined with lower inventory levels across the nation are making home affordability a thing of the past. According to the National Association of Realtors, one of the major hindrance for many first-time homebuyers is student debt.
“It’s becoming very evident from this survey and our research released last month that the financial and emotional impact of repaying student debt is contributing to a delay in purchasing a home for many would-be buyers,” said Lawrence Yun, chief economist for the National Association of Realtors.
“At a time of quickly rising rents, mortgage rates at all-time lows and increasing housing wealth, a lot of young adults in their prime buying years are struggling to enter the market and are ultimately missing out on the stability and wealth accumulation that owning a home can provide.”
Another factor hurting first-time homebuyers is credit score — which are lowest among young adults ages 18-29 year olds. A TransUnion survey revealed that nearly a third of millennials — ages 18 to 34 — would like to purchase a home within the year, but can’t because of low credit scores.
Despite the hurdles, first-time homebuyers are still making up a large portion of sales. The month of May saw first-time homebuyers making up 33 percent of existing-home sales. In the first six months of 2016, first-time homebuyers have represented on average 31 percent of existing-home sales, while a mere 11 percent of sales were investors, the lowest since 2009.
With that said, personal-finance website WalletHub has ranked the top 300 U.S. cities in terms of their attractiveness for first-time homebuyers.
Best U.S. Cities For First-Time Homebuyers
To determine the attractiveness for first-time homebuyers, WalletHub based their rankings on three key dimensions: 1.) Affordability, 2.) Real-Estate Market, and 3.) Quality of Life. The three dimensions were then evaluated using 19 relevant metrics — each metric graded on a scale of 0 to 100, with 100 representing the most favorable conditions for first-time home buyers. Metric included Foreclosure rates for the real estate market ranking; housing affordability and cost of living for the affordability ranking; and weather and crime rate for the quality of life ranking. In addition, WalletHub used data from U.S. Census Bureau, the Council for Community and Economic Research, Zillow, the FBI, the Insurance Information Institute for their rankings.
The following real estate trends list provides the top 10 cities ideal for first-time homebuyers along with their overall scores and rankings in affordability, real estate market, and quality of life:
10. Lexington, Kentucky
Total Score: 62.84
Affordability Rank: 45
Real-Estate Market Rank: 57
Quality of Life Rank: 36
9. Centennial, Colorado
Total Score: 62.98
Affordability Rank: 122
Real-Estate Market Rank: 33
Quality of Life Rank: 7
8. Lincoln, Nebraska
Total Score: 63.55
Affordability Rank: 70
Real-Estate Market Rank: 43
Quality of Life Rank: 21
7. Boise, Idaho
Total Score: 63.73
Affordability Rank: 3
Real-Estate Market Rank: 87
Quality of Life Rank: 91
6. Longmont, Colorado
Total Score: 64.11
Affordability Rank: 145
Real-Estate Market Rank: 16
Quality of Life Rank: 2
5. Westminster, Colorado
Total Score: 64.31
Affordability Rank: 127
Real-Estate Market Rank: 14
Quality of Life Rank: 8
4. Cedar Rapids, Iowa
Total Score: 64.44
Affordability Rank: 17
Real-Estate Market Rank: 82
Quality of Life Rank: 47
3. Thornton, Colorado
Total Score: 65.42
Affordability Rank: 125
Real-Estate Market Rank: 22
Quality of Life Rank: 3
2. Greeley, Colorado
Total Score: 65.46
Affordability Rank: 112
Real-Estate Market Rank: 9
Quality of Life Rank: 5
1. Overland Park, Kansas
Total Score: 68.49
Affordability Rank: 58
Real-Estate Market Rank: 29
Quality of Life Rank: 11
The prospect of an all-cash transaction is one in which homeowners welcome with open arms. It may serve as the difference between an acceptable offer and rejection. All-cash offers may even facilitate the sale of a property that was not originally on the market. For these reasons, and several more, the acquisition of hard money transcends the lengthy process that typically accompanies a traditional sale.
