Category: Home Buyer

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Homeowners do better than renters

million dollar homes

Many years ago, buying your first home used to be a rite of passage that usually coincided with starting a family. Your first home was not just a place to live; but was considered an investment that was expected to grow and provide a “nest egg” for your later years.

Several generations later, a lot has changed. We view investments differently, and have become amateur number crunchers trying to get the most of our money. But what was once considered a sound long term investment has now been deemed as poor judgment.

Of course to real estate investors, housing is a commodity; they take risks to reap rewards. Short term real estate investors (“flippers”) are often viewed as opportunists, buying homes at a discount and selling at retail value. The flipper’s goal is to have a quick turnaround between the time of acquisition and resale (flip), avoiding as much carrying cost as possible. The risk for the flipper is very high, especially in fickle markets; but the payoff can be very rewarding. It is not unusual for a flipper to lose money on a project because of delays, unexpected costs, and/or poor timing.

Long term real estate investors acquire homes to be used as rental properties, banking on the properties’ appreciation when it comes time to sell. Although the financial reward for this investor is long term, the risk is considered to be leveraged over time as well. However, unexpected costs and loss of rent can make such an investor rethink their plan and cut their losses.

For the rest of us, however; housing may not be such a great investment after all, according to many financial pundits. One such pundit, Morgan Housel (of Motley Fool fame), wrote about his meeting with Robert Shiller (of Case-Shiller fame) to give some telling insight about home values (Why your home is not a good investment; usatoday.com; May 10, 2014). Shiller told Housel that the housing market is “a provider of housing services” and “not a good provider of capital gains.”

According to Shiller, home prices from 1890 to 1990 (adjusted for real inflation) are “virtually unchanged.” Housel further added that home prices between 1890 and 2012, adjusted for real inflation, “went nowhere;” and decreased 10% from 1890 to 1980, when adjusted for real inflation. Shiller even suggested that “real” home prices could decrease over the next 30 years, due to a number of factors including obsolescence and advances in construction techniques.

With all the stats and figures, are those who touted the investment value of long term home ownership – wrong? Not necessarily. The consensus is that home ownership offers stability as well as many other benefits including: a place to live, a place to raise a family, and belonging to a community. These intangibles may be responsible for the research conclusions by Harvard University’s Joint Center for Housing Studies, that indicated there is an association between home ownership and growing wealth; where home owners fared better than renters (Herbert, McCue, and Sanchez-Moyano; Is Homeownership Still an Effective Means of Building Wealth for Low-income and Minority Households? Was it Ever? Joint Center for Housing Studies Harvard University, September 2013).

Is buying a home a bad investment? Housel pointed out that even Robert Shiller owns a home, and (at the time of the interview) indicated he would buy a home if he were in the market.

by Dan Krell
Copyright © 2015

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

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Radon is everywhere – not just in your home

real estate

A recent bill introduced in the County Council local to me reminded me of a column I wrote almost ten years ago about radon. In line with some other “consumer oriented” bills adding burdens on the home seller, Montgomery County Council Bill 31-15 has home sellers conducting radon tests and providing the results along with estimates to reduce actionable levels before entering into a sales contract.

According to the Montgomery County Department of Environmental Protection (montgomerycountymd.gov/dep): “Radon is an invisible, radioactive gas created during the natural breakdown of uranium in rocks and soils. It is found in nearly all soils. Radon typically moves up through the ground and into homes and buildings through cracks and other holes in the foundation, although there are other radon sources.” Radon is naturally occurring and everywhere; however, it becomes problematic when the gas builds up in enclosed areas. If your Montgomery County home was built after 1995, chances are that you already have a passive radon mitigation system built in, as required by code. However, a passive system may not be enough, and older active systems may need additional venting as radon concentrations may change over time. The only way to know if there is a radon problem in your home is to test for it.

In January 2005, then Surgeon General Richard Carmona issued a warning on radon (surgeongeneral.gov/news/2005), saying: “Indoor radon gas is the second-leading cause of lung cancer in the United States and breathing it over prolonged periods can present a significant health risk to families all over the country. It’s important to know that this threat is completely preventable. Radon can be detected with a simple test and fixed through well-established venting techniques.“

According to the Maryland Department of the Environment’s “Radon Gas” fact sheet (mde.maryland.gov), home owners in all counties and Baltimore City have reported high levels of radon in their home. Some have reported test results that indicated levels of 200 picocuries per liter, which is 50 times the EPA action level. The risk of lung cancer spending a lifetime in a home where the radon level is 10 picocuries/liter is similar to smoking a pack of cigarettes per day.

