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February 26, 2019November 23, 2021

First time homebuyer essentials

First time homebuyers play a significant role in the housing market and economy. According to the National Association of Realtors 2018 Profile of Home Buyers and Sellers (nar.realtor), first time homebuyers represented 33 percent of home purchases last year. Although their impact has decreased since the first time homebuyer credit was discontinued, first timers continue to drive home sales.

Karan Kaul, of the Urban Institute, described how first time homebuyers recently surpassed repeat buyers in home purchases (First-time homebuyers will continue to dominate the mortgage market; urban.org; August 14, 2018). Kaul pointed out that although first time homebuyers have been facing headwinds, their impact on the housing market has increased. It’s no secret that first time homebuyers have higher student loan debt than other buyers and experience increasing rents, making it difficult to save for a down payment. Low home sale inventory along with increasing home sale prices and mortgage interest rates make it challenging to buy a home. However, despite the financial hurdles, first time home purchases significantly exceeded repeat buyers in 2017.

Market conditions are getting better for first time homebuyers. Lawrence Yun, NAR Chief Economist, pointed out that existing home sale inventory has been slowly increasing. The expanding number of available homes for sale will likely stimulate interest from frustrated previous would-be buyers to re-enter the home buying arena.

Another indicator the market is getting better for first time homebuyers is Freddie Mac’s February 14^th statement indicating that mortgage rates are the lowest in twelve months (freddiemac.com). Freddie Mac economists believe that lower mortgage rates combined with a strong job market will reawaken demand in the spring housing market.

If you’re a first time homebuyer, this spring could be a terrific opportunity to buy a home! And although it’s a very exciting time, the process can sometimes feel like an emotional rollercoaster. The home buying process can often be confusing and feel overwhelming. For this reason, getting appropriate guidance, advice and care should be top priority.

So, how do you take care of yourself as a first time homebuyer? Make a home buying plan and stick to it. Take note of the following first time homebuyer hacks:

Make Your First Time Homebuyer plan

Hire a Realtor
Hire a Realtor. It’s very easy in today’s digital driven home search to go visit homes on your own. But the reality is that the agents you serendipitously encounter do not represent you. And anything you tell them can be used to the seller’s benefit. Take the necessary steps to find a Realtor you trust and with whom you are comfortable.

Regardless of where you find your buyer agent, some qualities you should look for include knowledge and experience. A knowledgeable and experienced agent can point out obvious issues in a home, can have knowledge of home buyer assistance programs, as well as maneuver through the new maze of buying a home. Having the right Realtor by your side can make all the pieces fall into place.
Get Pre-Qualified by a Mortgage Lender
Get pre-qualified before you begin visiting homes. Getting pre-qualified will allow you to understand how much home you can afford. When looking for a mortgage lender, don’t just compare rates. Finding an honest and accessible loan officer can help you facilitate your purchase when there are bumps in the road.

Choosing a lender might seem as simple as looking on the internet. Don’t rely on mortgage interest rate teaser ads. They are meant to get you to call the lender. Check with banks and institutions with which you already have a relationship. Many home buyers, with whom I have had the pleasure to assist, either used their local bank, credit union, or already had a relationship with a loan officer from a local mortgage company. Whomever you chose, make sure they can deliver what they promise.
Create a Housing Budget

Create a housing budget. Financial experts warn about borrowing the maximum pre-qualification amount to buy your new home. Make a budget considering your income, debts and other financial obligations. Don’t forget to include your hobbies and indulgences. Your housing budget should not only be the mortgage payment (which is typically principal, interest, taxes and insurance). It should also include any HOA or condo fee, utilities and a maintenance budget. Keep in mind that some of these costs will likely increase.
Home Inspection
Don’t opt-out of a home inspection. Don’t be pressured to forego the inspection under the guise of making your offer look better. Besides possibly revealing issues in the home, the home inspection is an opportunity to learn about the overall condition and maintenance of the home.
Understand your Home Warranty
A common misconception is that a home warranty will unconditionally cover any problem and replace non-working systems and appliances without cost to the home owner. The truth is that home warranties have limitations to the scope of their coverage and services as well as conditions under which a home owner may make a claim.

A home warranty is a service contract and in some cases the warranty acts like an insurance policy. Home warranty plans vary depending on the company offering the plan and level of coverage. Typical plans are renewable annually, however some companies offer multi year plans. Typical coverage may include appliances such as dishwashers, clothes washer and dryer. Some companies may offer coverage for furnaces, air conditioning, plumbing fixtures (such as hot water heater), and some electrical fixtures. Expanded coverage may cover hot tubs and pools (at an expanded price of course).

