Home Buyer Tips Archives - Page 6 of 12 - Real Estate News and Commentary

May 20, 2008November 23, 2021

Lack of Permits Can Create Future Problems

by Dan Krell
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If you have ever tried to make improvements to your home, you may know about the permitting process. Unfortunately, do-it-yourselfers and some contractors often feel that it is unnecessary to obtain the necessary permits (including but not limited to building, mechanical, and electrical permits). Excuses given for not obtaining the proper permits range from the silly to the paranoid.

The purpose for the permitting process is to assure that buildings, land and home improvements adhere to the building and zoning codes within the county. The purpose for building and zoning codes are to ensure that our houses are safe, structurally sound, and help maintain health standards.

Although you may perceive that you can save time and money by not going through the permitting process, however, you may find that the shortcut will cost more time and money in the long term. It is not uncommon for improvements that did not go through the permitting process to be required to meet current building and zoning codes, or even be demolished. Decks, fences, and outbuildings are common violations because they can encroach on a neighbor’s property as well as being easily seen because they are not concealed indoors.

If the permitting process is not followed correctly, or (worse yet) if there were no permits for your improvements- there may be future consequences to you, the home owner.

First, it is not uncommon for insurance companies to deny claims related to home improvements that were not completed to meet local building code requirements. Having the necessary permits for home improvements as well as communicating with your insurance agent about them will save you heartache if there is a future claim related to those improvements. For example, if your new deck collapses and injures a guest, your insurance company may deny any claims if it is found that the deck was not built up to building code standards.

A second consideration is that you may run into an obstacle or two when you plan to sell your home. Having improvements that were not permitted by the Department of Permitting Services and passed by the building inspectors could have serious repercussions on your sale. For example, one home seller had the appraised value of his home reduced by the home buyer’s lender because the owner never obtained a permit to construct the large addition he added the year before. Additionally, a home buyer may require a seller to have such improvements be inspected by the county.

If you did not go through the permitting process for your home improvements and you decide to “come clean” (either voluntarily or because someone required you to do so), the county will have your improvements examined by an inspector. If you are lucky, you could get away with paying local and state fines. However, to meet building code, the inspector could require you to make minor repairs; sometimes, the improvements are ordered to be demolished.

As a home buyer, you should be concerned about a home’s permit history for the reasons stated above. You can check a home’s permit history by contacting the Department of Permitting Services (permittingservices.montgomerycountymd.gov).

This article 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 the week of May 19, 2008. Copyright © 2008 Dan Krell.

May 7, 2008November 23, 2021

Todays Luxury Home Trends are Tomorrow’s Home Standards

by Dan Krell
Google+

What comes to mind when you think of a luxury home? When asked, many people first think a luxury home is a very large and expensive home. However, a luxury home does not have to be the largest or the most expensive home in the area; in fact a luxury home could be a townhome or condominium.

Although price alone does not signify a luxury home, luxury homes are more expensive than the average home. Regardless of price, luxury home ownership is on the rise. Consider the Joint Center for Housing Studies (Harvard University) report from 2004 indicating that homes costing over one million dollars are the fastest growing market segment in the country such that the United States Census Bureau had to change the top census category of home value from “$500,000 or more” in 1990 census to “$1,000,000 or more” in the 2000 census.

So what makes a home a “luxury home?” It is mostly about the home owner’s lifestyle, which is typically a combination of: personal expression, house amenities, construction quality, and physical location. A typical luxury home buyer will pay the price to create their perfect home and to make it express their lifestyle.

Lifestyles and homes have changed a lot over the years; consider that in the United States, the average home in the 1950’s was about 980 square feet while today the average home is over 2,400 square feet! As lifestyles change, trends in luxury home building will change to fit the luxury home buyers’ personality and routine. Most luxury home buyers are willing to pay more for a home in the perfect location with customized amenities.

Luxury homes usually have many state of the art amenities including the latest in appliances and recreation facilities. State of the art kitchens are usually standard in a luxury home. Current trends in high end kitchens include prep-kitchens inside the main kitchen so as to keep the main kitchen clean, as well as high tech appliances connected to the internet so you can either order groceries from your fridge or cook a turkey while at work (via phone commands). Additional luxury amenities include walk in closets (closet sizes rival the average bedroom) that are well appointed with center islands and dressing areas. Other amenities depend on the owner’s personal interests and hobbies. You might find these indoor facilities in a luxury home: theatre, basketball court, bowling alley, or swimming pool.

