The decline of today’s housing stock

by Dan Krell © 2013
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DanKrell.com

Is the decline of today’s housing stock a concern or an opportunity?

While 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.

March 21, 2013June 29, 2019

Renovate your home with FHA 203k

If you’re like many home buyers, you’re probably looking for a home that is “turnkey” or an updated home that is ready to move right in. However, since inventory is tight, competition can get intense. But rather than passing on the “diamond in the rough,” consider the FHA 203k.

The FHA 203k is HUD’s rehabilitation loan. The “203k” actually refers to the section within the National Housing Act that provides HUD with the ability “…to promote and facilitate the restoration and preservation of the Nation’s existing housing stock;” in other words provide mortgages to renovate and rehabilitate existing homes. Although the program is not allowed to provide for “luxury” upgrades (such as hot tubs), the program may be used “…to finance such items as painting, room additions, decks and other items…”

If you’re purchasing a home that is not a total rehab project, there is a streamlined version of the program that can assist you to purchase the home and provide additional funds (up to $35,000) for improvements and upgrades. The FHA 203k-streamline is a “limited loan program” designed to provide quicker access to funds so your home move-in ready relatively quickly.

The “203k” process is relatively straight forward. After identifying a home, you should consult your 203k lender and consultant about the feasibility of a FHA 203k. A project proposal is prepared detailing a cost estimate for each repair/improvement. During loan underwriting, the appraisal is completed to determine the value of the home after the proposed repairs/improvements are completed. If the mortgage is approved, the home is purchased with the loan and the remaining funds are placed in escrow to pay for the project.

Much like a typical mortgage, you must qualify for the program by meeting underwriting standards for borrowers. However, unlike the typical mortgage, additional underwriting requirements include review of architectural plans and repair estimates (materials and labor) from licensed contractors. HUD approved consultants/inspectors examine and evaluate the project’s progress to ensure work is completed and compliant with HUD standards. Funds for the repairs/renovations are released in draws to ensure the work is completed as intended as well as meeting all zoning, health and building codes.

Of course, the home must also meet eligibility guidelines. The home: must be one to four units; must be at least one year old; and must meet neighborhood zoning requirements. The program allows for major rehabilitation on homes that have been razed provided that the foundation still exists.

But what if you’ve decided to renovate your home rather than move? The FHA 203k allows for home owners to make renovations, updates, and sometimes additions. The possibilities seem endless (as long as your vision stays within the loan limits). Besides painting and updating kitchen and bathrooms, you could possibly even expand your existing house with an addition. The FHA 203k even allows for many “green” upgrades to make your home more efficient.

FHA guidelines have been revised in recent years, and may undergo further revisions. It is important for home buyers and others who are interested in the FHA 203k to consult with an approved FHA lender for borrower and home qualifying guidelines, loan limits and 203k acceptable improvements. Additional information (including a list of lenders) can be found on the HUD website (HUD.gov).

Original published at https://dankrell.com/blog/2008/09/19/fha-203k-renovation-loans-are-still-available/

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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 © Dan Krell.

March 17, 2009September 16, 2018

Verify all contractor licenses

If your real estate agent says, “I have a guy to do the work…,” you might want to check if those contractors or handymen are licensed by the Maryland Home Improvement Commission (MHIC). The Maryland Real Estate Commission warns consumers that it is illegal for unlicensed contractors and handymen to do home improvements for a fee.

The Montgomery County Office of Consumer Protection website states that anyone who repairs, maintains, restores, or improves real property (homes) is required to be licensed by the MHIC. The MHIC regulates home improvement contractors, subcontractors and salespersons. If a handyman is altering, remodeling, or making repairs to your home- then the handyman is required to have a license too.

The MHIC issues licenses to contractors who have least two years trade experience; provide proof of financial solvency; and pass a test on the home improvement law and general business competency. Additionally, licensed contractors are also screened for serious criminal convictions and are required to make regular contributions to the Maryland Home Improvement guarantee fund.

If you selling your home, make sure that any completed repairs are performed by a contractor or handyman that is licensed by the MHIC. The Maryland Real Estate Commission and the Montgomery County Office of Consumer Protection (OCP) recommend that you ask contractors and handymen for their MHIC license number to verify their license status and complaint history before they begin working on your home. You can verify MHIC licenses by either calling the MHIC or through their website (www.dllr.state.md.us/license/occprof/homeim.html). Additionally, it is recommended that you check with the OCP (240-777-3636) and the Better Business Bureau (202-393-8000) for any filed complaints against the contractors.