Original published at https://dankrell.com/blog/2019/02/26/first-time-homebuyer-essentials/

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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.

February 18, 2019November 23, 2021

Home sale choices

Having a choice is good. For many, have having a choice represents freedom. For others, choice creates angst out of fear of making the wrong selection. Dr. Barry Schwartz wrote about this phenomenon in his book The Paradox of Choice. Dr. Schwartz describes that having too much choice can create negative well-being. This phenomenon also exists in real estate. There are many home sale choices!

Consumers have more home sale choices today than ever before. However, choosing the best option for you can be confusing. Making the wrong selection can result in remorse. How do you choose between a full-service agent, a limited service broker, à la carte broker, private placement broker, or sell by owner? How do you know decide among your home sale choices?

Recently published research further supports the value of hiring a full-service real estate agent. A study conducted by Rutherford, Rutherford, Springer, and Mohr (Limited Service Brokerage: Positive Broker Intermediation?; Journal of Real Estate Research: 2018, Vol. 40, No. 4, pp. 551-595) compared the outcome of using a limited service brokerage to a full service real estate agent. The results indicate that although the limited service brokerage time on market is similar to the full-service agent, your home sale price is likely to be less with a limited service broker.

Although there have been conflicting studies in the past, Rutherford’s recent study confirms that using a limited service brokerage is likely to sell your home for less. The authors concede and discuss other factors that may influence results, such as housing market conditions. Studies that reported positive outcomes of limited service brokerages may have occurred during the go-go market prior to 2007.

How much commission should you pay?

Conventional wisdom says that full service agents are “full-price” (whatever that is) and expensive. However, that’s no longer true. Many full service, high quality agents charge as much (or as little) as discount brokers. A 2015 study by Barwick & Pathak (The costs of free entry: an empirical study of real estate agents in Greater Boston; The RAND Journal of Economics; Vol 46, No. 1, Spring 2015, p.103–145) indicated that increased Realtor competition has forced average commissions to decrease over the last few decades. Of course, they found that the decreased commission structure of the full-service agent good for consumers and the housing market. They also concluded that decreased commissions would increase quality by decreasing entry into the industry for the wrong reasons.

To make better home sale choices, educate yourself.

Understand what services are available and what it costs. You should ask yourself if the services can meet your expectations of helping you through the process of selling your home? And, how will it impact your sale, time on market, and price?

Unfortunately, the National Association of Realtors doesn’t do enough to educate consumers about their choices when buying and selling a home. Including negotiating reduced commissions and buyer rebates. And I wouldn’t expect they will any time soon because of their mission statement (posted on their website nar.realtor): “The core purpose of the National Association of REALTORS® is to help its members become more profitable and successful.”

So how do you choose among your home sale choices? Be a savvy home seller. Don’t stick to “conventional wisdom.” Explore your needs and expectations. Investigate your choices and ask questions. Don’t fall for sales tactics. And don’t be afraid to negotiate commission.

Be a savvy home seller

Don’t stick to conventional wisdom
Explore your options. There is no “one size fits all” home sale plan.
Search for an agent that meets your needs and expectations

What are your plans? How fast of a sale do you expect? In what condition is your home? Interview several agents with different approaches to your home sale.
Ask Questions
Every agent has their own process. Some are hands on and responsive, while others hand off your sale to their “team” and you never see them again. Can you call anytime, or are their limited times? How will the agent meet your expectations?
Don’t fall for sales tactics
Many real estate agents spend lots of time and money learning sales tactics to get the listing. Many have developed polished presentations that are very convincing. Call the agent’s past clients to find out if they over promise and under deliver.
Negotiate listing commission
It’s a very competitive market. Although some agents won’t negotiate their commission, many will. Some will limit their services when they reduce their commission, while others offer full service.

Original published at https://dankrell.com/blog/2019/02/18/home-sale-choices

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February 8, 2019July 23, 2019

Embrace millennials for prosperity

Montgomery County Executive Marc Elrich’s recent remarks about millennials and housing doesn’t just speak volumes about politics and elected officials, but possibly reveals the future of housing and business in Montgomery County MD. His “slip of the tongue” opposing building housing for millennials was not taken lightly and received plenty of pushback. To be fair, Elrich has clarified his statement and is making amends (hamzakhan.me/blog/2019/1/26/mocowatch-elrich-meets-with-millennial-activists) by meeting with millennial activists who reside in the county. Elrich should consider it a defining moment of his tenure and take the opportunity embrace millennials and the businesses that employ them to address the county’s housing and economic issues.

