Things to Come in 2006

By Dan Krell

In reading some of the real estate forecasts for 2006, I was reminded of H. G. Wells’ novel, “The Shape of Things to Come.” What does H. G. Wells have to do with Real Estate? Nothing. Well almost nothing. Any self respecting science fiction enthusiast knows that the 1933 novel about the future of mankind was eerily prophetic about the outbreak of the Second World War as well as some technological advances. However, the novel was pure science fiction.

So I had to ask myself, “what is it about economic forecasts, real estate market predictions specifically, that seem to be prophetic in one regard and erroneous in other details?” I believe that in order to get a balanced perspective you have to get information from various sources and pull the pertinent plausible statements to form the picture. The same holds true to the coming year in the local real estate market.

So what lies ahead?

The National Association of Realtors predicts 2006 to be the second best year in history for sales activity (Realtor.org). David Lereah, chief economist for the NAR, stated in a NAR press release on December 12 that he feels that economic conditions will be positive for the housing market in the coming year. He states that general economic conditions will be good to help sustain a stable real estate market.

Conversely, the UCLA Anderson Forecast (UCLAForecast.com), the folks who accurately predicted the recession in 2001, predicted in a recent press release that there will be a “weakness” in the national economy due to problems in the housing sector. Their vision is a weaker economy through 2007 because of a slower housing market and loss of construction and housing related jobs. The bottom line is that they believe that there is a rough road the next few years, but there will be no recession.

Interestingly enough you might think that Realtors who are active in the local market would have cohesive and consistent outlook on the future. That is not the case. Local Realtors who are quoted in Realty Times (realtytimes.com) share differing opinions about the state of the present market and offer differing views about the near future.

So, what can we make of all this confusing information? Well, with regard to mortgage interest rates, the Fed is expected to have at least one more increase planed, so it will remain to be seen where mortgage interest rates level off. Currently, mortgage rates are higher than they have been in recent history, but still hover at a respectable 6.25%. Additionally, home sales have dropped off from last year’s pace but prices are still increasing. So economically, it seems as if there is a sense of return to equilibrium.

What people have described as a bubble bust, or a downturn in the real estate market, is actually a return to a more balanced market. The dysfunctional expectation that a home should sell for $25,000 (or more) than the last home sold, and have many home buyers place an offer on one home in a moments notice will change to the more reasonable expectation of selling at market value and having a buyer contract on a home in several (or more) weeks.

Equilibrium. Normality. No matter how it is said, it is a vision of things to come.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel 12/19/2006. Copyright © 2006 Dan Krell.

Housing the Workforce

By Dan Krell
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It can not be over stated how good the real estate market has been for many home owners. The sharp escalation of home appreciation in the last few years has made many home sellers feel like they won the Maryland lottery.

Housing appreciation and home prices are not the only housing indicators escalating. The trend of decreasing housing affordability for middle income families is also escalating. Every year there are more middle income home buyers who were edged out of the market or for that matter did not even venture to purchase a home, because home prices escalated beyond their ability to afford a mortgage.

Housing for the middle income home buyer has been deemed “workforce housing.” Workforce housing as defined on the Montgomery County Department of Housing and Community Affairs web site (montgomerycountymd.gov) as affordable housing for families who fall between 80% and 120% of the median income for the Washington metropolitan area. In 2005, a family of four would fall into this category if the household income was between $71,400 and $107,000. Additionally, the county considers anyone who works in the county (e.g., police, firefighters, nurses, and teachers) and cannot afford housing to fall into this category as well.

It is clear that for many years there has been support for affordable housing and home ownership in general, as can be seen by the many state and county programs available, for qualifying home buyers. As a matter of fact, there has been an affordable housing conference in Montgomery County since 1991. The goal of the conference has always been to address issues related to affordable housing. The mission of the conference, as stated on their web site (affordablehousing.org), is to bring together elected officials, housing and community leaders, business professionals, activist, and others to work toward affordable housing solutions. The theme for the 2005 conference was “Work Here, Live Where?” and addressed the growing crisis of workforce housing.

The increasing number of families who earn more than the maximum to qualify for a Moderately Priced Dwelling Unit (MPDU) yet can not afford to purchase a home in the county are rising to crisis levels. The crisis has been identified by some governmental departments, yet others lag behind. Many commissioners who attended The Governor’s Commission on Housing Policy on January 2004 as given by the Maryland Department of Housing and Community Development (see minutes from January 6, 2004) concluded that workforce housing issues should be addressed.