Additionally, verifying that your contractor or handyman is actively licensed prior to any home improvement will ensure that the contractor can obtain the proper permits (if required) as well as protect you from shoddy or incomplete work. The Maryland Department of Labor, Licensing & Regulation (DLLR) has made an effort to have permitting offices require all contractors present their licenses when applying for permits. Additionally, the MHIC investigates all consumer complaints (some complaints result in an award for monetary damages from their guarantee fund); the MHIC will also pursue and aid in the prosecution of violators of the Maryland home improvement law.

Two specific MHIC investigations of consumer complaints last year resulted in a revoked license, a fine and jail time. The first investigation (as reported by WBAL TV in Baltimore on October 21, 2008; wbaltv.com) resulted in a revoked license from a contractor who had numerous consumer complaints of shoddy work (one home owner complained that after he paid the contractor for an addition, the addition was ordered to be torn down for being unsafe). The second investigation (as reported by the DLLR on December 16, 2008) was of the deeds of an unlicensed contractor, which resulted in a $65,000 fine and thirty days in jail.

Even though you trust your real estate agent, the fact that a real estate broker was fined by the Maryland Real Estate Commission last year for allowing the use of an unlicensed contractor (to perform repairs that were listed in a contract addendum) should be motivation enough to check out any contractor before they begin to work on your home.

Original published at https://dankrell.com/blog/2009/03/17/verify-all-contractor-licenses-its-the-law/

By Dan Krell

February 26, 2008November 23, 2021

Thinking of updating? Go Green!

by Dan Krell
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If you are thinking of updating your home- think green. As we are increasingly becoming environmentally conscious, home buyers are as well. As the cost of energy continues to increase, home buyers are increasingly becoming aware of energy saving devices within homes, including Energy Star rated products and environmentally friendly materials.

Most of us are familiar with the Energy Star logo on appliances; however, Energy Star ratings or recommendations can also be found on windows, lighting fixtures/light bulbs, HVAC equipment, hot water heaters and insulation. Home improvement recommendations from Energy Star can save a home owner up to 31% in energy costs! Do you think that saving on energy costs would be a selling point to a potential homebuyer? You bet it would!

Energy Star (energystar.gov) is a jointly sponsored program through the United States Department of Energy and the United States Environmental Protection Agency. The program began in 1992 by voluntarily labeling energy efficient items. Although computers and monitors were the first items to be labeled, the Energy Star logo is now seen on household, office, and commercial items from fifty categories. On the website, Energy Star provides assessment tools for homeowners in determining the efficiency of their homes as well helping understand what needs improvement.

To make the home more appealing to home buyers, the first items that a home owner thinks of replacing are the kitchen appliances and the washer/dryer. Although high efficiency appliances typically cost more, Energy Star states that the money saved on energy costs will more than offset the cost of an energy star rated appliance. Because Energy Star rated appliances use up to 50% less energy than standard appliances, it is estimated that the equivalent of 1.7 million acres of trees would be planted if ten percent of American households use Energy Star rated appliances.

Additionally, if your furnace is more than ten years old, Energy Star recommends that a newer high efficiency furnace be installed. Recommended efficiency ratings by Energy Star are 90% Annual Fuel Utilization Efficiency (AFUE) for a gas furnace and a minimal Seasonal Energy Efficiency Ratio (SEER) of 13 for central air conditioning units. However, if your ductwork leaks it reduces the HVAC efficiency, so it is recommended that leaking duct work be sealed. Additionally, adding a programmable thermostat may save an additional $150 a year.

As your hot water heater uses about one third of a home’s energy costs, replacing it to a more efficient model can reduce the overall energy bill. Hot water heater efficiency is rated by Energy Factor (EF). Depending on the size of the hot water heater, the recommended EF can vary. Newer tankless models heat water as you need it and thereby can save you even more.

Other ways to make your home greener and energy efficient, besides using high efficiency and Energy Star rated appliances and systems, include: sealing air leaks around windows and in basements/attics; ensuring that your home is properly insulated in the walls, attic, and basement; and replacing light bulbs to energy efficient bulbs. Although not all appliances are Energy Star rated, the Department if Energy has a guide to making your home energy efficient at: www1.eere.energy.gov/consumer/tips/index.html.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 11, 2008. Copyright © 2008 Dan Krell.

by Dan Krell © 2013 Google+ DanKrell.com

Is the decline of today’s housing stock a concern or an opportunity?

by Dan Krell © 2013
Google+
DanKrell.com