Real Estate News and Commentary

August 11, 2019September 3, 2019

Home Office Spaces

If you have a home based business or telecommute, you’re one of the millions of Americans who probably have or want a home office. What seems to be a staple of modern living wasn’t always so.

The home office most likely developed from the “study” that existed in the larger homes of the well-to-do. These rooms were usually separated from the rest of the house providing privacy for the home owner to read, meet with others, and of course conduct business. As the middle-class grew, their leisure time did too. The two or three bedroom home was getting too small. Home owners desired a separate designated space to read, hobby, and do other work. The standard middle-class home grew in size and added other features, such as a family room, rec room, and the home office. Although the home office, like other specialty rooms, lost its popularity after the Great Recession, it quickly regained popularity as the recession subsided.

Although the room may have looked like a standard office with a desk and chair, early home offices weren’t really used as a full-time space for the home owner’s job. Most mid-century occupations required employees to report to a place of business. However, as technology developed, the ability to work from home increased. According to Allied Telecom (alliedtelecom.net), Jack Niles coined the term “telecommute” in 1972 when he “remotely” worked on a NASA communication system. Working from home gained popularity during the 1970’s energy crisis, when employers needed to reduce energy consumption and employees found they spent increasing amounts of time in rush hour traffic

The demand for the office space didn’t serendipitously coincide with home buyer activity, but actually increased due to changes in the Americans workforce. Additionally, the popularity of the office space can most likely be gauged by the growth of affordable technology. The advent of home computing in the 1980’s allowed many office workers to bring their work home. Modems allowed employees to remotely connect to their employers. However, it wasn’t until the development of the internet and subsequently broadband that full-time telecommuting jobs and home based businesses flourished.

A home office is very important to home buyers. According to the Q2 2018 American Institute of Architects Quarterly Home Design Trends Survey (aia.org), thirty-five percent of respondents indicated that having an office space is a trending home feature.

Of course, home design has changed through the years. Besides allocating a room for a home work space, technology has had a hand in redefining the office space. The home office has transformed from the dedicated room to do actual work, to a “home tech flex space” that may contain a desk, printer, and router, while Wi-Fi allows the home owner to roam the home (even outside). It’s not uncommon to see your neighbor on their deck working on their laptop.

Finding a home that fits your lifestyle is essential. If you’re a home buyer who telecommutes or has a home based business, you want a home office. Unfortunately, you know that housing inventory is low, and homes with this feature are further limited. To help with your search, consider homes that have flexible spaces that can be used as your office. Also, because there are many home renovation loan programs, including loans with streamlined options, you might consider homes that have the potential to expand for a home office.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/08/11/home-office-spaces/

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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.

July 29, 2019August 2, 2019

Take it or leave it

If you’re listing your home for sale with a Realtor, you will likely encounter a one-page disclosure that’s important yet often neglected. The purpose of the “Inclusions/Exclusions Disclosure and Addendum” is to communicate with the home buyer what conveys with house and what you intend to take. This helps you decide to “take it or leave it.” If completed as intended, the disclosure can help you avoid a dispute with the buyer after closing.

It’s understandable that, after completing a stack of listing documents and disclosures, home sellers want to quickly check the boxes of the obvious items that convey with the sale. However, in their haste, many sellers overlook or forget about the fixtures they intend to take it or leave it when they move. Common items that home sellers take include the chandelier (and other lighting fixtures), bathroom mirrors, brand new washer/dryer, or the extra freezer.

The up-to-date GCAAR Inclusions/Exclusions Disclosure and Addendum helps you decide what fixtures and personal property convey. The first paragraph states: “The Property includes the following personal property and fixtures, if existing: built-in heating and central air conditioning equipment, plumbing and lighting fixtures, sump pump, attic and exhaust fans, storm windows, storm doors, screens, installed wall-to-wall carpeting, window shades, blinds, window treatment hardware, mounting brackets for electronics components, smoke and heat detectors, TV antennas, exterior trees and shrubs. Unless otherwise agreed to herein, all surface or wall mounted electronic components/devices do not convey…”

You’ll notice that the disclosure specifically mentions wall mounted electronics and mounting brackets. This wording was added because new norms emerged with new technologies that created disputes about what was considered “permanently” attached. As wall mounted TV’s became commonplace, home buyers expected plasma TV’s to convey and unsightly wall mounts to be removed.

