New home diligence

new home diligence
New home sales (infographic from nar.realtor)

It’s understandable that new homes are alluring.  After all, newly built homes are modern and efficient.  And there is the idea that new homes require minimal maintenance for the first year of ownership.  But new homes are not flawless.

Last week’s Florida’s Attorney General home builder settlement is the latest reminder that new home buyers need to exercise due diligence.  The multi-million-dollar settlement with PulteGroup, Inc came after a two-year investigation.  A simultaneous complaint alleges that the home builder violated the Florida Deceptive and Unfair Trade Practices Act by: failing to disclose to certain home buyers in Florida that the homes were being constructed in violation of applicable building codes; unfairly denying certain homeowners’ repair claims for various reasons: unfairly denying certain Florida homeowners’ repair claims without performing an adequate inspection of the home; and unfairly withholding a customer’s deposit in certain instances.  The details of the settlement can be found in the Florida AG’s December 28th news release (myfloridalegal.com). 

This settlement comes two years after the Florida AG entered into a settlement with KB Home in 2016 for similar alleged complaints. 

Home builder complaints are more common than you think.  In fact, Home builder complaints occur throughout the country alleging violations that may include (but not limited to): code violations, improper warranty denials, and improper handling of deposits. 

Maryland’s Attorney General fined NVR Inc in 2012 because it was alleged that required warranty protections were omitted from their subsidiary new home contracts.  A number of other home builders were fined that year for failing to register with the Consumer Protection Division’s Home Builder Registration Unit.  And in 2016, the Maryland AG filed charges against a Rockville home builder for alleged violations of the Home Builder Registration Act, the Maryland Express and Implied Warranties Act, and the Consumer Protection Act.  And more recently, the Maryland AG filed charges in September against a Baltimore County home builder for allegedly “failing to comply with Maryland’s Home Builder Registration Act, Consumer Protection Act, and the Custom Home Protection Act.”

Unfortunately, many home buyers let their diligence lapse when buying a new home.  New home builder reps are friendly, helpful and often appear to be on your side, so it’s understandable how a home buyer may misconstrue the builder rep’s loyalties.  However, when buying a new home, you should conduct your due diligence.  You should also consider hiring a Realtor and a licensed home inspector to assist you through the new home buying process.

When buying a Maryland new home, you should know that the state regulates home builders.  Before considering a home builder, make sure that the home builder is registered with the Consumer Protection Division’s Home Builder Registration Unit.  Before entering into a contract with the home builder, review and understand the contract.  You may want to consult an attorney to make sure that your Maryland new home contract complies with the state requirements. 

You should also keep in mind that Maryland has established a Home Builder Guaranty Fund that is overseen by the Consumer Protection Division. The fund allows consumers to seek recourse “for losses resulting from an act or omission by a registered builder who constructs a new home for a consumer.”  For additional information about due diligence when buying a new home and obtaining the handbook “Buying a New Home, Consumer Rights and Remedies Under Maryland Law,” contact the Maryland Office of Attorney General’s Consumer Protection Division (marylandattorneygeneral.gov/Pages/CPD).

Original located at https://dankrell.com/blog/2019/01/03/new-home-diligence

Copyright© Dan Krell
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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.

Real estate futurism

real estate futurism
Real estate futurism (infographic from nar.realtor)

Humans are fascinated with the future and technology.  Whether it’s the promise of hope and deliverance, or the warning of a dystopian nightmare, there will always be a continued conjecture of the future.  And it’s no different with real estate.  Real estate experts also like to dream about the future and technology, and depict real estate futurism

Housingwire is one the foremost authorities on anything real estate and housing.  It also is a leader in reporting about real estate technology too. This year’s reporting of Housingwire’s Tech100 Awards caught my attention.  But it wasn’t about some shiny new technology that is touted to be “the next big thing.”  Instead, it was the real estate futurism prediction and where real estate technology is headed (Expert: Here’s where real estate tech will be in five years, And will AI replace humans?; housingwire.com December 21, 2018).

Although the article was only one expert’s opinion of real estate futurism, it’s telling nonetheless.  The expert sees that tech assisted appointments and automatic doors are technological advancements.  Additionally, home buyers will be using virtual reality to view homes.  He sees that consumer searches are geo-located. Big data will know what they want based on their online behavior, and so on.  If his list of the industry’s future tech sounds as if it came from the early 2000’s, you’re not alone.  If you think about it, much of this five-year tech advancement prediction has already been around in one form or another.

This expert’s vision of real estate tech in the not-so-distant future is basically more of the same.  It makes you wonder if the real estate industry is focused on using shiny things to get people’s attention (but really doesn’t do much to make the transaction easier and safer).  This interview also signifies that real estate futurism is relegated to existing tech. In other words, real estate technology is not exclusive unto itself, but is only the application of existing technology. 

Predicting the future is difficult and requires the ability to depict a new paradigm.  Spyros Makridakis, an expert in understanding future technology, writes that tech advancement depends on four things; (1) the benefits of the technology, (2) funding to create/implement the technology; (3) growth in funding the technology; and (4) the urgency to solve a problem (Forecasting the Impact of Artificial Intelligence, Part 5:The Emerging and Long-Term Future; The International Journal of Applied Forecasting; 2018; issue 51 p36-41).  Makridakis’ vision of future technology will not be about shiny things that make you go “ohh,” but instead how you interface with technology.

