Can I find out the value of my home through the Internet?
You can get some idea of your home's value by searching the Internet. A number of Web sites and services crunch the numbers from historic public records of home sales, while other services calculate an estimate based on a combination of public records and acceptable software appraisal standards. Keep in mind, however, that these sites and services don't produce official appraisals. They also don't factor in market nuances or other issues a certified appraiser or real estate professional would consider when assessing the value of your home.
What are the standard ways of finding out how much a home is worth?
A comparative market analysis and an appraisal are the standard methods for determining a home's value. Your real estate agent will be happy to provide a comparative market analysis, an informal estimate of value based on comparable sales in the neighborhood. Be sure you get the listing prices of current homes on the market as well as those that have sold. You can research this yourself by checking on recent sales in public records, but be sure that you are researching properties that are similar to your own in size, construction and location. Your local recorder's or assessor's office would be a good place to start, although you can also find this information through private companies as well as on the Internet. An appraisal, which generally costs $200 to $300, is a certified appraiser's opinion of the value of a home at any given time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality.
What is the difference between list price, sales price and appraised value?
The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area. The sales price is the amount of money you as a buyer would pay for a property. The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.
What is the difference between market value and appraised value?
Market value is the price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker.The appraised value of a house is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process; fees range from $200 to $300.Either an appraisal or a comparative market analysis is the most accurate way to determine the value of your home.
What is the return on new versus previously owned homes?
Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood, but any increase in home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the overall economy.
What standards do appraisers use to estimate value?
Appraisers use several factors when estimating a home's value, including the home's size and square footage, the condition of the home and neighborhood, comparable local sales, any pertinent historical information, sales performance and indices that forecast future value.
What's a house worth?
Ultimately, a home is worth what someone is willing to pay for it. Everything else is an estimate of value. To determine a property's value, most people turn to either an appraisal or a comparative market analysis.
An appraisal is a certified appraiser's estimate of the value of a home at a given point in time. Appraisers consider square footage, construction quality, design, floor plan, neighborhood and availability of transportation, shopping and schools in their estimate. Appraisers also consider lot size, topography, view and landscaping. Most appraisals cost about $300.
A comparative market analysis is a real estate broker's or agent's informal estimate of a home's market value, based on sales of comparable homes in the neighborhood. Most agents will give you a comparative market analysis for free.
You can do your own cost comparison by reviewing recent sales of comparable properties in public records. These records are available through your local recorder or assessor, through private real estate information companies or on the Internet.
What are closing costs?
Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless these charges are rolled into the loan, they must be paid when the home is closed.
Who pays the closing costs?
Closing costs are either paid by the seller or buyer, which often depends on local custom and what the two parties negotiate.
Why do I need a title report?
As much as you as a buyer may want to believe that the home you have found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property. A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you.
When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is "fee simple" or "fee," which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report. You also may have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase. A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as potential building and zoning laws.
Do we dig deep and buy a dream home or settle for a starter home?
Choosing between a smaller house in an affluent neighborhood, an older, bigger house in a more working-class community or a brand-new home is not easy. If you're in this situation, start by examining your priorities and asking the following questions:
- Is the surrounding neighborhood or the home itself the most important consideration?
- Is each of the neighborhoods safe?
- Is quality of the schools an issue?
- Do any of the areas seem to attract more families with children or adult residents? And where do you fit in?
As for the return on your investment, home-price appreciation is hard to predict. In the late 1980s, and again 10 years later, the more expensive move-up housing appreciated wildly. But during the recession that followed, smaller homes tended to hold their value better than more expensive ones.
How do I get the real scoop on homes I am looking at?
Home inspections, seller disclosure requirements and the agent's experience will help. Disclosure laws vary by state, but in some states, the law requires the seller to complete a real estate transfer disclosure statement. Here is a summary of the things you could expect to see in a disclosure form:
- In the kitchen -- a range, oven, microwave, dishwasher, garbage disposal and trash compactor.
- Safety features such as burglar and fire alarms, smoke detectors, sprinklers, security gate, window screens and intercom.
- The presence of a TV antenna or satellite dish, carport or garage, automatic garage door opener, rain gutters and sump pump.
- Amenities such as a pool or spa, patio or deck, built-in barbeque and fireplaces.
