Category: real estate

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The decline of today’s housing stock

by Dan Krell © 2013
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Is the decline of today’s housing stock a concern or an opportunity?

new homeWhile taking part in a recent home inspection, the home inspector unexpectedly began to talk about the concern for today’s housing stock. After listening intently for a short time, I realized that his dissertation about the quality of existing homes was not just his opinion or home inspectors as a group, but rather a consensus of growing concern among housing experts of the condition of many older homes.

The issue that the home inspector pointed out is that much of the existing housing stock is aging without significant necessary maintenance or repair. Because the lifespan of many of home systems (including roofs and HVAC) range from 15 years to 30 years, as well as structural materials can have an average lifespan of 40 years; he surmised that homes that exceed thirty years of age are at significant risk.

As a home inspector, this gentleman has a unique perspective about how people take care of their homes; and unfortunately, many home owners have put off important and necessary maintenance and/or system replacements such that the home’s condition is considerably affected. And although he didn’t attribute the deteriorating housing stock with the recent recession, it is assumed that the recession contributed to the housing stock’s declining quality – if not accelerated it.

A February 2013 article by Kermit Baker for the Harvard Joint Center of Housing Studies entitled “The Return of Substandard Housing” highlighted the relative considerable reduction in maintenance spending by home owners during the Great Recession. He stated that “improvement spending” decreased 28% between 2007 and 2011, which essentially “erased” such spending during the housing boom (housingperspectives.blogspot.com).

Mr. Baker concluded that this crisis needs attention, stating; “The longer-term fate of the current slightly larger number of inadequate homes is unknown. Many of these homes likely will be renovated to provide affordable housing opportunities. However, many may not recover without extra help. Given the extraordinary circumstances that many homes have gone through in recent years, particularly foreclosed homes that often were vacant and undermaintained for extended periods of time as they worked their way through the foreclosure process, they may be more at risk than their inadequate predecessors…

Considering the number of re-sale contracts that are falling out because of home inspections, this all makes sense. New home sales aside, many home buyers want “turn-key” homes that are updated with relatively new systems. It seems as if that home buyers don’t want to be burdened with major maintenance costs for the first five years of ownership. Some of the costly considerations that can put off home buyers are replacing a roof, windows, siding, and/or HVAC. Additionally, hazardous materials that can be commonly found in older homes (such as asbestos and lead paint) are becoming an increasing concern with first time home buyers.

The reason is uncertain, but during the “go-go” market of 2004-2006, a home’s condition didn’t seem to be as much of a concern for home buyers as it is today. However, one reason may be that during that period home equity loans were relatively easier to obtain to finance renovation projects.

The result of the deteriorating quality of the existing home stock may be that we may see declining values in homes requiring the most attention; such homes may either be renovated by home buyers, or might be razed to make way for a new home.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of June 10, 2013 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

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Unusual considerations when owning an unusual home

by Dan Krell © 2013
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Luxury Real Estate“Be different and be damned…” is a telling quote from Margaret Mitchell’s Gone With The Wind.  Social commentary aside, the quote can be somewhat of a warning to those who build or purchase that unique, unusual, and one of a kind home.  Although it is just a quote from one of the highly celebrated novels of the twentieth century, “damned” is a strong word to use in a real estate column.  However, because of the many considerations of owning a unique home, there may be an occasion or two you might feel “damned.”

When would you consider a home as being unique?  Mostly, the degree of uniqueness can be to a person’s perception of a home as well as what they consider to be unusual.  However, there is some consensus to what is generally accepted as “mainstream” in the real estate industry; and if a home falls outside these norms through its construction, size, floor plan, etc – it may be considered as unusual/unique.

Some homes are so extreme in their construction, either in size and/or building materials, that it is clear they are unique and one of a kind; there are other homes that may have been converted from commercial or industrial buildings that may also indicate a unique flair.  However, there are many homes that appear to fit in their respective neighborhood, but the custom nature expresses a specific style and preference; which is often found in the luxury home market.

Some considerations you might think about when purchasing a unique home include: financing, insurance, maintenance, and resale.

If you’re set on purchasing a home that is unique, check with your mortgage lender about financing; lenders may have objections on lending on an unusual home.  It is also not unheard of that extreme unusual homes appraise lower than market value due to uncertainty of value.  Unusual homes, including the “Über-luxury” market, may require specialized loan products that are offered by specialized lenders.

Additionally, you should consult with your insurance agent as the home may not meet your underwriting guidelines for home owners insurance.  Many people don’t realize that insurance carriers may rate your home based on construction materials, zoning, size, etc, which can affect the premium.  And it’s not unheard of that an insurance carrier may also limit or even deny coverage because the home does not meet their underwriting standards.