Makridakis’ prediction for the future is that you won’t be using computer screens like you do today. Instead, you will have a type of wrist device that projects holographic images that will “blend virtual and augmented” reality.  These devices will be like your smartphone but allow holographic communications.  Additionally, brain-computer interfaces will allow you “unlimited access to computer power.”  He believes that this paradigm shift will affect how you work and interact socially.  He also believes that robots will become personal assistants and be assigned the boring and uninteresting work.

Real estate futurism based on Makridakis’ futuristic thinking could mean a slightly different home buying and selling process.  Your augmented brain-computer interface will allow you to process information about a home significantly faster, as well as digitally sign AI prepared contracts and closing documents. And instead of scrolling through pictures or wearing a virtual reality mask, you will be walking through holograms of homes right in our living rooms projected from your wrist.

Original located at https://dankrell.com/blog/2018/12/29/real-estate-futurism

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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.

Does a shutdown affect home sales?

shutdown
Home Sales (infographic from nar.realtor)

There hasn’t been this much anxiety about a government shutdown since October 2013.  Back then, the government was “shutdown” for sixteen days.  Of course, when the federal government “shuts down,” it’s really a partially interrupted.  A majority of government operations continue.  But even a partial government shutdown has the potential to affect home sales.

Since only a portion of government employees get furloughed during a shutdown, there is always confusion about which agencies are affected.  Back in 2013 many home buyers were jittery about getting their FHA and VA loans processed so they could settle on time (the FHA is a part of HUD, while VA mortgages are guaranteed by the Department of Veteran Affairs). Additionally, many industry insiders were unsure about the impact a government shutdown would have on the recovering housing market. 

Today we have some idea how government housing programs, specifically mortgages, will be affected during this time because most federal agencies publicly post their shutdown contingency plans. 

FHA’s 2013 shutdown contingency was focused on maintaining consistency in the housing recovery.  The contingency plan stated “The Office of Single Family Housing will endorse new loans under current multi-year appropriation authority in order to support the health and stability of the U.S. mortgage market.  Approximately 80% of FHA loans are endorsed by lenders with delegated authority.  The remaining 20% are endorsed through the FHA Homeownership Centers, leveraging FHA staff with a contractor that works on-site.

The current FHA contingency is confident that most FHA loans will be unaffected.  However, there is a warning that an extended shutdown can impact home sales.  HUD’s Frequently Asked Questions in the event of a Government Shutdown, statement on FHA’s operations states:


“Because we are able to endorse most single family loans, we do not expect the impact on the housing market to be significant, as long as the shutdown is brief. With each day the shutdown continues, we can expect an increase in the impacts on potential homeowners. home sellers and the entire housing market. A protracted shutdown could see a decline in home sales, reversing the trend toward a strengthening market that we’ve been experiencing.

VA loans may be better positioned.  It is widely acknowledged that the Veteran Affairs learned from the government shutdowns that occurred in 1995-96. During that time, “Loan Guaranty certificates of eligibility and certificates of reasonable value [appraisals] were delayed.”  However, because VA funding includes “advance appropriations,” a majority of the VA’s operations will continue during a federal government shutdown (including mortgages).  The VA’s contingency plan indicates that in the event of a government shutdown 95% of VA employees will be fully funded or required to perform “excepted” functions.

Will a short-term federal government shutdown affect the housing market?  Probably not.  VA loans are expected to continue without much issue.  However, certain HUD functions required for FHA mortgages could be limited, but not expected to cause delays in the short-term.

However, an extended shutdown has the potential to affect home sales.  Consider that FHA’s mortgage market share increased to approximately 17 percent in 2017 (compared to about 13 percent in 2013).  Significant FHA settlement delays could occur in long-term, which would surely have an impact on the housing market.  However, considering that home sales have dropped off since the summer, and the market is typically slow during this time of year, the effect on housing will probably be negligible. 

Original published at https://dankrell.com/blog/2018/12/23/shutdown-affect-home-sales

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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.

Home market value

home market value
Home Market Value (infographic from keepingcurrentmatters.com)

It’s normal for homeowners to wonder about their home market value. After all, home sales and prices have been making headlines for well over a decade.  But you certainly can’t get a home market value from a headline, nor can you assume it from a neighbor’s sale.  The reality is that your home market value could vary depending on whom and when you ask.

A timely and important review article by Michael Sanders recently published in the Appraisal Journal asks the question “what does Market Value Mean?”  (Market Value: What Does It Really Mean?; Appraisal Journal. Summer2018, 86:3, p206-218).  The article correctly points out that determining “market value” can realize different results depending on the scope and purpose of the appraisal.  You can see how this might be problematic if you’re trying to determine a home’s value when divorcing or trying to sell an estate property.  Some mortgage lenders even have different value criteria depending on the loan product and purpose.

