homebuyer Archives - Page 3 of 25 - Real Estate News and Commentary

December 15, 2019December 15, 2019

New Home or Resale for You?

No matter what items a home buyer has on their wish list, they are typically constrained by the home price. As a result, the buyer is often limited in their choices. Accordingly, buyers prioritize home features and benefits when comparing homes. Deciding between a new home or resale becomes a part of the buying process.

Nonetheless, home buyers often have a choice between a new home or resale. Besides the allure of contemporary design and modern building materials, the benefit of new construction is the minimal maintenance during the first year of ownership. Although many home buyers desire to buy new construction, the combination of their budget and criteria lead them to a resale home.

A resale refers to a home that is being sold by a home owner, rather than the builder. The average age of a resale home can vary depending on the location. It’s not uncommon to find a resale in a new home development. However, when resale comes to mind, most think of homes where they grew up.

Although the home buying budget is a main consideration, there are other reasons why home buyers decide to purchase a resale rather than new construction. One of the main reasons, as stated above, is that the resale fits their criteria for price, location, size, etc. It’s typical to get more house and yard when purchasing an older home, when compared to a new home of similar price. Resale homes tend to be located in established neighborhoods, whereas new home developments’ amenities are often not yet completed.

Regardless, some home buyers are attracted to older homes. It seems as if there is a correlation between a home’s age and the charm it exudes. The older the home, the more likely a home buyer is captivated by its charm. When explaining a home’s “charm,” buyers usually describe a combination of style and craftsmanship. They often refer to the saying “they don’t build them the way they used to.”

Although most home buyers want a turn-key home, some buyers find opportunity in older homes that are in need of repair or updating. These buyers feel they can create a home that meets their needs and lifestyle without breaking their budget.

When buying a resale, don’t expect the home to be perfect, even if the home is relatively new or has been renovated. There is no getting around the fact that living in a home promotes wear-and-tear. Consider that a home is made of many components each having a limited life span. Regular maintenance can prolong a home’s life. However, you will eventually have to replace components and systems.

Resale homes are not maintenance free, and deferring maintenance creates costlier repairs. Experts recommend that you have a repair budget. You shouldn’t just budget for regular maintenance and repairs, you should also budget for future updating. Ask your agent about a home warranty that can help you with repairs on a fixed service-call fee. Get a thorough home inspection. Home building has changed dramatically over the last one-hundred years, so make sure you hire a licensed inspector that is knowledgeable with the engineering and materials in your home. (Keep in mind that home inspectors are not perfect, so there may be a chance of finding conditions that eluded the inspection.) Even if the home appears to be in good condition, the inspection is likely to find items in need of repair. You and your agent can decide on the best negotiating strategy of inspection repairs.

Original article is published at https://dankrell.com/blog/2019/12/15/new-home-or-resale-for-you/

By Dan Krell
Copyright© 2019

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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.

December 10, 2019December 13, 2022

Home Prices and Safety

Home buyers have various criteria when searching for a home. Some are concerned with schools, while others may be interested in a house’s proximity to mass transit. However, one of the top items home buyers consider when buying a home is neighborhood safety. Which begs the question, Is there a correlation between home prices and safety?

Home buyers don’t have to justify their preference for a safe neighborhood. However, concern for neighborhood safety go beyond protecting their families, it is also a consideration to protect the financial investment in their homes. And a rich body of research validates home owners and buyers concern for neighborhood safety by documenting correlations of crime and home values.

Research about home prices and safety

An early influential study connecting home prices and safety was conducted by Sheila Little in 1988, which investigated the effect of crime on property values (Effects of Violent Crimes on Residential Property Values; Appraisal Journal; 1988, Vol. 56 No. 3, p341-343). Little discussed an appraiser’s duty to consider violent crime when determining property value. Because property disclosure has is onerous, material facts such as violent crime must be considered in the valuation process. She stated; “It is part of appraisers’ responsibilities to make an effort to ascertain the effects of violent crimes on market value of properties.”

Another study looking at home prices and safety was published by Allen K. Lynch and David W. Rasmussen (Measuring the impact of crime on house prices; Applied Economics, 2001, 33, p1981-1989). They found that when weighted over a large metro area, crime per-se doesn’t have a significant impact on the average metro home sale price. However, they did find that “house values decline dramatically in high crime areas.” Besides being identified through statistical means, high crime areas may also be perceived as such because of relative juxtaposing of neighborhoods. The authors suggest that localities can reduce loss of tax base by “reducing the probability of neighborhoods crossing the high crime threshold.”

A 2010 study by Keith Ihlanfeldt &Tom Mayock looked at seven types of crime and the effects on home prices (Panel data estimates of the effects of different types of crime on housing prices; Regional Science and Urban Economics, 40; 2–3, May 2010, p 161-172). They concluded that robbery and aggravated assault had “meaningful influence” on property values.