The U.S. Environmental Protection Agency offers a “Home Buyer’s and Seller’s Guide to Radon” (epa.gov/radon/pubs/hmbyguid.html). Testing is relatively easy. There are two types of tests: Passive testing devices are not powered and are sent to a lab for analysis after exposure (these devices can be purchased at most hardware stores); Active testing devices are powered and continuously measure and record the amount of radon decay in the air (these devices can detect test interference). The EPA recommends taking action when existing radon levels are at 4 picocuries per liter or higher; however, exiting levels between 2 to 4 picocuries per liter may still pose a risk.

Although most warnings we hear about radon refers to our homes, actionable levels of radon can exist in any building – public or private. According to the EPA, a nationwide survey of radon levels in schools revealed that 1 in 5 has at least one schoolroom in use with radon above the action level of 4 picocuries per liter (epa.gov/radon/pubs/schoolrn.html). Former National PTA President Kathryn Whitfill was quoted to say, “EPA’s national survey of schools produced some alarming results about concentrations in our children’s classrooms. Public awareness must be raised about the hazards of radon…All schools must be tested to determine if there is a problem, and schools must inform parents of the results. We cannot ignore this problem.”

By Dan Krell
Copyright © 2015

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

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Bait and switch tactics by real estate agents

houseThe Federal Trade Commission (FTC.gov) states in its Advertising FAQ’s: A Guide for Small Business, “It’s illegal to advertise a product when the company has no intention of selling that item, but instead plans to sell a consumer something else, usually at a higher price…”, when describing “bait and switch” advertising.

The term “bait and switch” is sometimes bandied about by disgruntled consumers, when referring to their encounters with real estate agents. Although the scenarios depicted by the annoyed consumers require legal scrutiny to determine if the situations meet the definition of bait and switch as described by the FTC, it makes you wonder about what some agents are doing and/or saying to get business.

Bait and switch complaints are often about homes that are advertised for rent or sale, but are found to be off market after calling agent. These listings are often the result of listing syndication gone awry; or worse, “scraped” listing information (Internet scraping is when website data is taken and collected, often without authorization) reposted by an unauthorized website to attract traffic away from the website of origin.

Scraped listing information can float around cyberspace for months or years after a home has sold. Although there has always been an element of out of date listing information found on the internet; sham listings and unauthorized postings of listings used to lure consumers, are frequently cited by both consumers and agents because the information is often misleading or incorrect. And although some responsibility may be placed on the workings of the internet; some real estate agents may be to blame for using questionable advertising practices to get their phone ringing to attract home buyers. Such practices include: advertising other agents’ listings as their own, or advertising homes that are off the market.

The MLS syndicates and distributes home listing information across the internet to authorized websites, and updates the listings to maintain accuracy and integrity of the MLS. Although the internet seemed to coalesce for a brief time to present reliable home listings and other real estate information, while deterring scammers and rogue websites; the recent surge in home sales and other economics may be responsible for a return to a “wild west” atmosphere in cyberspace. This year’s reshuffling of MLS data access to major real estate portals, forcing some sites to find missing information elsewhere, is likely to have added some confusion.

Home buyers aren’t the only ones complaining; as some home sellers have similar complaints, saying they’ve been misled. Sometimes the complaint is that their agent “promised” a high sale price, only to be coerced to reduce the price at a later time; or the agent over-promised services that were never delivered.

It must be said that many buyer and seller complaints stem from their dissatisfaction, rather than an actual breach of ethics; and yet many legitimate ethical breaches go unreported. Regardless, it is unfortunate that some real estate agents resort to questionable sales tactics to attract buyers and sellers; and either learn the tactics from real estate trainers, and/or develop them on their own and share with other agents. Even though a Realtors® Code of Ethics exists to guide professional behavior and business practices, some have a “catch me if you can” attitude.

Due diligence, on your part, can make your home buying or selling experience increasingly trouble free and more enjoyable.

Original published at https://dankrell.com/blog/2015/07/23/bait-and-switch-tactics-by-real-estate-agents/

By Dan Krell

Copyright © 2015

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

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Boomerang buyers return – qualifying after foreclosure or short sale

Homes

There is homeownership after a foreclosure or short sale. Home owners, who lost their homes to foreclosure or short sale during the housing downturn and recession, are apparently returning to the housing market in increasing numbers, such that their home buying activity is attracting economists’ attention.

Ken Fears, the National Association of Realtors® Director of Regional Economics and Housing Finance, wrote for the NAR Economist’s Outlook Blog (Return Buyers Prefer Safe, Affordable Financing; economistsoutlook.blogs.realtor.org; June 25, 2015) about the research and numbers associated with home buyers who previously lost a home. These “boomerang buyers” accounted for about 8% of home sales during 2014. Considering that there were about 9.3 million home owners who lost their homes between 2006 and 2014, the estimated 350,000 boomerang home buyer sales during 2014 may be just the beginning of the “homecoming.”