- Type of heating, condition of electrical wiring, gas supply and presence of any external power source, such as solar panels.
- The type of water heater, water supply, sewer system or septic tank also should be disclosed.
Sellers also are required to indicate any significant defects or malfunctions existing in the home's major systems. A checklist specifies the condition of interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors and foundation, as well as the electrical and plumbing systems. The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachments or easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property. Also look for, or ask about, settling, sliding or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, floods or landslides. People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions.
It's important to note that the simple idea of disclosing defects has broadened significantly in recent years. Many jurisdictions have their own mandated disclosure forms, as do many brokers and agents. Also, the home inspection and home warranty industries have grown significantly to accommodate increased demand from cautious buyers. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.
How do you choose between buying and renting?
Home ownership offers tax benefits as well as the freedom to make decisions about your home. Renting, on the other hand, frees you from maintenance worries and other financial obligations associated with owning property. There also are a number of economic considerations. Unlike renters, homeowners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially. Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.
What are the pros and cons of adding on or buying new?
Before making a choice between adding on to an existing home or buying a larger one, consider these questions:
- How much money is available, either from cash reserves or through a home improvement loan, to remodel your current house?
- How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
- What do local zoning and building ordinances permit?
- How much equity already exists in the property?
- Can you satisfy your changing housing needs by purchasing a new, affordable property?
Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value.
What do all of those real estate acronyms in the ads mean?
If you find yourself stumbling over weird acronyms in a real estate listing, don't be alarmed. There is method to the madness of this shorthand (which is mostly adopted by sellers to save money in advertising charges). Here are some abbreviations and definitions from a recent newspaper classified section:
- assum. fin. -- assumable financing
- dk -- deck
- gar -- garage (garden is usually abbreviated "gard")
- expansion pot'l -- may be extra space on the lot, or possibly vertical potential for a top floor or room addition. Verify actual potential by checking local zoning restrictions prior to purchase.
- fab pentrm -- fabulous pentroom, a room on top, underneath the roof, that sometimes has views
- FDR -- formal dining room (not the former president)
- frplc, fplc, FP -- fireplace
- grmet kit -- gourmet kitchen
- HDW, HWF, Hdwd -- hardwood floors
- hi ceils -- high ceilings
- In-law potential -- potential for a separate apartment. Sometimes, local zoning codes restrict rentals of such units, so be sure the conversion is legal first.
- large E-2 plan -- this is one of several floor plans available in a specific building
- lsd pkg. -- leased parking area, may come with an additional cost
- lo dues -- find out just how low these homeowner's dues are the scale by which they're measured.
- nr bst schls -- near the best schools
- pvt -- private
- pwdr rm -- powder room or half-bath
- upr- upper floor
- vw, vu, vws, vus -- view(s)
- Wow! -- better check this one out.
Do I need a home inspection?
Yes. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix.
How do I find a home inspector?
Your realty agent is one source. But keeping them independent from the agent may be a good idea. Inspectors are listed in the yellow pages or you can ask for referrals from friends. Ask to see the inspector's credentials, such as a contractor's license or engineering certificate. Also, check out their references. One can usually find an inspector by looking in the phone book, by inquiring at a real estate office or sometimes at an area realtor association. Rates for inspection services vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection.
What's a home inspection?
A home inspection is when a paid, professional inspector -- often a contractor or an engineer -- inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and/or are paid by the buyer. The inspection usually takes place after the buyer and seller have signed a purchase contract.
What kind of home insurance should I get?
A standard homeowners policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage. It also protects against water damage from plumbing, heating or air conditioning systems, according to the Insurance Information Institute, a Washington, D.C.-based nonprofit group for the insurance industry.
Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents. A basic policy can be expanded to include things such as floods, earthquakes and even workers' compensation for servants or contractors. Home-based business coverage, an increasingly popular rider, does not cover liability associated with the business. Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home, for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000. For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property.
Some experts recommend an inflation rider, which increases coverage as the home increases in value.
Are low-ball offers advisable?
A low-ball offer is a term used to describe an offer on a house that is substantially less than the asking price. While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the seller will likely reject any low-ball offer. You should always research comparable prices in the neighborhood before making any offer. It also pays to know the seller's motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons.