Investors with the capability to provide immediate capital are therefore at an advantage over the typical homebuyer. By comparison, the saturation of our market with all-cash offers has made it increasingly difficult for those without the necessary means to compete. Potential homeowners, unable to make an all-cash offer, are being squeezed out.
According to the National Association of Realtor’s (NAR’s) Confidence Report, all-cash offers account for 33 percent of home sales. International purchases account for the greatest amount of all-cash offers in the United States. Furthermore, 87 percent of the Realtors involved in the report acknowledge that they are witnessing a continuous trend of increasing home prices. Homebuyers, particularly those in the market for the first time, are already battling low inventory and rising home prices. The added pressure of all-cash offers is therefore an unwelcome one.
According to William Delwiche, an investment strategist at Baird Research & Insights, cash transactions have been supported by investor pools acquiring real estate, not by individuals looking to live in the home. “These are investment pools paying cash for houses to hopefully get returns,” he says. “It’s not necessarily a trend among individual homeowners because most people going to buy houses don’t have that kind of cash sitting around.”
According to Patrick Newport, an economist with HIS Global Insights, sellers prefer all-cash offers to those of the traditional approach. Having the money up front removes the complications typically associated with selling a home. “If you own a home and are selling yourself, it’s probably easier if someone pays you cash — it cuts out the messiness and having the homebuyer get approved for a loan.”
Continuation of this recent trend will likely reinforce the momentum the housing sector is currently exhibiting. However, it will have a resounding impact on first-time homeowners. Karen Dynan, vice president and co-director of economic studies at the Brookings Institute, says “it just makes the housing market less affordable. It’s good for the overall economy, but not for every person in the economy.”
Concurring with Dynan, Delwiche acknowledges that all-cash offers may prevent more people from entering the market. “Home prices go up and it affects housing affordability,” Delwiche says. “You can’t have first-time homeowners who are seeds for long-term growth, because they are then crowded out of the market. So short term it’s something of a positive, but is a headwind for first-time homeowners.”
While first-time homeowners are at a significant disadvantage, it is hard to argue with the prospect of all-cash offers. Those using cash have a greater negotiating power than those requiring a loan. Sellers, recognizing the increased ease of sale, are most likely going to chose the suitor providing cash and are often willing to reduce the house’s price on their behalf.
Transactions consisting of nothing but cash carry a much lower cost. Mortgage rates alone can serve to double or triple the cost of a property. Furthermore, closing costs are significantly lowered when purchases are made with cash. Aside from saving money, all-cash offers save buyers valuable time. There is no need to locate the best lender and significantly fewer documents to sign. So, while it may be difficult, first-time homebuyers are advised to take part in this trend. The following tips may make the prospect of an all-cash purchase a little easier:
The open house tour is a critical component of most real estate deals. For prospective buyers, it can be confusing to know what to do at an open house, what questions to ask or what to look for as they take a brief peek at what could become their next home.
Some homebuyers might like to take matters into their own hands when they go house hunting, opting to forego using a real estate agent to help with the process. After all, the reasoning goes, if you're the person who will be living there, it seems like you should be the one seeking out what you want. Similarly, there's an assumption that eliminating seemingly extraneous people involved, such as the real estate agent, also cuts the overall associated costs and makes the home less expensive.
However, there are many advantages to working with a real estate agent when buying a house. Consider these five benefits:
It's true that anyone can buy a house without an agent's assistance. However, real estate agents bring with them years of experience and expertise, and they utilize this wisdom to get you the best deal possible. In addition to specialized training in buying and selling houses, most real estate agents are also licensed professionals and members of various industry-specific organizations. They have access to and knowledge about comparable houses, local neighborhoods and whether a particular property is over- or under-priced.
Seeking out a new house that meets your specific criteria, including price range, accommodations and amenities can be a time-consuming process. After this long search, you still need to worry about arranging viewing appointments and work out a deal with the seller's agent. All of this requires a lot of leg work, phone tag and email exchanges. A real estate agent, on the other hand, has easy access to all of this information and will serve as your personal liaison between the seller and his or her agent.
