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Category Archives: Real Estate

Purchase Home Services Providers

Escrow and Settlement

For example, you are going to need an escrow or settlement company to act as an “independent third party” between you and the seller. Without having a third party involved, how do you know that when you fork over the money, you are going to get the deed? This is the type of service provided by escrow and settlement. They will hold your deposit and coordinate much of the activity that goes on during the escrow period.

Since this third party is very important to both you and the seller and both of you will pay fees to this company, it is important to agree on which service to use. Therefore, your choice should be part of the offer. Since you do not buy a home every other week or so, you are probably unfamiliar with companies that provide this service. Your agent will make a recommendation. You have the authority to accept this recommendation and include it in your offer, or make your own choice.

Keep in mind that the seller will also have a preference and this may be a point of negotiation in a counter-offer. It has become customary that one side will choose the escrow/settlement agent and one side chooses the title insurance company. Even so, everything in real estate is negotiable.

Title Insurance Company

Title insurance is important because, by providing you with an Owners Policy, they insure that you have clear title to the property. If there are any problems later, you can always go back to the title insurance company and have them clear it up. Since it is customary for the seller to pay for the owner’s policy, they have an interest in which company is used.

However, you are going to pay a fee to the title insurance company, too. This is for the Lender’s Policy. The lender’s policy insures your mortgage lender that there are no liens or judgments against the property and that the mortgage will be in first position. In other words, should you sell the property or refinance it, their mortgage gets paid first, before any other claims against the property.

The lender’s policy is less expensive than the owner’s policy.

You and the Seller Must Agree

Buying a home does not occur in a vacuum, involving only you and the seller. There are all kinds of people and services involved behind the scenes to make it happen. Since some of these services affect both you and the seller, there will have to be be agreement on which companies you will use for them.  When you make your offer, you should request your favorites for these services.  If you are unfamiliar with these service providers, you can get recommendations from your agent.

Termite and Pest Inspection

As part of your offer, you may require a termite and pest inspection. This company not only inspects for termite damage and pest infestations, but also inspects for dry rot and water damage, among other things. The company that performs the inspection is important to you as a buyer, because you want to be sure they do a good job. It is important to the seller because it is customary that they pay for the inspection and some types of repairs that may be required.

Resale Value of Home

home-with-landscape# Buying a Home With Lot and Landscaping

Even though most real estate value is usually concentrated in the building, the lot is important, too. Obviously, it should be as level as possible. Assuming the property is in a typical neighborhood, the lot should be rectangular – no odd shaped lots or oddly situated lots.

Yard sizes are smaller in modern homes than in older homes, but there should still be a decently sized front and back yard. Do not buy a house where the entire back yard is taken up by a swimming pool, for example.

Do not purchase an over-landscaped property, either. You would normally pay a premium for that, which you may not be able to recover when you sell. You will get your best value if the house is moderately landscaped or under-landscaped for the area. You can always improve the landscaping during your ownership by improving the grass and adding bushes and trees. Just do not spend too much.

# House Size

In each residential neighborhood, houses will vary in size and rooms, but they should not be too different. If resale value is an important consideration, you should not buy the largest model in the neighborhood. When determining market value, the homes nearest to yours are most important. If most of the nearby houses are smaller than your house, they can act as a drag on appreciation.

On the other hand, if you buy a small or medium house for the neighborhood, the larger homes can help pull up your value. This is one of those times where determining your “wants” versus your “needs” can be extremely important. Buying what you need in a more prestigious neighborhood may provide more financial reward than getting what you want in a less desirable neighborhood.

# View

Homes with a pleasant view of the horizon often sell at a premium above similar homes without the view. However, if a view is important to you, buy it mostly for your own pleasure and not as an investment. Though you may place a considerable dollar value on the view, future buyers may not be so like-minded. It may take you longer to find a buyer when it comes time to resell the house. Or you may end up dropping your price to more nearly match other sales prices in the neighborhood.

In short, if you are buying a house with a view, try to pay as little extra as possible. Otherwise, you might not get your money back.

# The Kitchen

Family activity centers around the kitchen, so this is the most important room of the house. Larger kitchens are better, and they should be provided with modern appliances. Obviously, the dining room and breakfast nook should be located adjacent to the kitchen. In newer houses, the family room should also be extremely close to the kitchen.