Maintaining a unique home can sometimes be challenging too.  Many unique homes are constructed with materials that may be exotic, uncommon, and/or can be found in commercial applications.   Repairs and labor costs can be much more than the typically constructed home.  Finding replacement materials and qualified contractors to work with those materials may also be difficult.

Home ownership is often a labor of love for the home, and that emotion can be carried into the resale.  You could easily be disappointed in the time it takes to sell the home as well as the sale price.  Be prepared for an extended time on the market because your unusual home may have a very limited pool of buyers, and negotiation could be long and dragged out due to variances in perception of value.

“Doing it your way” may be the theme of a popular song and an advertising campaign for burger joint; but when it comes to building or buying a home – being unique and unusual can sometimes come at a cost.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of June 3, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

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Handling home buyer feedback

home buyer feedbackYou’ve spent months preparing your home by de-cluttering, painting, and maybe even making renovations; the last thing you want to hear are objections from home buyers why the home is not suitable for them. Obviously, you’ve had years of enjoyment and you’re thinking about all the benefits the home offers. However, getting honest home buyer feedback when they visit your home is invaluable information to help get your home sold.

Asking for home buyer feedback is one of the tasks that your agent performs throughout the listing period. However, soliciting feedback from agents who bring buyers to your home is often hit or miss; although many agents offer good and honest feedback, just as many don’t respond (for various reasons) to feedback requests unless their buyers are interested in the home. Additionally, home buyer feedback is solicited when they visit open houses and includes questions such as: “What do you find most appealing about the home?”; “What do you find least appealing about the home?”; and “Is the home priced right?”

Ok, it’s nice to hear the good things people have to say about your home; these are obvious benefits and what others find appealing. Buyers may list various home features, upgrades, and/or renovations as appealing or beneficial; but it is also important to put weight on the negative feedback too. All the de-cluttering and neutralizing can make a home look good, but it may not change home features that do not fit other’s needs. Likewise, making cosmetic and minor repairs also increases your home’s appeal; but may not make obsolete systems acceptable.

One of the most common pieces of feedback you might encounter is about the home’s price. Since home buyers typically view similar homes, you get perspective about how you priced your home compared to other similar homes. If there is overwhelming feedback that the home is overpriced, then you should consider reviewing additional comps with your agent and correct the price as needed. It is also not uncommon that buyers may feel that the home is priced well, but for various reasons they are not interested in making an offer.

Keep in mind that the feedback you will receive is subjective and offered from various points of view, so don’t be surprised with seemingly contradictory objections from different home buyers. Some objections can be addressed readily while others cannot.

For example, objections about the size and/or location of the home or yard are not easily overcome; and it may be that buyers offering such objections are looking at the wrong home. However, objections about shabby flooring or lack of updates can be addressed by either taking action or changing the list price to reflect the home’s condition.

Sometimes in pushing their client’s limits, home buyer’s objections may actually be a commentary on their limitations rather than the home’s attributes. In the hopes of getting a great deal, buyers are taken to view homes that are out of their price range and/or in need of updates they cannot make.

Buyer and agent feedback is the easiest way to gauge how your home is positioned in comparison to your competition on the market. Clearly, the home’s positive attributes and benefits should be highlighted as these items would be appealing to home buyers. However, buyer objections should also be considered and addressed if possible to help facilitate a sale.

Original located at https://dankrell.com/blog/2013/05/31/handling-buyer-feedback-and-objection-for-home-sellers/

By Dan Krell

This article is not intended to provide nor should it be relied upon for legal and financial advice.  Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

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A balanced real estate market emerges despite fears of a housing bubble

real estate bubbleAs talk of a housing recovery is gaining traction, some experts are saying the recovery may be artificial and short lived. Warnings from economists and a former mortgage executive paint a picture of a possible housing bubble being caused by the source they claim is cause for increasing home prices.

Steve Cook, of Real Estate Economy Watch, revealed a recent survey of 105 economists, real estate experts and investment and market strategists. Although respondents predicted positive home price appreciation through 2014; the experts expect that home prices won’t fare as well during ensuing years through 2017. Furthermore, 48% of the respondents felt that current Federal Reserve monetary policy might be the reason for recent home price spikes; which may be creating a future housing bubble.

A majority of the expert panel suggested that requiring a minimum down payment in the Qualified Residential Mortgage (a provision to allow lenders to bypass credit risk retention rules) would create a long-term sustainable housing market. However, only about a third of respondents believe that a minimum down payment should be 20% or more.