3. Negotiation skills
Even after months of market research, house hunting and reviewing your available options, you still might not find the perfect match. For instance, you might find a home that partially fits your criteria, and with a few upgrades or repairs could be perfect. Negotiating a better deal or a discount on the home's price might not necessarily be your strong suit, but it's a skill real estate agents bring to the table during the transaction. In addition, the agent will be able to identify trouble or potential issues you might not notice.
A real estate agent brings knowledgeable and experienced negotiation skills first-time homebuyers might not have.
While you might have a good idea of what kind of house you want and your price range, there are a host of other market conditions that will impact what you buy and how much you want to spend. Some of this information can be difficult to come by without access to benchmark data and other industry-specific reports.
As noted by The Balance, a real estate agent can provide you with the contextual data on market conditions to help guide your decision, such as:
Properly leveraging data on market conditions will help you not only identify the best house at the right price, it can be a significant advantage for your position during negotiations.
5. Tailoring contracts
Although most purchase contracts are fairly standard, there are conditions that can be tweaked, removed or inserted accordingly. Since real estate agents deal with these on a regular basis, they have a familiarity with when a contract should be modified to better suit your specific needs and situation, according to Forbes. This provides you with better protections and puts you in a position to meet the conditions outlined in the contract.
Prominent tax advisers still don’t agree on whether all those people who prepaid 2018 property taxes can deduct them in full.
The debate on such deductions arose after Congress passed the largest tax overhaul in three decades late last year. In a landmark change, lawmakers capped write-offs for state and local taxes at $10,000 per return for both single filers and married couples. The provision takes effect for 2018 and will lower these write-offs for millions of Americans.
The overhaul barred deductions for many prepayments of 2018 state and local income taxes, but it was silent on deductions of prepaid property taxes. After Christmas, long lines of people rushing to prepay their 2018 property taxes before year-end gathered at local government office.
Then on Dec. 27, the Internal Revenue Service warned that not all prepayments of 2018 property taxes would be deductible on 2017 returns. The agency said that to qualify for a write-off, the tax liability actually had to have been known at the time.
Right away, some tax specialists strongly agreed with the IRS but others strongly disagreed. The IRS and its supporters argued that those who prepaid all their 2018 property taxes can only deduct the portion that was known or determined at the time. In many cases, that means only for a few months of the year or not at all.
The IRS’s opponents argued for higher deductions of reasonable estimates. They based this argument on prior tax rulings and regulations that they think apply to this issue.
Now, three months later, little progress has been made.
Leading the opposition against the IRS’s position is Lawrence Axelrod, an attorney at Ivins, Phillips & Barker.
“The IRS position is misguided because it doesn’t take into account Treasury’s own regulations,” he said.
These regulations allow taxpayers to deduct amounts paid that will be due within 12 months. The IRS and its supporters disagree. They cite court decisions which say that to be deductible, taxes must have been imposed and the amount must be known.
Stephen Baxley, who heads tax planning for Bessemer Trust, a prominent multifamily office, agrees with Mr. Axelrod.
“If the amount is a reasonable estimate made in good faith, it’s deductible,” he says. The firm is responsible for preparing nearly 1,000 individual returns.
Other tax preparers agree with the IRS.
Brian Lovett, a certified public accountant with WithumSmith+Brown in New Jersey, where property taxes tend to be high, says his firm is following the IRS’s guidance: “We think the amount due must be determined for a prepayment to be deductible.”
The correct answer matters.
More than 80% of property-tax revenue is collected by local governments with a fiscal year other than Dec. 31, according to the latest data compiled by the Lincoln Institute of Land Policy. Frequently, the fiscal year ends on June 30.
As a result, total property tax bills for 2018 weren’t determined by year-end in many areas of the country. Many could reasonably be estimated, however.
For example, say John lives in a county with a fiscal year ending June 30. By the end of 2017, he knew he would owe $6,500 in property tax due by June 30, 2018. He could likely assume that his bill for the second half of 2018 would be about the same. So in late December, he prepaid $13,000 for 2018 to his county.
According to the IRS’s position, John can only deduct a prepayment of $6,500—because the amount due for the second half of the year hadn’t been set.