Can you buy homes below market?
While a typical buyer may look at five to 10 homes before making an offer, an investor who makes bargain buys usually goes through many more. Most experts agree it takes a lot of determination to find a real "bargain." There are a number of ways to buy a bargain property:
- Buy a fixer-upper in a transitional neighborhood, improve it and keep it or resell at a higher price.
- Buy a foreclosure property (after doing your research carefully).
- Buy a house due to be torn down and move it to a new lot.
- Buy a partial interest in a piece of real estate, such as part of a tenants-in-common partnership.
- Buy a leftover house in a new-home development.
Do I need an attorney when I buy a house?
In some states you do need an attorney to complete a real estate transaction, but in others you do not.
Most homebuyers are capable of handling routine real estate purchase contracts as long as they read the fine print and understand all the terms of the contract. In particular, they should be clear on the terms of any contingency clauses that will allow one party to back out of the contract.
If you have any questions at all, consult an attorney to avoid any legal hassles. When looking for an attorney, ask friends or your real estate agent for recommendations. Be sure to about attorney's fees and experience to check on their experience. In general, more experienced attorneys will cost more, but real estate fees, as a rule, are small relative to the cost of the property you are buying.
Is a low offer a good idea?
While your low offer in a normal market might be rejected immediately, in a buyer's market a motivated seller will either accept or make a counteroffer. Full-price offers or above are more likely to be accepted by the seller. But there are other considerations involved:
- Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, a good offer with contingencies may not be as attractive as a lower offer without any conditions.
- Is the offer to take the house as is, or does the buyer want the seller to make some repairs or lower the price instead?
- Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.
What are some tips on negotiation?
The more you know about a seller's motivation, the stronger your position. For example, a seller who must move quickly due to a job transfer may be amenable to a lower price with a speedy escrow. Other so-called "motivated sellers" include people going through a divorce or who have already purchased another home.
Remember, that the listing price is what the seller would like to receive, but is not necessarily the price for which s/he will settle. Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller's asking price stacks up. Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all.
What are the standard contingencies?
Most purchase offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
As a buyer, you could forfeit your deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the seller's responsibilities, which can include such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.
What contingencies should be put in an offer?
Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the seller's responsibilities, which can include such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.
What is the difference between list and sales prices?
The list price is the advertised amount for a house and is usually only an estimate of what a seller would like to get for the property. The sales price is the amount for which a property actually sells. It may be the same as the listing price, or higher or lower, depending on how accurately the property was originally priced and on market conditions. If you are a seller, you may need to adjust the listing price if there have been no offers within the first few months of the property's listing period.
Who gets the furnishings when a home is sold?
It depends. Fixtures, any kind of personal property that is permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace) automatically stays with the house unless specified otherwise in the sales contract. But anything that is not nailed down is negotiable. This most often involves appliances that are not built in (washer, dryer, refrigerator, for example), although some sellers will be interested in negotiating for other items, such as a piano.
Whose obligation is it to disclose pertinent information about a property?
>In most states, the seller is obligated to disclose pertinent information, but these rules vary. Under the strictest laws, you and your agent, if you have one, are required to disclose all facts materially affecting the value or desirability of the property you're selling and which are known or accessible only to you. This might include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property; and any restrictions on the use of the property, such as zoning ordinances or association rules. It is wise to check your state's disclosure rules prior to a home purchase.
Are interest rates negotiable?
Some lenders are willing to negotiate on both the loan rate and the number of points, but this isn't typical among established lenders who set their rates like large corporations set the prices on their goods. Nevertheless, it pays to shop around for loan rates and know the market before you go in to talk to a lender. You should always look at the combination of interest rate and points and get the best deal possible. The interest rate is much more open to negotiation on purchases that involve seller financing. These usually are based on market rates, but some flexibility exists when negotiating such a deal. When shopping for rates, look for published rates in local newspapers or check the growing number of Internet sites that publish such information.
Can you negotiate the price on new homes?
It can be difficult to negotiate the sales price with a developer because they may claim their prices are based on fixed construction costs. But it doesn't hurt to try.
Experts say builders are more likely to be flexible on price at the very beginning than and at the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain.
If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a developer will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example.
How is the price set?