Sanders suggests that “market value” undergoes scrutiny when valuations are difficult and appraisals are questioned (e.g., during a recession).  However, having a discussion about the meaning of “market value” now, when there is relative market stability, is probably meaningful for the industry and consumers.  Interestingly, the semantics of “market value” have changed through the years, and ultimately depends on the application.  He points out at least twelve similar but different legal definitions of “market value.”

Sanders suggests that Richard Radcliff, an appraisal pioneer of the 1960’s, was ahead of his time by advocated for most probable price valuations.  An ongoing debate in appraisal circles is whether “market value” is the highest price or probable price.  However, it wasn’t until the 1980’s when appraisal articles academically contemplated the association of “probable sale price” and “market value.”

Sanders quotes Richard Ratcliff saying, “appraisal is largely the predicting of human behavior under given market conditions.”  Sanders quips about an “ideal world”, where “appraisers would apply market value definitions using a relatively consistent and objective standard, and reflect conditions in the market as they exist, rather than how others might wish them to be.

Although the accepted dictionary definition of “market value” is the price a buyer is willing to pay for your home, market value and sale price could be different (and often is).  And according to Sanders, an appraised “market value” isn’t necessarily the price for which your home may sell.

At this point you may be asking yourself, “how much is my home really worth?”  For the answer, you may have to ask a Realtor.

Realtors use market data to prepare comparative market analyses (CMA) that can help buyers and sellers decide on a sale price.  Although a CMA is not an appraisal, it is a technical and methodical professional analysis that provides a snapshot of the market.  The CMA is typically more refined in scope than an appraisal, such that it is usually limited to a neighborhood and home criteria.  Additionally, depending on the location and availability of comparable sales, it can provide a 30, 60, and 90-day probable sale price range based on market trends.

If you’re planning a home sale, a Realtor’s CMA may be your best source of information to decide on a listing price.  Even mortgage lenders have relied on Realtor CMA’s, in the form of Broker Price Opinions, to help decide on sale prices for short sales and bank owned homes.

Original published at https://dankrell.com/blog

Copyright© Dan Krell
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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.

Civil asset forfeiture

civil asset forfeiture
Home Buyer Sanpshot (infographic from nar.realtor)

Can your home be seized through civil asset forfeiture? Consider the ongoing and expanded effort to identify cash purchases of residential real estate to catch criminals.

An imminent Supreme Court decision on Timbs v. Indiana could have implications on your home and property. Although the case is about excessive fines brought on by a state, it highlights the issue of due process in civil asset forfeiture. To bring you up to speed, the case is about the seizure of an Indiana resident’s $42,000 Land Rover by the state of Indiana, although his drug related fine was only $10,000. The Land Rover was allegedly purchased from cash obtained from an insurance policy, instead of illicit monies.

Civil asset forfeit is a when the government (federal, state, or local) confiscates your property when you are suspected of a crime. You don’t necessarily have to be charged or convicted of the crime. Civil libertarians criticize governments and law enforcement agencies for abusing civil asset forfeiture for profit. Maryland is one of the many states that have recently passed legislation reforming civil asset forfeiture. However, Congress has yet to pass a civil asset forfeiture reform bill.

In their effort to fight money laundering and mortgage fraud, the Financial Crimes Enforcement Network (fincen.gov) recently stated that their Geographic Targeting Orders (GTOs) program has “provided valuable data on the purchase of residential real estate by persons implicated, or allegedly involved, in various illicit enterprises including foreign corruption, organized crime, fraud, narcotics trafficking, and other violations. Reissuing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity…”

Previous GTO’s required title companies to report all-cash transactions that met specific criteria. The purpose was to track and identify individuals who mask their identity behind shell companies. FinCen found that the GTO program provided “valuable data on the purchase of residential real estate by persons implicated, or allegedly involved, in various illicit enterprises including foreign corruption, organized crime, fraud, narcotics trafficking, and other violations.” So much so, that A November 15th press release revealed expanded reporting criteria and metro coverage. FinCen believes that the “reissued GTO” will assist in “tracking illicit activity.”

FinCen’s targets were previously limited to suspected foreign entities purchasing luxury properties. However, FinCen is becoming increasingly aggressive to include more transactions and individuals in their reporting criteria.

Two years ago, I reported on the expansion of the FinCen’s interest in fighting mortgage fraud and money laundering through residential real estate transactions. A January 13th 2016 FinCen release stated their intention in expanding their anti-money-laundering efforts to cash purchases of luxury real estate. The GTO was supposed to help learn about the risk posed by “corrupt foreign officials, or transnational criminals” who were suspected of “secretly” buying of luxury real estate in certain metropolitan areas.

Previous GTO’s focused on the cash purchases of luxury homes (over $1 million) in limited metro areas. However, in their November 15th revision, FinCen lowers the reporting threshold of cash purchases to $300,000. Additionally, the metro areas of interest have been expanded to include certain counties Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas. Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle. Additionally, title companies in those metro areas are also to report “natural persons” behind shell companies used in all-cash purchases of residential real estate, as well as virtual currency purchases.

Original published at https://dankrell.com

Copyright© Dan Krell
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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.