But if Jane lives elsewhere and knew she would actually owe $13,000 in property tax for 2018, she can deduct a prepayment of that amount on her 2017 return.
Some advisers allow both approaches. David Lifson, a CPA with Crowe Horwath who has many high-earning clients, says he recommends that clients deduct prepayments of known amounts. But he will allow a deduction of an estimate, “if I feel the client understands the risk that the IRS will disagree.”
The debate is ongoing. In March, Democrats on the Ways & Means Committee wrote acting IRS Commissioner David Kautter to protest the IRS’s interpretation of the law.
The good news for taxpayers who want to deduct prepayments of estimates is that neither Mr. Lifson nor Mr. Baxley thinks these write-offs need to be disclosed on IRS Form 8275. On it, taxpayers are supposed to disclose risky positions to avoid certain penalties. Supporters of the IRS’s position think the form should be filed, however.
Some taxpayers are also pushing preparers to take the deduction because the audit risk is low, given constraints on IRS resources.
Emily Matthews, a CPA with Edelstein & Co. in Boston, says she explains the IRS’s position to clients. But she says, “I think we’ll see a lot of people who prepaid estimated taxes opt to deduct them.”
As we enter the spring home-buying season, hordes of would-be homeowners are ready to go—but there weren't enough new-home sales in the beginning of the year to quell the already strong demand.
Only about 618,000 newly constructed homes were sold in February, according to a joint report by the U.S. Census Bureau and U.S. Department of Housing and Urban Development. That's down 0.6% from January, but up 0.5% from February 2017.
"There is plenty of room for growth," Chief Economist Danielle Hale said in a statement. "More new-home sales are needed to restore balance in the housing market. ... Today, one in every 10 homes sold is a new home, whereas in a normal market they account for one in every seven homes sold."
Currently, there aren't enough homes to go around, particularly at more affordable prices. The median price of newly constructed homes notched up to $326,800. It's up nearly 0.6% from the previous month and almost 9.7% from the same month a year ago.
That's considerably more than existing homes, which cost a median $241,700 in February, according to a recent National Association of Realtors® report. Newly constructed homes cost more than existing ones thanks to high land, labor, and materials costs. They also typically come with the latest designs, finishes, and appliances.
Only about 13% of the newly constructed homes sold in February cost less than $199,999, according to the report. The bulk of them, about 58%, were between $200,000 and $399,999. An additional 12% cost between $400,000 and $499,999, while 17% were priced at $500,000 and up.
The most new homes were sold in the South, where buyers closed on about 338,000 new homes in February. That's a 9% jump from January and a 0.6% bump from February 2017.
The region was followed by the West, where about 164,000 new homes changed hands.
This represented a 17.6% monthly drop, but a 3.1% annual increase.
Next up was the Midwest, with 79,000 sales, down 3.7% from January and 8.1% from the same month a year earlier. The Northeast had the fewest new-home sales, at just 37,000. But that was up 19.4% from the previous month and 8.8% from February 2017.
Builders recently completed the most newly constructed homes in a decade, says a recent report. Buyers can finally exhale.
About 1,319,000 homes were finished in February—the most that were completed since 2008, according to the seasonally adjusted numbers in the latest residential sales report jointly released by the U.S. Census Bureau and U.S. Department of Housing and Urban Development. That's a 7.8% bump from January and a 13.6% jump from February 2017.
"Hitting a record level of new, finished houses should lead to an increase of more homes on the markets for buyers," says Chief Economist Danielle Hale. "It’s not going to turn from a seller's market to a buyer's market overnight, but this is a step in the right direction.”
The most new, finished homes were in the South, at 659,000 in February. That region was followed by the West, at 336,000; the Midwest, at 164,000; and the Northeast, at 160,000.
But buyers shouldn't rejoice just yet. Fewer newly constructed homes could be coming online this spring—despite the frantic demand. Builders received only 1,298,000 permits in February to put up new homes, a 5.7% drop from January, according to the report. However, it was a 6.5% rise from February 2017.
Permits are considered a good indication of how many completed new homes will hit the market in the coming months.