A more recent technology incorporated into a home that has become commonplace is the solar panel. Do they convey or not? Many home owners who install solar panels don’t actually own them, they are leased. Of course, confusion and disputes regarding solar panels have occurred, and are now listed in the Lease Items and Service Contracts section. To help clarify what leased items convey and transfer, the Inclusions/Exclusions Disclosure states: “Leased items/systems or service contracts, including but not limited to: solar panels & systems, appliances, fuel tanks, water treatment systems, lawn contracts, security system and/or monitoring, and satellite contracts do not convey unless disclosed here…”

It’s not uncommon for a dispute to arise at the walkthrough because the home seller decides to take a fixture or appliance that is not listed as an exclusion. Regardless whether the seller misunderstood or had a last-minute change of heart, the home buyer may be demanding the return of the item(s). And since the Inclusions/Exclusions Disclosure and Addendum is part of the contract, the buyer may have recourse.

Take it or leave it?

If you’re selling your home, deciding to “take it or leave it” may be the last on your mind. But take the time to read and complete the disclosures carefully. When completing the Inclusions/Exclusions Disclosure don’t be afraid to over communicate your intentions about taking or leaving fixtures and appliances. Make sure you list items you will take as “Exclusions.” It also helps to tag these items indicating “Does Not Convey,” so home buyers are on notice when they visit. Also, don’t forget to identify older appliances or fixtures that are staying, so the buyer doesn’t assume you are removing them. And of course, ask your agent for assistance if you’re unsure if specific items are fixtures and should be listed in the disclosure.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/07/29/take-it-or-leave-it/

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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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July 12, 2019July 12, 2019

Next Market Downturn

The current US economy just hit a milestone by becoming the longest stretch of economic growth in our Nation’s modern history. The expansion is now in the 121^st month. The previous expansion record was 120 months, and occurred between March 1991 and March 2001. Most attribute the dot-com bubble as the precipitating event that ended that period of expansion. Many have been anticipating the end of the current expansion for several years. And they will eventually be correct when this period of economic growth inevitably ends in a downturn, recession, or correction. To prepare, experts suggest to start saving for the next market downturn.

Earlier this year, I wrote about housing market mini-cycles are different from a full-blown recession. Then (and now), housing indicators are mostly positive. Although the next next market downturn is unlikely to be caused by another housing crisis, it doesn’t mean that the housing market won’t be affected by other economic factors.

Whatever triggers the next recession will undoubtedly become an economic contagion that will spread across many industries, including housing. The chain of events are generally characterized as: consumer sentiment drops which causes people to spend less money which causes businesses to slow which results in unemployment. Home owners who lose their jobs may have difficulty in repaying their mortgages, and are at risk of default or losing their homes.

Lessons for the next market downturn

Economic and financial lessons are learned with each recession. The dot-com bubble recession in 2001 made many rethink the policy of raising interest rates when markets are signaling trouble. Many are still studying the Great Recession, but one of the take-aways is that job creation is key in economic growth and prosperity.

How will the next market downturn affect housing? The housing market typically responds to a recession through home price reductions. A NAR Economist’s Outlook from October 23, 2018 (How Do Housing Market Conditions Compare in 2004 and 2018?; nar.realtor) suggests that home prices will likely fall but not as sharply as we experienced in 2008. This is mostly due to home sale inventory and home prices. The housing market is much different than it was prior to the last recession. According to the latest NAR press release on existing home sales (nar.realtor), the median existing home sale price during May increased 4.8 percent. This is the 87^th consecutive month of year-over-year gains. Additionally, home sale inventory remains at historic lows.