There should be easy access to the back yard, as there will be occasions for barbecues and outdoor entertaining. In addition, it should be a short trek between the garage to the kitchen so hauling groceries in from the car does not become a horrendous chore.

# Fireplaces

The only room where you absolutely have to have a fireplace is the family room. A fireplace in the living room may be nice, but you pay extra for it and will probably rarely use it. At best, it serves as a focal point of the living room, but does not add much in real value.

# Bedrooms and Bathrooms

Three and four bedroom houses are the most popular among homebuyers, so if you can stick in that range you will have more potential buyers when it comes time to resell. Five is okay, too, as long as you do not have to pay too much extra for the additional bedroom.

There should always be at least two bathrooms in a house, preferably at least two and a half. One bathroom with a place to wash up for day-to-day visitors, one for the master bedroom, and at least one to be shared by the other bedrooms.

# Closets, Garages, and Laundry

Walk-in closets are extremely desirable for the master bedroom. For the rest of the house, just be sure there is plenty of closet space. Don’t forget space for linens and towels.

Garages add to the resale value and you should always make sure to get at least a two-car garage. Lately, three-car garages have become desirable in some areas of the country.

The laundry facilities should be located somewhere convenient on the main floor of the house, but not in a place it will create an eyesore. Think about whether you want to walk up and down stairs when carrying loads of laundry.

# Swimming Pools

Swimming pools do not provide as much added value as they once did. Safety issues about families with younger children have become more publicized than in the past, so families with small children tend to avoid homes with pools. As a result, having a pool may actually reduce the number of potential homebuyers when you try to resell the home.

Buy a home with a pool for your own enjoyment, not as an investment.

Listing Agent, Is It Necessary?

For argument’s sake, suppose you see a property that is “just perfect” and you don’t have an agent yet? Do you make an offer with the listing agent?

Well, most deals have two agents involved. The listing agent markets the house and represents the seller. The selling agent represents the buyer. The seller pays the real estate commissions to both agents.

When you make an offer directly to the listing agent, there is only one agent involved instead of two – so things work a little differently.

# Agency and Disclosure

When you make an offer directly with the listing agent, the agent will disclose the possible working relationships that exist – whether they are going to represent both you and the seller, or just represent the seller. There will be a document you sign called an “agency disclosure” that spells out the relationship.

When representing both sides, an ethical agent becomes more of a transaction facilitator or perhaps a “dual” agent, depending on what state you are in. In effect, they are not an actual advocate of either party but mostly an information provider and communication conduit.

The agent will convey offers and counter-offers back and forth, but won’t provide opinions to one party or the other on how “negotiable” the other party might be. In addition, they will answer questions, explain things as the transaction progresses, make suggestions about whether getting inspections is a good idea – and so on – but they won’t be your advocate or the advocate of the seller.

If the agent discloses that they are acting just for the seller, then they are the advocate of the seller — and you are on your own.

# Road Bumps & Conclusion?

Most real estate transactions go fine, but almost every one has a challenge or two. These challenges are often routine, but sometimes not. One party may come out on top in a dispute and the other may feel that they did not.

When there is only one agent, the buyer may sometimes feel that the agent took the seller’s side in a dispute. Often the criticism is not merited, but human nature being what it is – it happens.

In the end, make an informed decision. If you are considering making an offer directly to the listing agent, ask questions. What are you giving up by not having your own agent? What will you gain by presenting an offer via the listing agent? When you get your answers, make your decision on whatyou want to do.

Why Delay Purchase Home?

The main thing you want to avoid when buying a home is being put in a position where you will have to sell it too soon. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a financial bind. This is especially true for those who buy a home with a down payment of ten percent or less.

Real Estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally come to about one and a half percent. You can see how this can easily exceed the first year’s appreciation. If you made a minimal down payment, you could actually have to come up with cash out of pocket to sell your home.

# Uncertain Job Future

You could be right out of college or expecting a promotion and a transfer. Or your company has announced an impending “restructuring.” If any of these apply, it might be best to wait to buy a home. When you have a more accurate picture of what your next few years will be like, that will be the time to buy.