The Maryland-National Capital Park and Planning Commission (mc-mncppc.org) has taken on the issue and generated a strategic plan as well as a web site to address the problem. Additionally, the MNCPPC created a program called “Housing Montgomery: Housing the People who make Montgomery County Work.” The program is to focus on initiatives that function to increase the supply and affordability of housing, improve data tracking, and expand community outreach.

The program development many initiatives, which include the development of a workforce information packet, discussion of employer assisted housing, discussion park workforce housing, discussion of Montgomery County Department of Parks and Planning employer assisted housing, and to expedite approvals for affordable housing.

Workforce housing will continue to be a concern for many years to come as housing costs continue to escalate. Hopefully, community leaders will continue to develop an agenda to assist Montgomery County’s workforce to live in the county

This column is not intended to provide nor should it be relied upon for legal and financial advice. This Article was origanlly published in the Montgomery County Sentinel 12/12/2005. Copyright © 2006 Dan Krell.

HUD is Kicking Back

Dan Krell © 2006

When you bought your home recently did your Realtor or lender tell you that you had to use a specific lender or title company? Did the seller require you to use the mortgage and title companies of their choosing? If so, you may have been denied your right to choose the lender and title company to conduct the settlement for your home purchase.

To help home buyers become educated consumers about settlement services a law was passed in 1974 called the Real Estate Settlement Procedures Act also known as RESPA. RESPA has many caveats associated with it however there are several common provisions associated with a home buyer’s choice of settlement companies and lenders.

First, RESPA requires that home buyers receive disclosures that disclose costs related to settlement, as well as outlining lender servicing and escrow account procedures, and disclosing relationships between settlement professionals and other real estate professionals. This protects the home buyer by allowing them to know what they are to expect with regard to fees, affiliated business relationships, etc.

Second, RESPA is widely known for prohibiting giving or receiving anything of value, including money, for settlement service referrals, also known as kickbacks. RESPA also prohibits fee splitting and receiving compensation for services that were not provided. This is done because kick backs typically increase fees charged to the home buyer, sometimes excessively, so as to “take care” of the referring party.

Third, RESPA prohibits a home seller from requiring a home buyer to use a specific title company or lender.

Penalties for violating RESPA are stiff. Violations of RESPA include civil and criminal penalties. The penalties vary depending on the infraction. For example, if someone is found guilty in criminal court of giving or receiving a kickback, they may be subject to a $10,000 fine and a year in jail. The civil penalty for kickbacks is the repayment of three times the fee in question.

Although kickbacks are not as common today as they were in years past, they still exist. In response, the U. S. Department of Housing and Development (HUD) has taken a firm stance on kickbacks in the last several years. There have been many out of court settlements in the last few years, and there may be some serious criminal charges pending as investigations continue.

It is not uncommon for home buyers, especially first time home buyers, to ask their Realtor for lender and title company recommendations. After all, most people do not buy homes very often. As a practice, many Realtors provide a list of several names of lenders or title companies for the home buyer to interview. The list is usually comprised of professionals with whom the Realtor has worked with in the past and (hopefully) had a good experience. As a home buyer, you can always start with whomever you bank with. It makes sense that since you have already developed a banking relationship with your bank, why not start there?

If you find yourself in the situation where you are “forced” to use a specific lender or title company, or you think this may have occurred in the past, you can contact HUD (HUD.gov) or contact the state attorney general’s office of consumer protection for additional information.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This colum was originally published in the Montgomery County Sentinel 12/5/2006. Copyright 2006 Dan Krell.

Surfing for Homes

By Dan Krell
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Before computers became common place, brokers kept track of their listings just as libraries kept track of their collections-by card catalogues. As a matter of fact, you can see these old cards for your self at the Rockville office of Metropolitan Regional Information Systems, Inc. (MRIS), the local multiple list service (MLS).

During that time before the MLS, brokers were not required to share information and listings with other brokers. This proprietary system allowed the broker to maintain the buyers that came to seek information on homes for sale.

Looking back, home buying was not complicated. Home buyers would go to the local real estate office and see what homes were available. Homes for sale and other information were limited to what your Realtor knew. Most likely, the only homes your Realtor showed you were homes that were listed by that real estate firm. Needless to say, the real estate industry has come a long way since then.

Since the advent of the multiple list service, technology has made a huge impact on the real estate industry. Presently, searching for the right home has never been easier. Home buyers can look for homes on the internet and get listings via email and cell phones. As a matter of fact, if you go onto the internet, you will have hundreds of Realtors (including myself) as well as Real Estate Companies offer to send you home listings.

With all of this information flying around, what’s the most reliable and accurate information available?

The most reliable and accurate information available for Realtor listed homes is through MRIS. Unfortunately, if you are not a real estate professional, you can not have a membership to peruse the database. The good news is, however, that all the other databases and online searches of Realtor listed homes are fed by the MRIS. The quality of the information depends on the website’s ability to update their information from MRIS and how it disseminated.

