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October 28, 2019October 28, 2019

Protecting Home Buyers

Of the handful of new Maryland real estate related laws that go into effect this week, two are highly important for you to know. These are passed for the purpose of protecting home buyers and sellers. One protects your confidential information, and the other concerns your earnest money deposit on a Maryland home sale.

Protecting home buyers and sellers’ confidentiality is HB1228/SB807, which was effective October 1^st. Besides cleaning up the definition of a brokerage relationship, the bill addresses client confidentiality. Unless a client consents in writing, Maryland licensed real estate brokers and agents may not disclose confidential information received from or about a client to any other party and/or their representative (including their real estate agent). The non-disclosure of confidential information protects past and present clients, and now is extended to potential clients as well.

Confidential information is defined as: a seller/landlord willing to accept less than the listing price; a buyer/tenant willing to pay more than their offer; motivation of a client; the need or urgency to buy, sell, or rent; any facts that led the client to sell, buy, or rent; and also relates to the client’s negotiating strategy. However, the duty to maintain confidentiality doesn’t apply to the disclosure of material facts about a property (which a home seller is also required to disclose).

Protecting home buyers deposits is effective October 1^st. HB222 requires a written agreement between the buyer, seller and the escrow agent holding the earnest money deposit (EMD). The EMD is described as “consideration” for a seller to accept an offer. An escrow agent is the entity who accepts and holds the earnest money. The EMD is credited to the buyer at the time of settlement. However, if sale does not settle, the disbursement of the EMD can become contentious. Under certain circumstances, the contract of sale is clear about when the buyer may receive their EMD. However, real estate is not always black and white, and there are occasions when a dispute arises about whom is entitled to receive the EMD.

It used to be common practice for a real estate broker to accept and hold the EMD. Real estate brokers are bound by law as to how to handle and care for the EMD. However, brokers are increasingly reluctant in accepting EMDs for a number of reasons. Instead, brokers are directing their agents to have title companies to hold these deposits. But home buyers (and sometimes their agents) don’t realize that a title company is regulated differently than a real estate broker, and the EMD may not be handled as expected.

HB222 is important because it fills the gap for escrow agents who do not already have specific guidelines for handling EMDs. (HB222 doesn’t apply to Maryland real estate brokers and agents, and Maryland registered home builders selling new homes, as they are already regulated). The bill provides transparency so both the buyer and seller understand the terms for holding the EMD.

The bill requires an escrow agent to enter into a written agreement with the buyer and seller when the escrow agent agrees to hold an EMD for a Maryland home sale. The written agreement must contain the amount of the EMD; the date the EMD was given to the escrow agent; the responsibility of the escrow agent to notify the buyer and seller if the EMD funds are “dishonored” (e.g., bounced check); the conditions under which the escrow agent may release the EMD; and the process to address disputes over the release of the EMD.

Original article is published at https://dankrell.com/blog/2019/10/28/protecting-home-buyers/

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.

September 4, 2019September 4, 2019

Home Buyer Beware

Whether you admit it or not, buying a home is a stressful endeavor. Even if you’ve purchased a home before, the process can be somewhat nerve-wracking and overwhelming. Taking time out of your already busy schedule to search and visit homes, as well as applying for a mortgage can make life hectic. So, who needs the added worry that that the home seller and/or listing agent is trying to hide something from you? Home buyer beware.

Maryland requires the home seller to disclose any known latent defects, regardless if they are choosing the disclosure or disclaimer option. To be clear, the Maryland Real Estate Commission’s Residential Property Disclosure and Disclaimer Statement states that a seller must disclose “Material defects in real property or an improvement to real property that: (1) A purchaser would not reasonably be expected to ascertain or observe by a careful visual inspection of the real property; and (2) Would pose a direct threat to the health or safety of (purchaser and/or occupant).” Regardless, there is still a “home buyer beware” atmosphere.

How can you proceed confidently with your home purchase if there is a sense of distrust? To counteract the home buyer beware phenomenon, focus on “trust and verify.” The concept of trust and verify is about taking disclosures at face value and exercising due diligence. To the best of your ability, confirm the accuracy of what is disclosed, as well as investigate any areas of concern. Many items can be verified online, or by calling the locality where the house is located.

Home buyer beware

Of course, you should always conduct a home inspection. However, prior to hiring your home inspector, ask about their scope and limitations of the inspection. Home inspectors are considered generalists, such that they are not typically an expert in any aspect of home construction, or the home’s structure and systems. However, they are trained to identify potential common problems. They will also recommend that you consult an expert for further information on anything that is outside the scope of the inspection. And although home inspector licensing laws prescribes minimum inspection standards, there is no guarantee that everything will be inspected thoroughly beyond a visual inspection (e.g., chimney or pool). Make sure your inspector meets your expectations so as to thoroughly inspect all systems of the home.