“There’s plenty more room to grow," says Hale. She'd like to see permits to erect single-family homes rise from 872 in February to 1 million. "It's going to be better than last year, but we're still not back" to precrisis levels.
Housing starts, which means construction that has begun but hasn't been completed, fell 7% from January to February, according to the report. It was down 4% from February of the previous year as well.
"The fall in housing starts in February is a movement in the wrong direction," Lawrence Yun, chief economist of the National Association of Realtors®, said in a statement. "The key to economic prosperity at this juncture of economic expansion is to produce more new homes. That will help with job creation and reduce the swift price appreciation in several markets."
Your rehab is not finished the moment your contractor cleans up.
After the last trim is painted and the appliances are installed, you have one more crucial step that will ensure you a quick sale, STAGING.
For those who are not familiar with STAGING, Staging is the process of creating an emotional experience that leads sellers to make buying decisions much quicker and easier. Staging is a pivotal element in your real estate investing business that does not take much effort, but yields in immense benefits. Bottom line – Staging sells your property faster, which allows you to see your profits sooner.
Staging is simple; you want the buyer walking thru the house to envision themselves living there. You want them to visualize where they would put their furniture, where they will have dinner, and enjoy a movie. Staging does not have to be complicated. You can have a lot of fun and showcase your style. Here are few tips to help stage your rehab.
Home Staging Tip #1: Clean, clean, clean!
Make sure your rehabbed house is clean from all debris, inside and out. You want the house cleaner than if your mother-in-law was coming over for Thanksgiving dinner. Make sure you don’t forget the window sills and little nooks and crannies, dry wall dust gets everywhere. Be meticulous in the kitchen and baths. You should feel comfortable eating your next meal off the floor.
Home Staging Tip #2: Bring a friend or family member
This person needs to not have an emotional connection to the house. You want an unbiased eye to help highlight the positives and distract from any negatives.
Home Staging Tip #3: Pick a Staging Point.
Go to each major room in the house (i.e. Kitchen, Bathrooms, Living room) and select an attractive part of the room to highlight. An example in the living room would be a fireplace. Simply put a mirror or painting on the mantel with some candles and a few logs in the fireplace and you just staged! It’s simple as that. Now your buyer is able to visualize enjoying a roaring fire on a chilly winter night in their new house!
Take advantage of these staging tips before putting your flip house on the market. Your goal is to enhance the “WOW” factor a buyer gets as they preview the property. This will maximize your time. Back to TIP #1 CLEAN, Make sure your contractor cleans up after themselves every night to ensure time isn’t wasted when you are ready to clean. TIP #2 Also talk to your friend or family member that you are going to involve. Tell them what your objective is, as they will be more helpful if they know your goal. TIP #3, you can save a lot of time by picking the features in advance that you want to highlight. If you are unsure of your own style, don’t be afraid to ask a store clerk or friend for help. You can accomplish half the work of staging before your project is finished. Stick to a tight time line and don’t waste a minute. Every wasted minute is narrowing your profits.
Real Estate Investing Basics Tip #1 – The Best Investors Understand Marketing
Marketing is the first area of the business you should study as a beginning real estate investor. Marketing is what makes the phone ring and generates leads. Leads are the lifeblood of your business. They are the oxygen your business breaths. The more leads you have the more money you will make. If you don’t have leads, then you won’t buy any properties. If you don’t buy any properties then you can’t make any money. If you can’t make any money then you can’t build a business. As a result you should spend the majority of your time figuring out how to get your phone to ring with motivated sellers. (The same thing can be said for dating!)
Successful marketing is an art, and those who understand marketing set themselves apart from other investors. There must be a mindset shift as an investor. You are not in the business of flipping homes. You are in the business of generating leads from people who want to sell their home under market value. If you can do this you will control the market and you will figure out the rest of the business very quickly. If you have a potential $80,000.00 dollar pay day on the other end of the phone believe me you learn quickly.
There are many different forms of marketing you can utilize to get your phone ringing. Direct mail, billboards, TV, cold calling, and networking are all marketing strategies you can use to find deals. The key is to narrow down your market and find your target, develop a compelling message with an irresistible offer, and consistently touch these people with multiple marketing mediums. Then you will want to develop marketing systems so you can repeat this process over and over again.