It's very important to price your home according to current market conditions. Because the real estate market is continually changing, and market fluctuations affect property values, it's imperative to select your list price based on the most recent comparable sales in your neighborhood.
A so-called comparative market analysis provides the background data upon which to base your list-price decision. When you prepare to sell and are interviewing agents, study each agent's comparable sales report (the data should be no more than three months old).
If all agents agree on a price range for your home, go with the consensus. Watch out for an agent whose opinion of value is considerably higher than the others.
How much does my real estate agent need to know?
Real estate agents would say that the more you tell them, the better they can negotiate on your behalf. However, the degree of trust you have with an agent may depend upon their legal obligation. Agents working for buyers have three possible choices: They can represent the buyer exclusively, called single agency, or represent the seller exclusively, called sub-agency, or represent both the buyer and seller in a dual-agency situation. Some states require agents to disclose all possible agency relationships before they enter into a residential real estate transaction. Here is a summary of the three basic types:
- In a traditional relationship, real estate agents and brokers have a fiduciary relationship to the seller. Be aware that the seller pays the commission of both brokers, not just the one who lists and shows the property, but also to the sub-broker, who brings the ready, willing and able buyer to the table.
- Dual agency exists if two agents working for the same broker represent the buyer and seller in a transaction. A potential conflict of interest is created if the listing agent has advance knowledge of another buyer's offer. Therefore, the law states that a dual agent shall not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission.
- A buyer also can hire his or her own agent who will represent the buyer's interests exclusively. A buyer's agent usually must be paid out of the buyer's own pocket but the buyer can trust them with financial information, knowing it will not be transmitted to the other broker and ultimately to the seller.
Is there a secret to good negotiating?
There are several cardinal rules to negotiating effectively:
- Do your homework and learn as much about the seller or the buyer as you can.
- Play your cards close to your vest and don't reveal too much information to the other party or their agent.
- Don't let yourself get rushed into any decision, no matter how tempting it may be.
- Hire someone to help if you have doubts about your negotiating skill.
Should I include an inspection contingency in my offer?
An "inspection contingency" protects you as a buyer in a purchase offer by allowing you to cancel closing on the deal if an inspector finds problems with the property.
As soon as the seller accepts a written offer, the document becomes a legally binding contract. The purchase contract can be written to include a contingency for any repairs found to be needed or related items the seller must take care of before closing. If these are not dealt with, and you have such a clause in your contract, you can delay or possibly cancel the closing. If it's not stated in the contract, you could face losing your deposit. There also may be costly legal implications stemming from backing out of a contract.
You usually will have the right to choose the inspector (and be responsible for paying for the inspections). In addition to an overall inspection for structural soundness, you can request a satisfactory pest control inspection report, roof inspection report or contingency for no potential environmental hazards such as asbestos or radon gas.
Contingency clauses should satisfy the concerns of both the buyer and seller. Buyers also can protect themselves by inserting additional necessary contingencies. Indicate which items like curtains and appliances are to remain with the house. Then stipulate you have the right to personally inspect the home 24 hours before closing to make sure all is in order.
What is the best time to buy?
Because many buyers prefer to move in the spring or summer, the market starts to heat up as early as February. Families with children are eager to buy so they can move during summer vacation, before the new school year begins. The market slows down in late summer before picking up again briefly in the fall. November and December have traditionally been slow months, although some astute buyers look for bargains during this period.
What is the first step to buying a home?
Finding out what you can afford is one of the fist steps, which can be done by pre-qualifying for a home loan. This step will help you narrow your search for both a neighborhood and particular houses. A pre-qualification is a simple calculation that considers several factors, but primarily your income. There are no guarantees with a pre-qualification, but it will be expected of you when you make an offer on a home.
What repairs should the seller make?
If you want to get top dollar for your property, you probably need to make all minor repairs and selected major repairs before going on the market. Nearly all purchase contracts include an inspection clause, a buyer contingency that allows a buyer to back out if numerous defects are found or negotiate their repair.
The trick is not to overspend on pre-sale repairs, especially if there are few houses on the market but many buyers willing to buy at almost any price. On the other hand, making such repairs may be the only way to sell your house in a down market.
Are property taxes deductible?
Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.
Are taxes on second homes deductible?