A 2009 study concluded that home owners respond to crime by moving (Hipp, Tita & Greenbaum; Drive-Bys and Trade-Ups: Examining the Directionality of the Crime and Residential Instability Relationship; Social Forces; 2009, Vol. 87, No. 4, pp.1777-1812). Besides discovering that violent crime significantly increases home sales the following year, the authors also found evidence of a downward trend of home sale prices for the same time period.

Not all home owners decide to move, as remaining residents can stabilize their neighborhood. Galster, Cutsinger, and Lim concluded that communities are self-regulating and can adjust over a long period of time (Are Neighbourhoods Self-stabilising? Exploring Endogenous Dynamics; Urban Studies; 2007, Vol 44, No.1, pp. 167-185). Stabilization takes “considerably longer” if the shock to the community is substantial. They concluded there are social, economic, and/or political reactions to neighborhood crime.

If you’re buying a home, it’s unlikely that your real estate agent will provide answers about neighborhood safety (because it may be construed as steering and a violation of fair housing laws). However, you should contact the local police precinct and ask questions to make your own determination of neighborhood safety. It’s also a good idea to talk to your potential neighbors. You can also view additional metro crime data compiled by the FBI (fbi.gov).

Original article is published at https://dankrell.com/blog/2019/12/10/home-prices-and-safety/

By Dan Krell
Copyright© 2019

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November 23, 2019November 23, 2019

Real Estate Transparency

Ten years ago, I reported on the growing demand of transparency in real estate. As you can imagine, mistrust of real estate agents was at an all-time high after the housing market crash. At that time, home buyers and sellers felt betrayed by an industry that was perceived as keeping their cards close to their chest. However, times were changing and consumers demanded real estate transparency, especially from their agents. Home buyers and sellers not only want their agents to act in good faith, but also want more information and communication during the transaction.

Since then, the National Association of Realtors (nar.realtor) has been trying to mend their reputation. The 2015 DANGER Report was intended to identify issues affecting the industry as well as provide a roadmap to the future. One of the major issues identified was agent competency and ethics. However, it was obvious that ethical Realtor behavior didn’t guarantee competency. And vice-versa. The upshot of the Report was that many of the identified concerns were already known. Ironically, the identified issues and answers only prompted more questions. It was not known if and how the industry would provide real estate transparency.

Fast forward to 2019, when the real estate industry is at a crossroads. Earlier this year a class-action law suit was filed that challenges how agent commissions are paid. Also, earlier this year, the Consumer Federation of America (consumerfed.org) published the first in a series of reports focused on “the lack of real estate agent transparency on representation, compensation, and service.” The Consumer Federation of America (CFA) is described as an association of non-profit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education.

The class-action suit filed in March, if successful, has the potential to force a major change to the industry. Besides having the potential to change how agents are paid, it may force increased real estate transparency in agent compensation. Nevertheless, similar past challenges to the NAR and the real estate industry resulted in minimal (if any) change to how business is conducted.

Serendipitously (or not), Stephen Brobeck’s most recent CFA series report, “Hidden Real Estate Commissions: Consumer Costs and Improved Transparency”was published this month (consumerfed.org). The report confirms consumers’ “lack of understanding” of commissions. It also points out how “concealment of commissions” does harm to consumers. The report indicated that 70 percent of the agents surveyed charge six-percent commission. Commissions are mostly uniform, more so for buyer agent commissions. The report also indicates that there was a general rationale that buyer agents would not show property if the buyer agent compensation was below the average for the area. Of the agents surveyed, 73 percent indicated they won’t negotiate their commission. It also calls attention to administrative fees of several hundred dollars, which is typically charged in addition to commission.

The report concludes that the real estate industry must change its attitude about agent compensation, or risk eroding consumer trust. Home buyers and sellers are savvy, and are increasingly sensitive to the role that commissions play in housing costs. Home seller costs could be reduced if consumers compare commission rates and ask if they are negotiable. Home buyers can also be helped if they are aware how their agent is paid, as well as knowing the offered buyer agent compensation on homes listed in the MLS.

Original article is published at https://dankrell.com/blog/2019/11/23/real-estate-transparency/

By Dan Krell
Copyright© 2019

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November 19, 2019November 19, 2019

Real estate scammers emailing you

The warnings of real estate closing scams were rapidly broadcasted in 2015 . And by 2016, there was awareness that criminals were wholeheartedly targeting all parties involved in real estate transactions through phishing emails. The phishing emails that were sent seemed legit, and in many cases appeared to have come from your agent or title company, but were actually sent by criminals intent on having you wire money to them. No one was immune from receiving these emails. Real estate scammers targeted home buyers and sellers, real estate agents, title companies and attorneys.

The FBI (fbi.gov) categorizes this type of crime as Business E-mail Compromise (BEC)/E-mail Account Compromise (EAC). The scam didn’t begin in 2015, but the FBI began tracking this type of crime in 2013. But it wasn’t until 2015 that it seemed as if the real estate scammers used BEC/EAC to target the real estate industry, and it spread ike a plague. And despite efforts by the real estate industry to prevent such crime, BEC/EAC is on the rise. Real estate scammers have adapted and have become increasingly sophisticated. Many of the phishing emails (calls) are not distinguishable from the real thing.