An April 9th online article for The Wall Street Journal titled “Is the Fed Blowing a New Housing Bubble?” written by former Fannie Mae executive, Edward Pinto, explores the source for of the housing recovery. Pinto pointed out that although recent home price surges are the highest since 2006, data released by the Federal Housing Finance Agency (FHFA) indicate that home price increases may not be due to “broad based improvements in the economy’s fundamentals.” But rather, home price increases are being driven by low interest rates due to the Fed’s Quantitative Easing program.

Pinto compares current market conditions to those of 2006, when government policies also likely contributed to a housing bubble. During that period, like today, income is not keeping pace with home price increases. As an example, he cited FHFA’s conventional home-financing data that indicated new home purchase prices increased 9% during February 2013 and 15% during February 2013; while income barely increased 2% (keeping relative pace with inflation).

Pinto and his assessment of recent home price spikes are getting some attention. John Aidan Byrne of the NY Post wrote on May 6th (“Next Home Crisis”) about Pinto and his concerns. Because suppressed interest rates are pushing home sale prices up, Pinto surmises that when the Fed’s QE program ends, interest rates will rise creating an “inevitable housing disaster.” However, he concludes that to avoid a housing disaster: income must increase 33%, home sale prices will drop about 25%, or lending standards must loosen significantly. He points out that loose lending policies did not end well in the last housing bubble (http://www.nypost.com/).

Regardless of murmurs of another housing bubble, current market conditions might indicate a balanced market. The trend of monthly local absorption rates compiled from the local multiple list service has consistently shown to be in recent months between a buyer’s market and a seller’s market (absorption during a buyer’s market tends to be below 50%, while a seller’s market tends to be above 60%).

Even though there is little inventory, supply and demand may be in overall balance. However, that being said; supply and demand seems to be out of balance for well priced updated homes, which appear to the source of bidding wars and escalation clauses. Homes priced above the market and/or needing repairs/updates take longer to sell.

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By Dan Krell
Copyright © 2013

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Don’t delay home maintenance

by Dan Krell © 2013
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Take action – consequences of deferred maintenance can hurt home sale.

Home MaintenanceAs we slowly emerge from one of deepest recessions that has hit in generations, one of the top issues facing home owners (especially those who plan a home sale) is deferred maintenance.  Although a lack of financial resources could be a main reason for postponing repairs and/or regular maintenance, other reasons for doing so may include a home owner’s lack of time as well as a home owner’s psycho-social issues getting in the way of carrying out maintenance (as in the case of severe hoarding).

Deferred maintenance in a home is simply putting off repairs and timely upkeep of its systems.  Delaying maintenance may turn today’s minor repair into tomorrow’s major problem.  Of course not all minor repairs turn into major issues, but even minor issues can be a nuisance.

Preventative maintenance can help prevent the elements from entering the home.  If delayed, issues can develop and affect other home systems.  Maintaining caulking and seals around windows and doors as well as flashing on roof components can prevent water penetration into the home.  Putting off repairs may allow water leaks, which can seep through walls and ceilings deteriorating drywall and even possibly weakening floor trusses/beams.  Openings in seals and caulking may also allow pests to enter the home, which can also create additional issues if not addressed.

Many home owners do not pay much attention to the exterior because they spend most of their time indoors.  The roof, gutters, and downspouts are often neglected due to a lack of awareness; many home owners don’t often check these systems and usually put faith in that they are doing their intended job.  Home owners may not even know there is a problem with these systems until it’s too late.  Water penetration from these systems can not only create problems as described above, but if left unchecked can also create problems in the basement and foundation.

Water does not have to penetrate from the exterior to create problems, it can originate from unrepaired plumbing leaks as well.  In addition to causing staining on walls and ceilings, plumbing leaks if left unattended may likewise, weaken floors.

Another regular maintenance item that is not often performed is HVAC servicing.  Ideally, a home’s furnace and air conditioning system should be serviced in spring and fall.  Regular servicing of the HVAC systems can not only possibly extend the systems’ life but also can help identify safety issues (such as carbon monoxide leaks in some systems).

Home MaintenanceDeferred maintenance issues often decrease a home’s value and can prevent a home from selling for top dollar; sometimes preventing a home from selling at all.  If you’re planning a sale and recognize that there may be deferred maintenance issues, you might ask your agent about having a pre-sale home inspection or home audit to determine the home’s condition and urgent repairs.  Your agent can provide guidance on repairs and pricing your home.

If you’re like many home owners, you might have deferred maintenance on your home.  Some experts recommend a “home audit” to determine your home’s condition.  It’s never too late to start budgeting for home maintenance; to meet regular and emergency maintenance needs, some experts recommend an annual savings of one to three percent of the home’s value. Planning ahead can make home maintenance easier as well allow you to make informed decisions to possibly lower your maintenance costs.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of May 6, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

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