Mortgage interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.
Do all loans require impound accounts?
If you are taking out a FHA or VA loan, the lender can require an impound account to pay real estate taxes and hazard insurance premiums, as with a standard loan. Most conventional loans do not require an impound account.
How do property taxes work?
Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate, on average 1.5 percent of the property's current market value. These annual local assessments by county or local authorities help pay for public services and are calculated using a variety of formulas.
How is a home's value determined?
You have several ways to determine the value of a home. An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality. This service varies in cost depending on the price of the home. On average, an appraisal costs about $300 for a $250,000 house. A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents offer free analyses in the hopes of winning your business. You also can get a comparable sales report for a fee from private companies that specialize in real estate data or find comparable sales information available on various real estate Internet sites.
What is an impound account?
An impound account is a trust account established by the lender to hold money to pay for real estate taxes, and mortgage and homeowners insurance premiums as they are received each month.
Where can I learn more about appealing my property taxes?
Contact your local tax assessor's office to see what procedures to follow to appeal your property tax assessment. You may be able to appeal your assessment informally. Mostly likely, however, you will have to go through a formal tax-appeal process, which begins with an appeal filed with the appropriate assessment appeals board.
Can I use an agent for a new home?
Yes, however buyers should be aware of the differences inherent in working with sales agents who are employed by the developer, rather than traditional real estate agents.
Builders commonly require that an outside agent be present, and sign in, the first time a prospective purchaser visits a site before they discuss commission payment. At times when buyers use an advertisement to find the development themselves, builders can refuse to pay any commission regardless of how helpful an agent may become later in the process. It is advisable to call the development first and inquire about their policy on compensating real estate agents if you are using one.
How do you find a good agent?
Getting a recommendation from a friend or work colleague is an excellent way to find a good agent. Be sure to ask if they would use the agent again. You also can call the managers of reputable real estate firms and ask them for recommendations of agents who have worked in your neighborhood. In any case, whether you are a buyer or a seller, you should interview at least three agents to give yourself a choice.
A good agent typically works full-time and has several years of experience at minimum.
If you are a buyer, you don't usually pay for your agent's services (in the form of a commission or percentage of the sales price of the home). The seller usually pays all agents involved in a transaction from the sales proceeds. In many states, this means that your agent legally is acting as a subagent of the seller. But in some states, it's legal for an agent to represent the buyers exclusively in the transaction and be paid a commission by the sellers. You also can hire and pay for your own agent, known as buyer's brokers, whose legal obligation is exclusively to you.
If you are a seller, you should interview at least three agents, who should make sales presentations including a comparative market analysis of local home prices in your area. The best choice isn't always the agent with the highest asking price for your home. Be sure to evaluate all aspects of the agent's marketing plan and how well you think you can work with the individual.
What about a buyer's agent?
In many states, it's now common for an agent to represent the buyers exclusively in the transaction and be paid a commission by the sellers. More and more buyers are going a step further, hiring and paying for their own agent, referred to as buyer's brokers.
Are fixers a good idea in bad areas?
It depends. Distressed properties or fixer-uppers can be found anywhere, even in wealthier neighborhoods. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood.
Many experts recommend that before you make such an investment, first find the least desirable house in the best neighborhood. Then do the math to see if what it would cost to bring up the value of that property to its full potential market value is within your budget. If you are a novice buyer, it may be smarter to look for properties that only need cosmetic fixes rather than run-down houses that need major structural repairs.
Are there any special tax breaks for historic rehab?
Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government.
The tax code does not allow deductions for the demolition or significant alternation of a historic structure.
What are some guidelines to follow when trying to find a contractor?
Hiring contractors recommended by friends is usually a safe route, but always do your homework and research their backgrounds firs before hiring them. If your state has a licensing board for contractors, call to find out if there are any outstanding complaints against that license holder. Also, call your local Better Business Bureau to see if there are any complaints on file. If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of worker's compensation insurance they carry and get their policy number and insurance company contact information so you can verify everything. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy. If they pass the insurance hurdle, next check their references. A good contractor will be happy to provide as many as you want. Finally, don't let yourself be rushed into making a decision, no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money.
What kind of return is there on remodeling jobs?
Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you, but its curb appeal with a potential buyer down the road.
Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.
Where are fixer-uppers found?
You can find distressed properties or fixer-uppers in most communities, even wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area. Ascertaining whether the property you're interested in is a wise investment takes some work. You need to figure the average sale price of a house in a given area, as well as the cost and type of the most desirable houses in the area.
Some experts suggest that buyers who take this route try to find a "cosmetic fixer," a property that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it.
The basic strategy for a fixer-upper is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within your budget.
Should I buy a vacation home?
Today a vacation home can be purchased for investment purposes as well as enjoyment. And yes, there are tax benefits.
Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can depreciate if you live in it fewer than 14 days a year, or 10 percent of the rented days - whichever is greater.
Should I hire a home inspector for a new home?
Most experts recommend having a home inspected, new or old. For a new home, ask the builder to provide copies of any inspection reports on the property, architectural plans, surveys and pertinent construction documents for your inspector to review. Your inspector should either be a professional home inspector, an engineer, an architect or a contractor.
If you hire a professional inspector, look for one who belongs to one of the home inspection trade organizations. The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge about structures and their various systems and appliances are prerequisites. Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection.
What about new versus previously owned?
Although new homes typically have a higher sales price than comparable older homes, buyers are willing to spend more upfront with an understanding that part of what they are paying for is assured low maintenance costs. A builder's warranty, along with a brand new roof, new appliances, new furnace and other operating systems that make major repairs unnecessary, work together to counteract a potential slow in appreciation. Data from the U.S. Census Bureau's American Housing Survey suggest that operating costs per house are lowest for brand-new homes, slightly higher for relatively new existing homes, but lower on average for older existing homes. Measured per square foot of living space; however, operating costs are consistently higher for progressively older existing homes.
Utility costs are the largest component of operating costs. Energy consumption per square foot depends on the size of the home, type of insulation, window quality, air leakage and efficiency of the furnace. Operating costs also include expenditures for both routine maintenance and major repairs.
What are considerations to buying a new home?
Builders may have a target market in mind for their new-home projects. Some may tout communities as glamorous to upscale urban professionals seeking amenities such as a golf course, hot tubs and tennis courts. Yet a playground and swimming pool might be central to a project geared toward families, while the next one offers seniors a walking trail and an easy-to-care-for yard.
Do not be tempted to move into a "glamorous" community where you might be able to afford the house, but not the lifestyle. In addition, similar-looking new houses often come complete with restrictions imposed by the developer on house color, landscaping, renovations and anything else a homeowner could do to make their house deviate from the preferred look.
Marketing experts try to appeal to buyer's tastes by promoting images for their developments. Don't buy into it. Form your own opinions and only buy a home where you feel comfortable. After all, you're going to have to live there.
What are some new-home cautions?
You can learn a lot more about the neighborhood surrounding a resale property than you can about a the community surrounding a new development.
Land to support new-home developments usually is located on the outskirts of town. Potential buyers should ask the developer about future access to public transit, entertainment activities, shopping centers, churches and schools. Find out how far it is to the nearest library, for example.
You should also review local zoning ordinances. A rather remote area can turn into a fast-food-chain haven within a couple of years. Try to ensure that the neighborhood, if not strictly residential, will not begin sprawling out of control.
What do you think of a vacation home as an investment?
You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits.
Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible.
Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. The property can also depreciate if you live in the house fewer than 14 days a year, or 10 percent of the number of rented days - whichever is greater.
You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.
How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for seven to 10 years.
Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to work with you.
How much will I spend on maintenance expenses?
Experts generally agree that you can plan on spending 1 percent of the purchase price of your house annually on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of homeownership. It also depends on how well the house has been maintained over the years. Newer homes will cost less to maintain than older homes.
What can I afford?
Knowing what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts.
It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and pre-qualify you for a loan.
The price you can afford to pay for a home will depend on six factors:
- Gross income
- The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
- Your outstanding debts
- Your credit history
- The type of mortgage you select
- Current interest rates
Another number lenders use to evaluate the amount you can afford is the housing expense-to-income ratio. It's determined by calculating your projected monthly housing expenses, which consist of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.
This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.
What is the standard debt-to-income ratio?
A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total.
The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent -- and still promptly make the payment each time -- has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income.
Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.
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