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| Here you will find a number of articles written by Pat for the Senior Voice and others. If you would like additional information, please contact Pat! |
Appraisers
Appraisals: fact or fiction?
According to Homes.com an Appraisal is "an opinion of the value of a property at a given point in time." They do not refer to it as an absolute fact. But, rather as an opinion which is subject to change with time. Those of us in the Real Estate Industry are acutely aware of how appraisals tend to change depending not only on time but also on the reason they are being used and who is doing the appraisal itself. For example, appraisals done for refinances have historically been at higher valuations than those used for sales.
Lenders typically give Appraisers the price that a Property needs to appraise for: According to Karen Tool of Tool, McCarthy Appraisals "On refinances I don't pay a lot of attention to the Borrowers/Lenders estimate of value. But, a less ethical appraiser will. On home purchases a typical range of indicated value on a given Property is 3-5%. If a house is selling at $200,000 and my range of value is $196-202,000 and I don't know the price the Property is selling for, then I may come in under the sales price by $500-$1,000 thereby adversely affect the sale. The value is there, but without knowing the contract price I might inadvertently create a problem where none should exist. Ethically I am bound and I strive to come in at market value regardless of the intended use of the appraisal."
HUD Secretary Mel Martinez proposed in January that Lenders be threatened with debarment, suspensions and fines if they are found to be associated with poor appraisals. Don Kelly, vice president for the Appraisal Institute in Washington, D.C. says "We have been asking for this for a long time. Now it sounds like (the government) is getting serious about lender pressure on appraisers, and on the responsibility lenders share for the appraisals they submit."
Attorneys for the banking industry have countered with their belief that it is not the Lenders job to check every little fact on the appraisals. Additionally, they don't want to be held responsible if the Appraiser fails to notice some defect on the Property.
The Government says Lenders can quality-check appraisals (at least those that are sending their mortgages to the FHA for insurance coverage. He insists they can perform "quality assurance" examinations, and review appraisers on a regular basis to ensure conformity with FHA's guidelines.
Good appraisers need to be able to operate without undue pressure from Lenders. Hopefully the Government's actions will help them do that.
Pat Olian has been a Real Estate Broker in the Northern Colorado area for over 15 years. She can be reached at (970) 227-5486 or Toll Free at 1-800-846-0211 or by E-MAIL at pat@patolian.com
Bridge Loans
I Found My Dream Home....but, my House Hasn't Sold Yet!
You have had your eye on a particular house for years. At last there´s a sign in the yard. Someone is likely to snap it up in a hurry. What can you do?
Ordinarily, you should have your house solidly under contract before you set out to purchase another. But, there are times when that´s not practical. The Seller may want to sell to you only if you are willing to close quickly. You may have young children or elderly parents at home which makes showing the house difficult. Your business is in your home and Buyers can´t be walking through during work hours. There are any number of reasons why you might want to buy another house before you put yours on the market, or at least before you close on your existing property.
There are ways to take advantage of the equity you have built up over the years. Firstly, you might take out a bridge loan. This is a short-term mortgage placed on your current residence or on both the existing and the new home for the specific purpose of buying the other Property. This loan is paid off upon the closing of the sale of your current house. These loans are frequently interest only loans. Some lenders will roll the fees for a Bridge loan into your permanent financing once you have closed on your old home.
A piggyback mortgage is another option. It is merely a second loan on one property. Let´s say the new home´s sales price is $400,000 and you want to use the equity in your current home to give you a final mortgage of $100,000. You put down a small amount, say 5 or 10 percent, apply for a first mortgage of $100,000, and obtain a second (piggyback for $260,000. Upon closing of your old home you pay off the $260,000 loan and you are left with your $100,000 mortgage.
These are only two of the possible options available to you. It may be possible for the Seller to carry back a short-term loan for you. Relatives can be particularly helpful in limited time situations. Don´t assume that all is lost. Consider your options carefully and ask the experts for their suggestions.
Pat Olian, CRS, ABR, e-PRO Pat has been a Real Estate Broker in the Fort Collins/Loveland market for over 15 years. She can be reached at 227-5486 or by e-mail at pat@patolian.com
Homebuilding Process
Steps Towards Building a New Home
The process varies greatly depending on the type of house you are selecting; tract house, semi-custom or custom home.
In the first case you are usually limited to the Builder or Builders who are working within a given subdivision and to the existing floorplans with relatively few modifications.
A semi custom home builder will give you greater flexibility. Typically you purchase the lot and the Improvements together as a package. A semi custom home builder has a variety of floorplans to choose from and it is expected that you will make some modifications to these plans. They will offer you a list of their standards and you may go with those or choose other options such as upgraded flooring, tile, extra high ceilings etc. The Builder will either supply you with typical upgrade costs or will give you an allowance for the standard appliances and you may either choose other appliances within the allowed budget or pay the difference to upgrade to a better product.
A custom home builder will work with you either from their own plans or from plans you submit with the help of an architect. It is the longest of all the processes and the most costly. However, you should get exactly what you want when the house is completed.
Choosing a Builder:
Always remember to check references. For a tract home builder you can literally knock on the doors of other people whose houses have been completed and ask them how it went. Did the Builder complete the house on time? Were there hidden costs? Were the Builder and the Subcontractors easy to work with?
The process is much the same for semi-custom and custom home builders. A Builder who has done a good job in the past is likely to do so again. Conversely a Builder who was difficult to work with will probably continue to be difficult in the future.