# New to the Area

A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly where you want to live. Often when people buy a home immediately they find that they might have made a better decision if they had waited awhile.

# Marital Problems

Real estate agents see a lot of life unfold before their eyes. One of the saddest occurs when former clients divorce and are forced to sell a recently purchased house. It happens all too often when a family in turmoil decides that buying a new home may help resolve their problems. Perhaps it is inevitable that such problems occur, but selling a home before it appreciates can create an additional financial burden in an already difficult situation.

Things You Shouldn’t Do while Buy Home

Don’t Move Money Around, When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.

If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.

The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.

Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it “easier,” could make it more difficult for the lender to properly document.

So leave your money where it is until you talk to a loan officer.

About Insurance Cost for Homeowners

Homebuyers are required in almost every instance to buy a homeowners insurance policy for their desired piece of real estate. This protects the owner and the mortgage lender against losses caused by damage to the property, either from natural disasters or from human-made destruction. One of the main concerns of many homebuyers, however, is how much the insurance will cost. While there is no standard answer, understanding the factors that determine the price can help give buyers a good estimate of their premiums.

 # Fire Protection Accessibility

The closer your home is to a fire hydrant and a local fire station, the more likely your home is to be saved should a fire occur. This means less damage to repair and your insurance costs will be lower if you live close to these fire protecting features.

# The Size and Type of Home

The price of your premium is partially determined by things like the amount of the homes’ square footage, age and type of building materials used in the structure. It is also important to note whether your home has been recently updated or renovated as well as if there have been any additions made to it. All of these aspects will help the insurance company figure out how much it would cost to rebuild your house in case of a disaster. The more expensive the rebuilding costs the more expensive your insurance policy will be.

 # Local Crime Statistics

Since part of a homeowners insurance policy covers the cost of damage or loss of personal property due to theft or vandalism, the local crime rates will be factored into your premium price. A home located in a crime-ridden urban area will certainly mean higher costs than one situated in a quiet, suburban neighborhood.

# Regional Disaster Characteristics

If your home is in an area that is particularly prone to hurricanes or tornadoes, your homeowners insurance costs will be higher to account for this increased risk. Remember that earthquake and flood protection are not included in a standard policy. If you need to purchase either of these, you will obviously have to pay higher insurance premiums.

# Policy Extras

There are many nice insurance features that are not necessarily included in a standard policy. These include things like guaranteed replacement cost coverage, inflation guard clauses, and building-to-code endorsements. If you plan on adding any extras to your policy, you should expect to pay higher premiums.

Why Own a Property?

own-a-propertySavings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.

Appreciation. Historically, real estate has had a long-term, stable growth in value. In fact, median single-family existing-home sale prices have increased on average 5.2 percent each year from 1972 through 2014.  The recent housing crisis has caused some to question the long-term value of real estate, but even in the most recent 10 years, which included quite a few very bad years for housing, values are still up 7.0 percent on a cumulative basis. In addition, the number of U.S. households is expected to rise 10 to15 percent over the next decade, creating continued high demand for housing.

Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.

Predictability. Unlike rent, your fixed-rate mortgage payments don’t rise over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will likely increase.

Freedom. The home is yours. You can decorate any way you want and choose the types of upgrades and new amenities that appeal to your lifestyle.

Tax benefits. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes, and some of the costs involved in buying a home.

Stability. Remaining in one neighborhood for several years allows you and your family time to build long-lasting relationships within the community. It also offers children the benefit of educational and social continuity.

Things You Should Consider when Buy Properties

# Wages & Income

If you are going to take out a mortgage on a home (as most purchasers do) you are going to need an income and you are going to need some savings.  In Australia there are a number of measures of wages/income and it is difficult to know exactly which one is best to use to measure housing affordability.

The National Accounts measure the ‘Real net national disposable income – chain volume’.  This measure does have a number of shortcomings in that it is not an individual measure and that it includes items that one can’t really spend such as superannuation.  Additionally this data is only available from a national standpoint.  The Australian Bureau of Statistics (ABS) publishes its wage price index each quarter however, it measures wages only and doesn’t measure income captured from other sources.