If the home was expanded, verify that additions and/or modifications to the home were permitted by the local jurisdiction. Unpermitted additions can create a number of issues, including having your lender deny your mortgage. It’s not uncommon for additions/modified items (such as a deck, and even electrical improvements) in a home to go unpermitted. This is usually because the home owner did it themselves, or hired a contractor who cut the corner of getting a permit. The permitting process certifies that repairs/renovations comply with local building and zoning codes. Making sure any addition or home expansion was permitted and passed final inspection gives peace of mind that the completed project meets local building health and safety standards.

Keeping home buyer beware in mind, due your due diligence. There are many other aspects of the home which can be verified, including (but not limited to) schools and zoning. If you’re buying a home to go to a specific public school, verify that the house is within the school’s boundaries and if there are plans to redistrict. If you plan to have an air-b&b in your home, make sure the house is appropriately zoned. You should also check zoning and the local planning office to make sure your potential building/addition plans are not restricted.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/09/04/home-buyer-beware/

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July 21, 2019July 21, 2019

Housing Inventory Shortage Causes

A common complaint from home buyers is that there is lack of quality homes for sale. A fact that most overlook is that home sale inventory has been relatively low since 2011. The shortage has been attributed to many things including, home prices, economy, mortgage interest rates, jobs, etc. However, a Freddie Mac report issued earlier this year pinpoints a major cause of the ongoing inventory shortage. And according to the report, the housing shortage may get worse before it gets better.

A post-recession housing inventory shortage was actually predicted in 2010 by Brian Wesbury, chief economist for First Trust Advisers (Housing Shortage Coming In 2011; Forbes.com; February 15, 2010). Wesbury’s industry startling prediction was based on statistics that require an average of 1.5 million homes to be added to the housing inventory each year just to be on par with population growth. At that time, housing starts and completions were only a fraction of the 1.5 million target.

Since then, housing market inventory has been low relative to the housing market prior to the great recession. A lack of inventory has been attributed for inconsistent home sale stats this year, as well as previous years. And although there have been a few years of post-recession record home sales, home sales have struggled for ten years to surpass pre-recession numbers.

A study by Freddie Mac discusses one of the major causes of the recent housing shortage that has been impeding the real estate market, which is the growing trend of “aging in place.” The study, published by Freddie Mac Insights earlier this year (While Seniors Age in Place, Millennials Wait Longer and May Pay More for their First Homes; freddiemac.com; February 6, 2019), is fueling an ongoing debate of the current housing inventory shortage.

Aging in place is term given to aging home owners who stay on their homes as long as possible. Rather than moving to retirement communities or other stereotypical older adult housing, seniors are staying put. This trend is confirmed by a survey conducted by AARP that indicated “3 out of 4 adults age 50 and older want to stay in their homes and communities as they age” (2018 Home and Community Preferences: A National Survey of Adults Age 18-Plus; aarp.org; August 2018).

To highlight the impact of the current trend of aging in place, the Freddie Mac report pointed out that the home ownership rate for seniors aged 67 to 85 only dropped 3.6 percent, while the previous generation experienced a 11.6 percent drop in homeownership for the same age span. A major revelation was that the current homeownership rate for seniors aged 81 to 85 is almost 15 times greater than the previous generation (for the same age span).

The Freddie Mac study looked at subdued millennial home buying trends and looked at who lived in the homes that millennials could have purchased. The results indicated that seniors born after 1931 stayed in their homes longer, which resulted in higher homeownership rates compared to previous generations. According to the study, “We estimate that this trend accounts for about 1.6 million houses held back from the market through 2018, representing about one year’s typical supply of new construction, or more than half of the current shortfall of 2.5 million housing units…This additional demand for homeownership from seniors will increase the relative price of owning versus renting, making renting more attractive to younger generations…”

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/07/21/housing-inventory-shortage-causes/

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June 8, 2019June 8, 2019

Great time to buy a home

If you’ve been waiting to buy a home, now may be your time to jump into the market. Maybe you’ve been wary of home prices, or concerned about mortgage rates. Maybe you’ve been attempting to “time the market” to get a good deal on a home. Regardless of your reason for waiting to buy a home, you shouldn’t ignore the current market conditions. It’s as if a perfect storm of home buying conditions is lining up to a great time to buy a home.

The big news is that mortgage interest rates continue to drop. National average mortgage rates have been declining since the fall, moving closer to the historic bottom! The May 30^th U.S. weekly average for a thirty-year fixed rate mortgage provided by the Freddie Mac Primary Mortgage Market Survey(freddiemac.com) dropped to 3.99 percent. Mortgage News Daily’s Matthew Graham reported on June 3^rd that mortgage rates dropped further (mortgagenewsdaily.com). Graham’s title “Mortgage Rates Continue to Plummet” is telling.

Although economists express confidence in the economy, they attribute the movement in mortgage interest rates to the current trade wars and bond market activity. The mortgage industry may also be anticipating a Fed rate cut at the next week’s meeting of the Open Market Committee.