If you are a boomerang buyer, there may be a home in your future. Conventional, FHA, and VA mortgage underwriting guidelines have typically allowed for foreclosure, short sale, or bankruptcy with re-established credit and a waiting period. However, easing mortgage requirements may make it easier for you to qualify for a mortgage.

Fannie Mae underwritting guidelines (fanniemae.com) require you to wait at least seven years after a foreclosure, which is typically measured from the reported foreclosure completion date. If you had a short sale, the waiting period is four years. However, if you had a bankruptcy, you’ll have to wait four years after a chapter 7 bankruptcy is discharged; and two years after a chapter 13 is discharged (but four years if the chapter 13 is dismissed). However, if you had multiple bankruptcies within a seven year period, a five year waiting period from the most recent discharge or dismissal date is required.

FHA (hud.gov) has changed significantly in recent years. Besides reducing waiting periods due to extenuating circumstances, there are various caveats that may further reduce your waiting period. Nevertheless, the typical waiting periods include: three years after a foreclosure, two years after a chapter 7 bankruptcy discharge, and one year if you are current on a chapter 13 payment plan. The waiting period after a short sale is differentiated depending if the loan was in default: if the loan was not in default at the time of the short sale and your previous 12 months payments were timely, you may be eligible for a FHA mortgage without waiting; however if the loan was in default prior to short sale, you will have to wait three years.

If you are eligible for VA financing (benefits.va.gov), you will have to wait two years after a foreclosure, short sale, and chapter 7 bankruptcy (one year into a chapter 13 payment plan with court approval). However, if your foreclosure or short sale was on a VA mortgage, then your eligibility amount may be reduced.

Waiting periods may be significantly reduced if you can document that your foreclosure, bankruptcy, or short sale resulted from extenuating circumstances. However, such applications are subject to underwriter discretion; and not all lenders grant such exemptions.

If you are a boomerang home buyer, it is crucial that you consult with a lender before embarking on the home buying process. Besides guidance on mortgage eligibility, your lender can help you determine the appropriate mortgage for your circumstances. And as your lender will tell you, timelines and qualifying requirements are subject to change.

By Dan Krell
Copyright © 2015

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

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Survey may indicate buyers need attentive agents

buyer agentA recent MarketWatch report indicated that the top four reasons why millennials are not buying homes include: lack of down payment; student loan debt; credit card debt; and not knowing where to start. The reasons per se may not surprise you; however, regional differences are interesting.

Daniel Goldstein’s May 30th report (Millennials in Texas and in California reject home ownership for vastly different reasons; marketwatch.com) tries to tie together a recent Carrington Mortgage survey and the lack of homeownership participation among millennials. Since millennials are supposed to be the heir apparent to the U.S. economy; he ponders about why there is only a 38% homeownership rate (according to CoreLogic) among millennials when mortgage interest rates are at record lows. The figure pales in comparison to the homeownership rate of 52% of the same age group in 1980 – at a time of double digit interest rates!

Millennials in the western region of the U.S. seem to be mostly concerned about down payment. This may be due to the region including many high cost metro areas. Additionally, the western region has seen much of the home price growth and hot markets we hear about in the media.

Midwestern region millennials are mostly concerned about student loan debt, which has a direct impact on their debt-to-income ratio. The midwestern region has some of the lowest cost of living areas, which influences wages and ability to qualify for a mortgage.

The top concern for millennials in the northeast is credit card debt. And while having credit card debt is not necessarily a bad thing (as long as credit is not maxed out and payments are timely); many do not understand the general concepts of credit reports, and the relation between credit scores and credit card debt.

Whereas most of the country seems to be concerned about wages, savings, and debt; southern millennials (which includes Maryland, DC, and Virginia) are reported to be generally stumped about the home buying process.

What millennials reported in the survey is what generally daunts first time home buyers – the overwhelming process of buying a home. Although not considered rocket science, buying your first home can be intimidating. And it’s not just because it is one of the most expensive purchases of a lifetime; but also because the process is multifaceted with many possible pitfalls. Recent industry trends have also made the process less personal, leaving many home buyers to “figure it out” on their own.

Millennials’ concern about the home buying process may not necessarily be economics as it is about the industry itself. It may be a telling sign that “continuity of care” in the real estate industry is lacking, and should have many professionals revisit the client centered business model.

Although recent industry trends favor real estate agent teams as a means to high volume home sales; buyers who work with a team may not necessarily be overly satisfied with communication and support. Millennials and other first time home buyers may be seeking seasoned real estate agents and loan officers who are able to listen to their needs and concerns, while being able to educate and provide guidance. Much like having the ability to talk to a physician directly, rather than communicating through messaging services and technicians; having a single Realtor® who can promptly answer phone calls and emails, may greatly increase satisfaction and quality of service.

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Copyright © Dan Krell

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

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