Millennials shouldn’t be pigeonholed just because their generation is misunderstood. According to the National Association of Realtors, millennials are the largest segment of home buyers. They account for more than one third of nationwide home buyers (Millennials Want the ‘Anti-Suburb Suburb’; magazine.realtor; February 26, 2016). Jessica Lautz, NAR’s managing director of survey research stated, “Their buying power is huge…They are definitely a force in the market. They are overtaking the baby boomers.”

Affordable housing is an issue for every generation, including millennials. According to the NAR, eighty-six percent of millennials “believe that buying a home is a good financial investment.” However, like all home buyers, millennials are facing low home sale inventory, increasing home prices, and rising rents. Additionally, many millennials have the heavy burden of student loan debt, which stifles their ability to rent, as well as save for a down payment to buy a home. To put this into perspective, consider Zack Friedman’s report for Forbes indicating student loan debt approaches $1.5 trillion (Student Loan Debt Statistics In 2018: A $1.5 Trillion Crisis; forbes.com; June 13, 2018). This makes student loan debt the “second highest consumer debt category” (mortgage debt is first).

Embrace millennials to address housing issues

Millennials don’t expect cities to tear down older affordable housing to build new homes for them. It’s quite the opposite. As was reported by NAR research cited above (Millennials Want the ‘Anti-Suburb Suburb), many millennials are moving out of the city and opting to live in more affordable suburban neighborhoods. Instead of tearing down homes and disrupting communities, millennials are revitalizing older homes and invigorating forgotten neighborhoods.

It has been established that millennials are currently driving the economy of housing, and they should not be dismissed. According to the National Association of Realtors 2018 Home Buyer and Seller Generational Trends study (nar.realtor), millennials have been the most active generation buying homes for the past five years. Millennials represented more than one-third of all home purchases in 2018. It was pointed out that the number of millennials buying homes in urban areas is declining. After peaking at 21 percent in 2015, only 15 percent of millennials purchased in an urban area during 2018 (only 2 percent buying a condo).

Embrace millennials to address economy

The millennial shift toward the suburbs is affecting business too. Jim Fagan recently wrote about businesses chasing millennial talent (Millennials are re-migrating to the suburbs and their employers are following; westfaironlline.com; September 14, 2018). He observed that as millennials are moving out of urban areas, their employers are following them. Just as millennial migration is affecting residential real estate, it is also affecting commercial real estate and the urban landscape .

Demographics are not static and affect housing and the economy. Millennials are a driving force in today’s housing and labor markets. If Elrich is to address the county’s economy and housing issues, he should embrace millennials and the businesses that employ them.

Original published at https://dankrell.com/blog/2019/02/08/embrace-millennials-economic-prosperity/

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February 3, 2019November 23, 2021

Identity protection real estate

Even with precautions and laws to protect your sensitive data while conducting financial transactions, there can still be a weak link in the chain that can put your personal data at risk. You may not have heard about the latest data breach, but it involved the potential leaking of over 24 million mortgage documents. Identity Protection during the real estate process takes awareness and vigilance. However, what do you do after the transaction is over?

The data breach to which I refer was discovered and reported by Bob Diachenko, Cyber Threat Intelligence Director of Security Discovery with the assistance of Zack Whitaker of Techcrunch. This data breach was discovered by Diachenko just by searching public search engines. According to Diachenko’s report (securitydiscovery.com/document-management-company-leaks-data-online), the unprotected database contained about 51 GB of credit and mortgages information. The database potentially exposed more than 24 Million files.

Essentially, the over 24 million unprotected records (24,349,524 according to Diachenko) that existed on the database were likely scanned (OCR) from original documents. Diachenko stated, “These documents contained highly sensitive data, such as social security numbers, names, phones, addresses, credit history, and other details which are usually part of a mortgage or credit report. This information would be a gold mine for cyber criminals who would have everything they need to steal identities, file false tax returns, get loans or credit cards.”

Diachenko and Whitaker tracked down the owner of the database and found that the exposed database belonged to a third party. After the database was secured, however, Diachenko found a second vulnerable server that contained original documents.

How is consumer iinformation handled through through institutional real estate transactions?

According to Whitaker, the documents date as far back to 2008, possibly further. The documents concerned “correspondence from several major financial and lending institutions” including government entities such as HUD. Whitaker stated that not all data was “sensitive,” however the database included: names, addresses, birth dates, Social Security numbers, bank and checking account numbers. They also found some documents that contained other “sensitive financial information,” such as bankruptcy and tax documents, including W-2 forms.