Start saving

A recent press release from the JPMorgan Chase Institute indicates that the conventional wisdom about mortgage default may be incorrect (jpmorganchase.com). The institute’s study was published in report “Trading Equity for Liquidity: Bank Data on the Relationship between Liquidity and Mortgage Default.” A major conclusion is that having three months of housing costs in reserve can save your home in the event of recession and job loss. This is counter to the conventional wisdom of the post-recession era policies of home buyers having “skin in the game” by making larger down payments. Having home equity is also not a guarantee of making mortgage payments. Home equity is relative to the housing market and home prices. The study concluded that “liquidity is a more useful predictor of mortgage default than home equity, income level, and payment burden—especially for borrowers with limited liquidity at closing.”

Even though the Great Recession officially ended ten years ago, the memories are still fresh. There will be eventually a recession or market correction. And the main concern for most home owners is how to prepare. Unfortunately, we can’t predict the exact timing and severity of a recession. However, most experts suggest saving and having several months of reserves in case of job loss.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/07/12/next-market-downturn

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July 4, 2019July 4, 2019

Swimming Pool and Home Value

Wouldn’t it be nice to beat the summer time heat in a swimming pool? Besides cooling off, the idea of having a swimming pool is attractive to many home owners for many reasons, including entertaining guests and exercise (if large enough). Pool company advertisements suggest a swimming pool can make your yard more attractive, and add value to your home. But is a swimming pool really worth it? It all depends on the local housing market and your lifestyle.

Statistics and information compiled by The Spruce (thespruce.com), an online lifestyle magazine, reveals swimming pool popularity from sources such as the Association of Pool & Spa Professionals and the US Census. Incredibly, there are 10.4 million residential and 309,000 public swimming pools in the United States. Swimming is the fourth most popular activity, and is the most popular among children and teens. The top five states with inground pools are California, Florida, Texas, Arizona, and New York. Swimming statistics in the US indicate that thirty-six percent of children and fifteen percent of adults swim annually.

Before you start digging, there’s a lot to consider. Besides liability and health concerns, let’s discuss a pool’s added value on your home. The question whether adding a swimming pool is a good investment depends on a number of factors. Real estate research typically validates such questions, unfortunately, studies are lacking. However, there is such an analysis from 1981 by Benedict J. Frederick (Effect of a Swimming Pool on Single-Family Home Value; Appraisal Journal; July 1981, Vol. 49 Issue 3, p376). Even Frederick confessed he was hard pressed to find academic interest in the topic, citing a previous study from 1961. Nonetheless, the study conducted in suburban Baltimore yielded these conclusions: A pool can add about 7 percent to the price of a home; a pool’s market value may be 50-75 percent of the pool’s replacement cost; having pool amenities, such as a heater, can boost value; 40 percent of the market believe having a pool is a liability.

A swimming pool’s added value may be tricky, especially if other neighborhood homes don’t have a pool. If you’re the only residential pool in the neighborhood, the added value to your home may be minimal. In fact, having a swimming pool may be a disincentive for many home buyers, and could negatively affect the value.

There’s also the expense of maintaining a pool. Melissa Dittmann Tracey, writing for Realtor Magazine (Are Pools Worth the Expense?; nar.realtor), points out that typical swimming pool maintenance can have an annual cost of about $3,000-$5,000. And that’s if everything works properly. If components need replacing, then the cost can rise quickly. Older pools require updates and component replacements. Resurfacing or redecking expenses can vary, but Tracey estimates a typical cost to be $5,000 to $10,000 (depending on size of pool). Renovating a pool can cost upwards of $20,000. If you’re tired of the pool and want to reclaim your back yard, removing a pool can also be expensive. Depending on the pool and yard size, a pool removal typically ranges from $3,000 to $15,000.

Given the research and industry statistics, the decision to build a back-yard swimming pool is more likely a lifestyle choice rather than for home improvement. However, for those who enjoy the pool but don’t want the expense or liability of ownership, joining a club or swimming at the public pool are common alternatives.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/07/04/swimming-pool-and-home-value/

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