Luxury home construction is distinct from other construction because of the customization and materials used (such as exotic woods, imported marble, and custom fixtures). Luxury homes are now being designed for room flexibility and continuous room flow. The price of a luxury home is higher than the average home because of these design and construction features.

Do you like what you see in some of today’s “dream homes?” Today’s luxury home trends tend to become tomorrow’s norm. For example, the washer/dryer, dishwasher, air conditioning, microwave oven, granite counters, and stainless steel appliances (the list goes on) were once considered to be a luxury- but are now the norm in many homes: So, who knows? Maybe your next home will have that indoor basketball court!

March 25, 2008September 9, 2018

Have you unknowingly perpetrated Mortgage Fraud?

You’ve probably read a few recent articles featuring victims of the mortgage crisis. Many of these home owners claimed to have been duped into obtaining loans that they could not afford. One recent article described how the home owner went along with a plan to obtain a mortgage that involved using someone else’s credit as well as artificially inflating their bank account to qualify. Is the home owner guilty of mortgage fraud if she knowingly follows the scheme of their real estate agent and/or mortgage broker to deceive the lender to qualify for a mortgage?

Among the many crime reports published by the Federal Bureau of Investigation (FBI) is the Mortgage Fraud Report. According to the 2006 Mortgage Fraud Report (https://www.fbi.gov/stats-services/publications/mortgage-fraud-2006) mortgage fraud is defined as “the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.” As the Maryland and Virginia areas are described as being significantly affected by mortgage fraud, the FBI cited recent increases of mortgage fraud are due to many perpetrators of fraud who have taken advantage of recent lenient credit standards.

The FBI divides mortgage fraud into two categories, fraud-for-profit and fraud-for-property. Fraud-for-profit typically involves schemes or scams for financial gain. According to the FBI, fraud-for-profit schemes (also referred to as “industry insider fraud”) often involves artificially inflating property values, obtaining loans on non-existent properties, or “revolve equity.” Illegal flipping schemes that commonly use straw buyers and fraudulent appraisals are examples of fraud-for-profit.

Fraud-for-property, however, is the misrepresentation by a borrower so as to obtain a loan to purchase a home. Fraud-for-housing increased in recent years due to the rise of home prices; applicants would provide misleading or false employment, income, and asset information to the lender to qualify for the loan. Although the intent of the borrower is to repay the loan, this activity is still illegal and can lead to Federal prosecution.

To avoid becoming involved in a mortgage fraud scheme, the FBI provides these tips: If it sounds too good to be true, it probably is; Get referral for real estate and mortgage professionals and check the licenses with regulatory agencies; Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques; Look at written information to verify the value of the property; Understand what you are signing and agreeing to – If you do not understand, seek assistance from an attorney; Make sure the name on your application matches the name on your identification; Review the title history to determine if the property has been “flipped” and the value falsely inflated; Know and understand the terms of your mortgage (Check your information against the information in the loan documents to ensure they are accurate and complete); Never sign any loan documents that contain blanks as this leaves you vulnerable to fraud.

Mortgage fraud is not a victimless crime. Besides foreclosed upon borrowers and mortgage entities, other victims include legitimate borrowers and those living in neighborhoods affected by mortgage fraud.

Original published at https://dankrell.com/blog/2008/03/25/have-you-unknowingly-perpetrated-mortgage-fraud/

By Dan Krell

March 25, 2008November 23, 2021

Creative financing can lead to creative trouble

by Dan Krell
Google+

Several weeks ago, my client encountered The Amazing Criswell of real estate. Without knowing anything about my client’s home, this real estate agent professed to know how many homes are for sale in his neighborhood, the price the home would sell for, and time it would remain on the market. Much to my client’s dismay, the agent expressed an interest to discuss a proposal to sell his home quickly and for more than the list price. Needless to say, my client did not call him.

There is always someone pushing their angle on how to sell your home faster, make more money, or buy with no money. Some of these “real estate solutions” could even be called schemes; many schemes are not practical, some are outrageous, and some are blatantly illegal. Presently, the temptation to think outside the box tends to be more prevalent since financing guidelines are more restrictive, and for many it means needing more cash for a higher down payment, closing costs, or reserves.