Several popular internet searches are HomesDataBase.com, Realtor.com, and Homes.com. All three offer searches on the internet without filling out information forms. If you choose additional information or services from these sites, you must fill out an information page giving at least a name and email address. Although you get to search on your own, the sites do promote realtors and other real estate professionals.

If you are a busy professional and do not have the time to search online, you can have listings emailed to you as homes come on the market. If you complete the homes prospector page of HomesDataBase.com, you can save your search criteria and have any new listings sent to you as they come onto market.

There are many more internet based services which include JustListed.com, Homegain.com, RealEstate.com, and many more. These websites forward your information to a local Realtor who will send you the information you seek. All these sites are useful and you can get the information you desire as long as your search criteria is specific enough. Unfortunately, if your search criteria are too specific, you will miss seeing homes that you may actually consider buying.

Alternative sites to search for local homes include the Washington Post website (WashingtonPost.com) and Craig’s List. (washingtondc.craigslist.org). Both sites publicize all homes for sale that have been advertised by for sale by owners and Realtors, however Craig’s List is a grassroots site that does not allow commercial advertisements.

Having all the technology and information available online is useful, however there are drawbacks. The main drawback is that most of the information is limited and you must contact someone for additional information.

No matter what manner of internet home searching you choose, you will be more informed than not having done the search at all.

This column is not intended to provide nor should it be relied upon for legal and financial advice.
This column was originally published in the Montgomery County Sentinel 11-14-2005. Copyright 2006 Dan Krell.

A Final Walk Through Is Not Always A Walk in the Park

by Dan Krell © 2006

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A Final Walk Through Is Not Always A Walk in the Park

So your home inspection went well. The pest inspection came out all right. Everything is a go with your financing, and the title is clear. Settlement is two weeks away, are you excited about your home purchase? You should be-congratulations! Although everything looks perfect, don’t take your final walk through lightly.

As a home buyer, you have the right to inspect your purchase prior to settlement. As a matter of fact, both the Maryland Association of Realtors (MAR) contract and the Greater Capital Association of Realtors (GCAAR) regional contract have clauses that state your right as a homebuyer to receive the home in the same condition as the day you contracted to purchase the home.

Each clause, although worded slightly differently, states that the home will be delivered to the home buyer free of debris and that all mechanicals, cooling, heating, plumbing, electrical systems, and smoke detectors to be in operating order at time of possession (usually settlement). The MAR contract states that the home buyer can inspect the property up to five days prior to settlement. Both contracts’ make allowances for additional provisions which include home and environmental inspections.

Ok, so there are provisions for the final walk through in my contract, but what is the purpose of having a final walk through and what should I be looking for? The general reasons for having a final walking through is to ensure (among other things) that the home has not been damaged between contract ratification and settlement, that all the seller’s possessions and all trash are removed, items to remain are actually in the home, all mechanical systems and appliances are operational, and that all repairs listed from your home inspection were completed.

Your Realtor should provide you with a checklist of items to be checked by both of you during the final walk through. Generally, you should be looking for cosmetic and structural changes to the home which include damage to walls, staircases, and doors that occurred during the seller’s move prior to settlement; any items that should have been removed by the seller but left behind; and any item that was removed by the seller but should have remained in the home. Additionally, you should check the operation of appliances, air conditioning or heating (depending on the time of year), and any electrical devices including smoke detectors. Finally, you should check that the seller has completed all repairs as agreed in the home inspection addendum.

Having a final walk through is just as important when you are purchasing a new home as when purchasing an older home. The builder will schedule a final walk through with you and your Realtor. When having your final walk through on a new home, the builder will check that all the mechanicals, heating, cooling, appliances are operational. Additionally, they will check that any customization that you ordered is correct. You should point out any cosmetic defects, such as dings in the wall, unevenness in paint colors, or any thing else that is not satisfactory. The builder is usually happy to repair or replace items until satisfactory.

If while conducting your final walk through you notice a problem with the dishwasher, what can you do about it? Occasionally, when conducting a final walk through, there are some problems. For example, it is not uncommon for the air conditioning to fail in the summer, or one item from the home inspection addendum was not repaired. If that happens, you have a couple of options. Your first option is to ask the seller for a monetary credit at settlement so you can make the repairs after settlement. Your other option is to delay settlement until the seller makes the necessary repairs.

This column is not intended to provide nor should it be relied upon for legal and financial advice.
This column was originally published in the Montgomery County Sentinel 11/14/2005. Copyright 2006 Dan Krell.