To understand the broader implications of identity protection in a real estate transaction, read Diachenko and Whitaker’s first (techcrunch.com/2019/01/23/financial-files) and second (techcrunch.com/2019/01/24/mortgage-loan-leak-gets-worse) report. The reporting of Diachenko and Whitaker is significant because it exposes how your identity and sensitive information can be mishandled in the broader financial transactional process that occurs between entities. Even though direct correspondence with you may be encrypted and secure, security lapses can occur during the institutional transaction process (such selling and/or transferring a mortgage)

The moral of the story is that once your information is out of your hands, you cannot assume it’s 100 percent secure. Even blockchain technology, which has been touted as a safe means of digital data management, has weaknesses. And as governments and financial institutions are looking to blockchain as the “answer” to data security, there are reports of “attacks” of increasing sophistication according to James Risberg (Yes, the Blockchain Can Be Hacked; coincentral.com; May 7, 2018).

Take your identity protection seriously when buying and selling a home

Be vigilant and proactive to protect your identity and sensitive information. Be wary of unsolicited requests for information, even if it appears to be from someone with whom you are conducting business. Always make a call to confirm the request. Consider a credit freeze to prevent fraudsters from opening credit accounts in your name. Check your credit report regularly and dispute errors. If you’ve been a victim of identity theft, the FTC’s IdentityTheft.gov site can help you report it and create a recovery plan. You can learn more about protecting yourself from identity theft from the FTC (consumer.ftc.gov) and the Federal Reserve (federalreserveconsumerhelp.gov).

Original published at https://dankrell.com/blog/identity-protection-real-estate

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January 25, 2019July 23, 2019

Buy vs rent market

After last year’s active spring, the housing market’s fall home sale decline shocked many. Although home sales were on target to outpace the previous year’s activity, the slowdown diminished the spring’s impact. In fact, the National Association of Realtors (nar.realtor) January 22^nd press release indicated a sharp decline of home sales during December. The 6.4 percent month over month nationwide decline should not have been a surprise because of the season. However, December’s nationwide 10.3 percent sales decline from the previous year is significant. The Greater Capital Area Association of Realtors (gcaar.com) indicated that Montgomery County single family home sales decreased 12.2 percent during December. Is this an indication of another buy vs rent market?

Back in August, I predicted and discussed the causes for the fall’s sales slowdown. Among the issues that contributed to the slowdown include increasing mortgage rates and the continued home sale inventory shortage. However, it’s important to note that although home sales seemed to go to sleep during the early winter, home sale prices continue to increase. It’s not the 4-5 percent price gain that home owners have become accustomed. But the 2.9 percent nationwide price increase (2.7 percent increase in Montgomery County) during December is indicative that home ownership is still valued.

Although there are many who are saying it’s now a buyer’s market, it’s not entirely true. The current housing environment has home buyers under pressure. Increasing mortgage interest rates are making buying a home more expensive, and there are not many homes from which to choose. Consequently, motivated home buyers who are eager to buy a home during the winter are pushing back against high home prices. The reality is that home sellers will remain in the driver’s seat as long as they price their homes correctly.

There is a lot of promise for the spring, but it still depends on many factors (such as inventory). But the push back on increasing home prices will likely continue, as home buyers are increasingly sensitive to housing costs. “Buy vs rent” and housing affordability will once again become hot topics this spring.

Buy vs rent is on the mind of home buyers. Although buyers are in the market to buy, there is no urgency. However, it’s clear that this market is about value.

If you’re a home buyer trying to figure out the market, consulting with a professional Realtor can help you decide if it’s the right time to buy a home. Trulia’s Rent vs. Buy Calculator (trulia.com/rent_vs_buy/) is a tool that compares the cost of buying to renting a home over time in a specific area. It can estimate the point at which home buying is better than renting. However, depending on your budget and area, renting may be a better financial option. Montgomery County Department of Housing and Community Affairs (montgomerycountymd.gov/DHCA) and the Housing Opportunities Commission (hocmc.org) offers affordable housing programs for first time home buyers and renters.

If you’re a home seller, think back to the 2014 spring housing market when home buyers pushed back at the sharp home price gains of 2013. It’s recommended that you don’t take home buyers for granted, buyers are just as savvy as you. Keep in mind that buyers are thinking about “buy vs rent.” Don’t over-price your home, however expect to negotiate the price. Make your home show its best through preparation and staging. Stay away from cheap renovations meant to look expensive, this can actually decrease your home’s value. If you’re selling “by owner,” consider consulting a staging professional to help prepare and stage your home. If you’re listing your home with a Realtor, your agent should have a strategy to sell for top dollar in this market.

Original published at https://dankrell.com/blog/2019/01/25/buy-vs-rent-housing-market

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