The Census is undertaken every five years and does report on the median weekly household income however, the shortcoming here is that it is only updated every five years.  We also have the Household Income Survey from the ABS however it is only undertaken bi-annually and takes a fairly macro view of household incomes

Unfortunately all of these measures have significant shortcomings which need to be considered when looking at any housing affordability measure.

# Interest rates

Interest rates are a key component in determining housing affordability. Lower rates meant lower mortgage repayments, so ‘affording’ the repayments should be easier.

As we can see in the current market, lower interests rates often push property prices higher.  So while it’s true that lower interest rates make housing relatively more affordable, if values are rising and sales increase then it can somewhat offset the affordability benefit of lower mortgage rates.

“The current interest rate is not a great means of measuring the cost of a mortgage over its lifetime”

The typical home loan in Australia is 25 years and the vast majority of home loans are on a variable rate.  As a result, as the Reserve Bank adjusts monetary policy there is virtually an instant effect on household budgets and balance sheets.  While current rates are at record lows, over the past 10 years the variable mortgage rate has averaged 7.27%.

Over the last 20 years it has averaged 7.45% and over the past 25 years (the typical home loan length) it has averaged 8.47%.  Over the past 25 years, standard variable mortgage rates have been as high as 17.0%.

The point is that interest rates can vary greatly over 25 years and over the life of the loan the current interest rate is not a great means of measuring the cost of a mortgage over its lifetime.

# Home values & prices

Most measures of housing affordability look at median prices or median values.  The important thing to remember here is that a median is just the middle value so there are just as many homes worth more and less than that figure.  In fact the median price looks only at the middle value of properties which have sold over a period.  This obviously has significant shortcomings because what is predominately selling could be at the affordable or expensive end of the market and this could bias the median one way or another.  Remember that typically only 5% to 7% of total housing stock is bought and sold in a given year.

# Rental rates

If you don’t own a home or pay off a mortgage you have to live elsewhere and for the most part non-home owners rent.  The cost of renting is an important consideration when trying to determine housing affordability.  If rents are increasing but home values are flat or falling, purchasing a home may start to look a more attractive prospect.  Once again the challenge with a measure which compares rents to house prices (or mortgage repayments) is that it is not a localised analysis.

For example for the cost of renting in Paddington in Sydney you may actually be able to pay off a mortgage in Guildford but to the renter is the opportunity cost of owning their own home and being further away from the city centre, harbour and the beaches worthwhile?  Who knows but for anyone looking to purchase these are the sorts of questions they need to be asking themselves.

The other key consideration is that the ongoing costs associated with owning a home as opposed to renting are difficult to determine, but they are much more than renting.  As a renter, the ongoing costs generally include: the rent, the bond, electricity, gas (if applicable), cleaning (if you move rentals) and the cost of moving if/when you move.

As an owner of a home the costs incurred include: the mortgage, electricity, gas, council rates, stamp duty when you purchase, ongoing maintenance of the property, strata fees (if you own a unit) and agent fees if/when you decide to move.

The ongoing costs associated with owning a home are much greater than the ongoing costs of renting.

# Labour force & unemployment

Paying off a mortgage eats up a significant portion of a family’s wage.  Undoubtedly if home values weren’t so high and mortgages weren’t so large disposable incomes would be much greater.  Although labour force data or unemployment statistics need not necessarily be an input into any housing affordability measure they are a key consideration for someone looking to purchase.

The threat of unemployment means that despite the fact housing may seem affordable it is less likely someone would purchase.  Obviously if you are unemployed it is going to be difficult to purchase a home.

Another factor to consider is although measures of income show that over recent years wages and disposable income have increased, what they don’t take into account is how many more women are working nowadays.  Labour force data shows that in May 2014, 54.1% of the workforce was male and 45.9% was female, 30 years ago 62.3% was male and 37.6% was female.  Today, 35.5% of full-time workers are female compared to 28.9% 30 years ago.

The point here is that although household incomes have increased, a big proportion of the increase is due to the structural change associated with a greater number of women in the workforce.   The rising prevalence of dual income households means that whereas 20 to 30 years ago couples could afford mortgage repayments on a single wage, today they largely require dual incomes.

# Who does housing affordability affect most?

Housing affordability affects everyone.  The high cost of housing acts as a disincentive for people to move to more appropriate locations, discourages people from upsizing and downsizing and discourages movement intra or interstate for employment.  The group most affected by housing affordability however is those who don’t as yet own a home.