Lower mortgage rates aren’t always a reason to take the plunge into the housing market. But what about moderating home sale prices? The FHFA Home Price Index (fhfa.gov) indicates that nationwide average home prices increased only 1.1 percent during the first quarter of 2019! Compared to the year-over-year 5.1 percent HPI increase, the modest first quarter gain may indicate a more affordable housing market. Locally, the Montgomery County year-over-year average home sale price only increased 0.2 percent, according to MarketStats by ShowingTime (getsmartcharts.com). However, the average price per square foot decreased 14.3 percent!

Another factor making it a great time buy a home is the lackluster spring home sales. Counter to what is expected, home sales have somewhat cooled during the spring. A May 30^th NAR press release titled “Pending Home Sales Trail Off 1.5% in April” indicates that national home sales have been declining. In fact, the forward-looking indicator based on contract signings dropped 1.5 percent this past month. The total pending home sales in Montgomery County dropped about 2.8 percent compared to last spring.

There are increasingly more housing choices. Although housing supply remains tight, there were about 2.5 percent more new listings this April compared to the same time last year. Although many of these new listings go quickly, increasing new listings mean that there are more home sellers that are entering the market this year giving you more homes to consider.

Putting all the data points together signify a great time to buy a home. Housing affordability has increased, partly due in part by increasing family incomes, lower mortgage rates, and moderating home prices. Home sellers who are listing their homes for sale this spring are adjusting their sale price expectations. Homes that have been on the market for an extended time may be an opportunity for you to negotiate a lower sale price. According to mortgage experts, average mortgage rates have “plummeted,” giving you more flexibility and possibly lower housing costs.

These home buying conditions may not last very long. But before you decide to buy, determine if buying a home is the right choice by consulting a Realtor and other financial professionals.

Original located at https://dankrell.com/blog/2019/06/08/great-time-to-buy-a-home/

By Dan Krell
Copyright © 2019

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June 3, 2019November 23, 2021

Overpaying First-time Homebuyers

If you’re thinking of buying your first home, or have already started the process, take note. First time home buyers tend to overpay when buying a home. This is the conclusion of a study recently published in the Journal of Real Estate Research (Under What Circumstances do First-time Homebuyers Overpay? – An Empirical Analysis Using Mortgage and Appraisal Data; 2019). Although the stunning claim of overpaying first-time homebuyers is worthy of discussion, there’s more to the story than what’s implied.

Considering housing affordability, authors Jessica Shui and Shriya Murthy tested their hypothesis that first-time homebuyers tend to overpay for their homes compared to repeat home buyers. Their conclusions indicate that the overpayment is a little more than one percent. It doesn’t sound like much, but the overpayment could be a little more than $3,500 on a $350,000 home purchase. In addition to discussing overpayment, they found that first-time homebuyers typically buy smaller homes with less amenities (which is not a surprise).

Are home prices increased because of seller closing cost assistance? Many first-time homebuyers lack cash and savings and typically ask for seller closing cost assistance. For most first-time homebuyer purchases, the seller credit is already “baked” into the list price. Anticipating that the buyer will ask for a closing assistance, the home seller typically will increase their asking price from the outset. However, some home sale prices are negotiated upward to add seller closing assistance to the list price.

Although Shui and Murthy imply that first-time homebuyers are less savvy than their counterparts, they look toward appraisals as the cause and the solution. Their results indicate that a majority of first-time homebuyer appraisals provide valuations at contract price, and suggest that appraisers are somewhat “biased” to help the house appraise. Their solution is for appraisers to be neutral, which they believe would mitigate inflated home prices and help first-time homebuyers renegotiate the contract price.

Although the study takes a circuitous route to the conclusion, the premise and statistics are presented to make it sound as if appraisers are at fault for overpaying first-time homebuyers . However, if this is your first home purchase, there are many more factors to consider.

Take for instance the buyer agent. Research has demonstrated that most buyer agents don’t act in the best interest of their clients. Most notable is the research that indicates that seller-paid buyer agent commissions actually increase home sale price (which I cited last week). When hiring a buyer agent, you should take into account how they view their fiduciary responsibility. Don’t assume the list price is reasonable. Have your buyer agent provide unbiased comparables to formulate an offer and negotiating strategy.

Although you have the right to choose your lender and title company (among other real estate professionals), you may be steered toward a professional affiliated with your buyer broker/agent. Before deciding, compare costs and ask for references. (Knowing your rights as a real estate consumer is crucial, see: https://dankrell.com/blog/2014/02/27/respa-empowers-home-buyers-and-consumers/)

Overpaying first-time homebuyers is not just about home sale price. There are other areas where you may not negotiate well. The home inspection is one of those issues, and can also reveal that the home is need of repair. You probably would like to negotiate repairs to be completed by licensed contractors. Sometimes, the seller will offer a credit in lieu of making repairs. Before accepting the credit, make certain the amount is adequate by checking with your licensed contractor.

Finally, understand that buying your first home is emotional. Don’t fall prey to agent sales tactics. Stay focused on the facts and use the data to help you formulate your offer to negotiate the best price.

Original located at https://dankrell.com/blog/2019/06/03/overpaying-first-time-homebuyers

By Dan Krell
Copyright © 2019

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