Aside from creative financing options that offer seller financing, land installment contracts, or leases with the option to purchase, there are schemes that provide creative gifts of money to the home buyer so they can qualify for their loan. One of the more blatantly illegal schemes involves a “gift” from the home seller to the home buyer while increasing the sale price to exceed the listing price; the gift is not disclosed to the lender as well as exchanged outside of settlement. This scheme essentially creates a 100% financing loan from a loan that technically requires some form of down payment.

A graduate student who researched this type of transaction for his Ph.D. in finance (as reported in the New York Times “The Cash-Back Mortgage,” June 10, 2007) found that the “cash back” scheme is more prevalent than previously thought. He found that people advertised such deals through advertising and through key words in the MLS (the study revealed 150 keywords were used).

Additional findings suggested that this type of transaction would occur when homes were on the market for long periods of time, yet sold above the original list price. Furthermore, these types of transactions tend be executed by the same real estate agents (who are either the seller and/or they are the only agent in the transaction). Ironically, most of these deals were perpetrated through loans packaged in bundles and sold on Wall Street.

A subtler form of this cash back scheme occurs when the seller provides closing help to the buyer, but raises the sale price beyond the list price to make up the difference. Although the closing help is disclosed to the lender and recorded on the settlement sheet, this transaction could be illegal. Federal law (18 U.S.C. 1014) forbids providing false statements and/or willfully overvaluing land to influence a lender’s behavior in providing a loan. In fact, a New Jersey State Judiciary committee stated that an attorney knowingly participating in such a transaction is ethical misconduct.

In today’s market, it is tempting to look for creative methods to sell or buy a home. However, before you agree to any creative financing proposal, consult with an attorney to determine its validity and legality.

March 13, 2008November 23, 2021

Buying "as-is" means as-is; or does it?

by Dan Krell
Google+

The home seller, unless exempt, is obligated to provide a property disclosure or disclaimer to the home buyer. Sometimes a home seller will disclose the home’s condition by answering all the questions on the form; other times the home seller will provide disclaimer statement that you are buying the home “as-is.”

There really isn’t one answer why a home seller would provide a property disclaimer, although there are many situations where providing a property disclaimer is appropriate.

The disclaimer statement practically states that the home seller makes no representations or warranties as to the property condition. Additionally, you, as the purchaser, agree to accept the property “as is” with all defects, including latent defects- except as otherwise stated in the real estate contract of sale. The statement says it all, you basically take the home “as-is.”

This is all well and good, except that the contract has a condition of property/equipment, maintenance and condition clause (depending on the contract your Realtor is using) as well as a termite inspection clause. The condition of property/equipment, maintenance and condition clause states that the home will be delivered in essentially the same condition as at time of contract acceptance and that mechanical items (such as HVAC, electric, etc.) will be in good working order at time of settlement.

The termite inspection clause essentially says that seller is responsible for remediating any termite or wood destroying insect infestation and damage. However, the Maryland Association of Realtors Residential Contract gives the home seller the option to void the contract if the cost of treatment and repair exceeds 2% of the sale price and the home buyer does not want to pay the excess.

Additionally, a home seller is required to disclose all known latent defects. A latent defect is described as being a defect that a home buyer would not know of even through a careful inspection, and could pose a threat to their health or safety (as described in the Maryland Residential Property Disclosure and Disclaimer Statement).

In addition to the property disclaimer, there is an “as-is” clause in the Addendum of Clauses. This “as-is” clause states that all clauses pertaining to the property condition and termites are considered deleted from the contract. This “as-is” clause still requires the home seller to deliver the property free and clear of debris and trash.

A true story about “as-is” and latent defects: A family purchases a home with a pool in “as-is” condition. The home buyers attempt to open the pool for the summer, however the pool company they contact explains that the pool cannot be opened unless it is repaired. The pool had major cracks and leaked when filled. When contacted, the home seller stated that he had no knowledge about the defect. The home seller could no longer deny knowledge of the defect and eventually came clean when he was confronted by a long list of witnesses (including the pool company) who would testify that he knew of the pool problems. In the end the home seller paid for the pool repair.

Because “as-is” can have different meanings in a real estate contract, it is always a good idea to consult an attorney on your obligations when entering into an “as-is” transaction.