Statistics compiled by the FBI Internet Crime Complaint Center (ic3.gov) indicate that there were 78,617 incidents of BEC/EAC worldwide between October 2013 and May 2018. Over half of these victims (41,058) were in the U.S. Total global losses during this time period is calculated to be $12,536,948,299 (U.S. losses were $2,935,161,457).

Unfortunately, the real estate industry has been a target of interest since 2015. According to FBI statistics, the number of BEC/EAC real estate related victims increased 1100% between 2015 and 2017. So far, the highest number of BEC/EAC real estate victims were reported in May 2018, while the highest dollar loss from real estate victims was reported in September 2017. The number of complaints and losses is likely correlated to real estate market activity (notwithstanding efforts to thwart such crimes).

How do criminals know about your real estate transaction? The internet. Real estate scammers use information available on real estate portals to identify homes that are pending (under contract) along with agent contact information. The information is used to infiltrate agents’ emails to compile client names and closing information to target everyone involved in the real estate transaction with phishing emails. The emails typically request changes in settlement funding. The changes can request wire in lieu of check, and/or changes in the wire instructions (which would send funds directly to the criminals).

The FBI has also described BEC/EAC spilling over into phone calls! In addition to sending spoofed emails, the criminals are also calling you asking for personal information for “verification purposes.” Experts suggest you be cautious about calls asking for changes in payment types and/or wire instructions. The fake calls are so real such that victims have reported not being able to tell the difference. Security experts recommended that you create code phrases to verify phone calls with your agent and title company.

Experts also warn of any communication that is exclusively email and/or asks you to call for verification purposes. It is likely that any contact information listed in the phishing email is fake. If the email sender claims to be from the title company or your agent, call them directly to verify the authenticity of the email. If you receive any email requesting personal information and/or changes in payment/wire instructions, verify the email is legitimate by calling the sender directly (and use your code phrase).

Original article is published at https://dankrell.com/blog/2019/11/19/real-estate-scammers-emailing-you/

By Dan Krell
Copyright© 2019

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November 8, 2019November 8, 2019

Ask About Closing Fees

To help home buyers understand the costs of buying a home, the Consumer Financial Protection Bureau (consumerfinance.gov) rolled out the Know Before You Owe initiative in 2015. The intention was to help home buyers understand and ask about closing fees. The project actually has deeper roots in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Dodd-Frank created the CFPB and mandated that the Bureau “shall publish a single, integrated disclosure for mortgage loan transactions” in a “readily understandable language” so borrowers can understand the financial aspects of their loan.

Prior to Know Before You Owe the home buyer would receive a Good Faith Estimate from the lender and a proposed settlement statement (which was on the HUD-1 form) from the title company. The pre-HUD, gave a fairly close estimate of the amount they needed at closing but could change depending on final lender charges. If the amount was a little short, the buyer would write a check to cover the difference. Sometimes the buyer would get money back at closing because the amount they needed was less than the amount the title company actually collected. Regulations dictated when the buyer received a lender’s Good Faith Estimate and settlement costs. If the HUD-1 was delayed, home buyers didn’t have much time to ask about closing fees.

But in the aftermath of the financial and foreclosure crises, there was concern that home buyers didn’t get accurate and fair closing costs disclosure. Know Before You Owe changed the process of disclosing closing cost estimates to provide more accurate closing cost figures. A new Closing Disclosure (CD) was devised to be consumer friendly. The process of closing cost disclosure changed such that the lender is now responsible for providing the buyer the CD (in lieu of title company’s HUD-1). However, the role of the title company (or closing agent) is still to conduct the settlement. The standardization of the closing form allowed time to ask about closing fees.

Unfortunately, title insurance and other title related fees (such as water escrows and the property survey) are still often misunderstood and disputed. Although the CD does a good job breaking down closing costs to help you understand what you’re getting, it falls short in explaining title fees and options. For example, in Maryland, the cost for title insurance that is disclosed on the CD is the more expensive enhanced policy. And it’s not just happenstance, Maryland Realtor purchase contracts require that the lender disclose an enhanced title insurance policy on the CD so you know how much the most expensive title insurance will cost. But unless you know to ask, you may by default be purchasing the more expensive enhanced policy. The survey is another title charge that may be charged by default. Although many feel it’s not worth the expense, it may be relevant to your title policy.

Fortunately, your loan officer will review and help you understand your lender fees. On the other hand, the title company will be communicating with you throughout the home buying process. Make sure you read and understand all emails, as they will likely describe your title charges and options.

Life is hectic and it seems as if time is at a premium. And although buying a home can be exciting, it can significantly add to your daily stressors. But if you want to avoid surprises down the line, take the time to understand the process. Ask as many questions as it takes to know what to expect at closing. Have your real estate agent explain to you your purchase contract. And, don’t wait until settlement to communicate with the title company, or ask about your CD.

Original article is published at https://dankrell.com/blog/2019/11/08/ask-about-closing-fees/

By Dan Krell
Copyright© 2019

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