Real Estate Investing Basics Tip #2 – Wholesale Properties to Build Your Cash Cushion
Once you find the deal now you have to find someone who is willing to buy the deal from you at a higher price. This is where wholesaling comes into play. Wholesaling is the business of finding bargains and selling the deals to bargain hunters at a higher price. You are not adding value to the property. Wholesaling properties should be essential part of every real estate investors business. It is a way to generate income with little to no risk. Many times, you never take ownership of the property – you simply are the transaction coordinator. In essence, you are bringing a buyer and a seller together. Through your marketing efforts, you locate deals and then you assign them to other investors that you locate through your various forms of marketing. If your marketing machine is in motion, you should have no problem finding buyers. Successful marketing and networking in the real estate community will enable you to find wholesale buyers.
Real Estate Investing Basics Tip #3 – Rehabbing for Large Profits
Rehabbing is when you redevelop the property yourself instead of wholesaling the property to someone else. This is where the larger profits lie. The reason is you will be selling the property to a retail buyer who will be willing to pay full market value for the property as opposed to a another investor who is looking for a discount.
Rehabbing is an entire business in itself and there is a lot you need to learn about this niche. It is important if you choose to include rehabbing in your business that you spend time educating yourself first. Learning pricing of labor and materials as well as whom are the qualified contractors in your area is essential to rehabbing properties.
Being able to add value to properties through renovations is a not only very profitable, but also very rewarding. You are providing a great service, not only to the city in which you do business, but also to the end buyer of your newly remodeled home. When you become experienced at rehabbing you will have the confidence to be able to take on projects that many people would never even consider. This separates you from the other investors and creates more opportunities for you in that real estate market.
Kitchens are the main selling point of any house and therefore should be given proper consideration with regards to layout, design, functionality, finishing materials and adding “sizzle” features. This room is a vital component of any home and is usually the most frequently used space by a homeowner. The kitchen is also the most challenging part of the house to design and rehab, as it is made up of many components and requires coordination between all members of the rehabbing team. Though it is one of the most expensive parts of the house to upgrade, it is also the room that returns the most for every dollar invested.
Some features that should be considered in most kitchens:
This design concept connects the kitchen with the living room where the families gather to have meals and enjoy entertainment. This concept can be applied through completely knocking out the wall between the kitchen and the living room; removing the top portion of the wall and creating a counter-top/bar feel or creating a picture window opening to connect two spaces together. In this step, it is important to answer the following questions:
Cabinets are the most visible part of a kitchen and generally its most expensive component. Therefore proper consideration must be given to this decision, as kitchen cabinets constitute one of the main selling points of a kitchen and therefore of a house. A good rule of thumb is to use comparable properties on the market as a measuring stick for quality of cabinets used. It is also a good idea to visit any new construction sites in the neighborhood to see what is “in style” for your target market. New cabinets typically come in one of three forms: stock cabinets, semi-custom cabinets, and custom cabinets. On average, cabinets represent roughly half the cost of a complete kitchen remodeling. Due to the high cost, it is worth careful consideration with regards to kitchen design.
Some important design features to consider are:
Properly selecting the material type of the counter-top greatly enhances the functionality and appeal of a kitchen. Single family kitchens ideally should have a few different work areas. That means you need to plan for this in your initial kitchen design layout. Work areas are defined as 36 inches of continuous counter-top. Today there are so many choices of material to use, here are a few of the most common:
These are kitchen design features that are added that help sell the house. They make the kitchen “pop” and stand out among the other houses on the market. As we teach in our rehabbing course you should always try to include at least 4 “sizzle features”:
Kitchens sell homes
You hear that all the time because it is true. Choosing the correct layout, design and finishing materials will help you sell your home quickly and maximize your profit. You will get the most dollar return for dollar spent in the kitchen design. We always teach to stay within a budget, but if you want to add a little something extra in your rehab, the kitchen is one of the best places to do this. A well thought out design, quality materials and dramatic lighting will make the kitchen the best room in the house. So get out there and start planning that perfect space.