Again if we think about many of the measures of affordability used, they look at typical or median prices values and compare to interest rates and typical wages.  The problem with this approach is that very few people are actually typical.

As a generalisation, most people that rent are younger, starting out their careers.  There is a high likelihood that their wage is currently lower than the median (although there is a good chance it will increase as they are promoted or move jobs).  If their wage is below the typical wage then they should not be looking to buy the typical (or median house).

Of course there are plenty of renters that earn above average wages but choose not to purchase as well, but when trying to tackle the affordability question many of the measures  we look at are far too simplistic, but hamstrung by the quality and granularity of income data.

Purchase Property Negotiation Tactics

# Keep budget close to your chest

“The first person to name a price loses,” Callaughan says.

Always draw out the other party before you give any indications of your budget or valuation of the property.

The less the other party knows about the depth of your pockets, the better.

“In negotiations, if you are the first person to show your hand, you are most likely going to end up losing.”

# Find a deal sweetener

When Sydney investor Brad Callaughan is serious about buying a property, he spends serious time discovering what it is the vendor really wants.

It may be a short settlement because of an imminent divorce.

Or perhaps they have a soft spot for buyers offering unconditional contracts?

“Find out what the other person wants because the key to negotiations is making them a ‘win win’ proposition,” says Callaughan, the director of Callaughan Partners, accountants, business advisors and financial planners.

# Cash trumps all

It’s old school and it works. Make a cash offer when haggling a home price discount.

It doesn’t mean you need to carry wads in a backpack to every home auction and open house.

“Make a cash offer when haggling a home price discount”

Just get your finances sorted and arrange easy access to these funds before talking turkey.

It means you can pay that all-important contract deposit on the spot … a killer tactic when deal-making.

# Go in hard and fast

In a red hot market, don’t risk losing out by making low-ball offers. It wastes time and gives rival buyers time to swoop.

If you have done your research and know the home’s market value, make your first offer your biggest, advises buyer’s advocate Catherine Bakos of Empower Wealth.

“Do your research,  know the home’s value and make your first offer your biggest.”

In a rising market, Bakos says she sometimes uses “knockout blows” to stun vendors and secure sales before the market and prices have had time to catch up.

# Butter up the selling agent

Callaughan also recommends giving the vendor’s agent an incentive.

“This doesn’t mean you become unethical and make the agent act unethically but when I buy a flipper property (one he intends turning over quickly), I offer the agent the resale if they are to help me in my negotiation.

“Suddenly they have the chance of making two commissions on the one property, which is a huge incentive.”

Purchase The Proper Townhouse

Twenty years ago, townhouses had a reputation of being poorly built and in the wrong location, but over the last 10 years that perception has been turned around.

Townhouses are delighting owners nationwide. But if you’re buying with an eye to investment, the difference between a townhouse with great growth potential and a less impressive performer is not always apparent to the untrained eye.

To guide us in buying the right townhouse, spoke to two experts: Michael Finger, Director at Ray White, Double Bay, smack in the middle of Sydney’s exclusive eastern suburbs; and Paul Osborne, founder of Secret Agent, a buyer’s agency specialising in inner Melbourne.

I started by asking our experts what accounted for townhouses’ image makeover in the last 10 years. Osborne told me that from around 2000: “There was a concerted push back into the inner city  and what many buyers found were old terraces which were cramped, had rising damp and lacked natural light.”

“Putting up new townhouses on small blocks of inner city land was the developers’ response. These two and three level buildings created more accommodation and their elevation delivered natural light and a view over the rooftops that older houses lacked.”

And how is the townhouse market playing out now? Finger told me that in Sydney, townhouses are being snapped up.

“The older ones come at an attractive price point for younger couples entering the market. At the higher price level, what’s driving interest is downsizing empty nesters. With the uptick in the market, this older generation have been able to sell the family home and see a townhouse as a better alternative than an apartment.”

“Many downsizers look at high rise buildings, but the owner corporation levies are often lower for townhouses. Some strata apartments are charging two thousand dollars a quarter, even five or six thousand dollars a quarter, which is just ridiculous.”