Price per square foot:
There is a very wide range in cost per square foot. The differences primarily stem from the type of materials used and the sufficiency of construction. Additionally, in many cases the dollar value per square foot includes the lot. Some lots carry premiums for views, or the ability to have walk-out basements or privacy etc. The lot premiums will certainly affect the dollar per square foot figures. The best thing to do is to ask the builder what their approximate dollar value per square foot is and compare it to other builders who appear to have a similar quality construction. Generally speaking, the greater the volume of properties a given builder is doing the lower their costs are.
But, be careful when comparing costs. You need to know what types of standards they are using to give you an average cost. In one case they may be including oak flooring in the entryway and kitchen and in another case this may be carpet and vinyl. Always compare apples to apples.
Get a C.L.U.E.
I am currently involved in a real estate transaction with an interesting problem. It seems the Homeowners filed a few claims with their insurance company over the last several years. The Buyers have no previous claims of their own. But, because of the claims filed against the house, insurance is more difficult to acquire. This is a fairly new home. But, there were 3 small claims against the Property.
Many insurance companies use C.L.U.E. Reports in determining the eligibility of a person or property to receive insurance. (Comprehensive Loss Underwriting Experience) The C.L.U.E. report contains information about property claims filed by an insured person or claims filed in connection with a particular property. Not all insurance companies use the report, and those that do don't use all the information in the same way. You still need to contact your insurance agent to determine how it might affect you. Homeowners may receive copies of the report on their property by going on-line to www.choicetrust.com or by calling A-Plus at 1-800 709-8842.
You can create negative marks on the report by having poor credit scores or even just by calling your insurance agent regarding deductibles. You do not have to make a claim, simply calling to ask about the possibility of making a claim is enough. I have worked with one Buyer who was denied coverage merely because she called her insurance company with inquiries. I called the Insurance company myself and was told they were denying her because it was their belief that if she made several calls that ultimately she did intend to file a claim. It is important to note that this person has never filed a homeowners claim against an insurance company. CLUE Reports contain information for the last 5 years.
In years past, Homeowners Insurance was one of the last things to be dealt with in a Property transaction. Most lenders required proof of insurance (a binder) at closing. Now, it's one of the first items covered. The problem has become so serious that effective immediately, all real estate contracts prepared by licensed real estate brokers in Colorado must contain the following verbiage: "This contract is conditioned upon Buyer's satisfaction, in Buyer's subjective discretion, with the availability, terms, conditions and premium for property insurance. This contract shall terminate upon Seller's receipt, on or before _____________(Property Insurance Objection Deadline) of Buyer's written notice that such insurance was not satisfactory to Buyer. If said notice is not timely received, Buyer shall have waived any right to terminate under this provision."
Back to my story....the first Buyer to write an offer on this property wanted to get out of the contract. They chose to use the insurance provision as their way out. They would have paid about $1,000.00 per year to insure this $300,000 home. It is now under contract with another Buyer. The problem has been disclosed and the new Buyer, as of this writing, appears to be satisfied with the situation and plans on closing as scheduled.
What's so important about lead paint, radon, asbestos etc.?
Most Sellers in Colorado fill out a "Sellers Property Disclosure" when they list their Property. This Document is intended to tell the Buyer about the general condition of the Property as well as any material defects of which the Seller has actual knowledge. The level of knowledge of Homeowners can vary greatly, so it is always a good idea to make an Independent Inspection of the Property.
The Federal Government requires that sales of all homes built prior to January 1st of 1978 have a lead based paint disclosure. While it is true that lead based paint in this area was no longer in use after 1960, this is still a requirement we must fulfill.
Additionally, the City of Fort Collins requires that sales of properties within the city limits involve giving the Buyer a Radon Booklet. There is no "requirement" to mitigate if there is a "high" radon reading. But, the EPA suggests that any reading above. 4.0pcL should consider mitigation.
All Real Estate commission approved contracts in the State of Colorado contain provisions for a Buyer to be able to investigate the condition of a home. Not everything is covered within the scope of an inspection.* Some additional concerns may relate to shifting soils (bentonite), some exterior stucco issues, mold, asbestos etc. Termites have not been of major concern in the past but there have been some cases in this area recently. It is always wise to check whether a given property is located within a flood plain or not.
Lead Based Paint Government Info
Radon Brochure
Asbestos
Fort Collins Floodplains (Check both maps)
Mold
Bentonite
Synthetic Stucco
Termites
The above list is not intended to describe all of the potential problems one might find with Properties in this or any area,
*For a list of inspectors, please check my Preferred Providers.
Value of Remodeling Projects
Annually, Remodeling Magazine submits its "Cost vs. Value Report". Constructioncosts by city are examined as well as sales and value information submitted by Appraisers and members of the National Association of Realtors®.
The 2004 figures included here are based on the typical dollars spent and recouped in the Denver market. While the Fort Collins/Loveland market differs somewhat from Denver, it is a reasonably close approximation. The five most valuable home improvements in this area are: Kitchen remodels, Family room additions, Master suite additions, Bathroom remodels and finally Bathroom additions.
Kitchen remodels cost an average of $42,000 in midrange Denver homes and $69,000 on upscale properties. The percentage of cost recouped at sale was 66.5% and 73.0% respectively. Family room additions cost around $50,000 and recovered about 68.7% of cost at time of sale. The Master Suite Additions cost $67,000 in midrange homes and $129.000 in the upper end properties. The percentage recouped for the former was 67.3% and 63.4% for the latter. Bathroom remodels cost $10,000 for midrange and $23,000 for the more upscale properties. Anticipated recovery on those was about 73.1% and 62.3%. Bathroom additions were more valuable in midrange homes presumably because more expensive homes already had a sufficient number of baths. The cost for these additions ranged from $14,500 on average price homes and $37,000 for the upper end. The recovery was 66.3% and 51.6% respectively.
These figures may seem a little disappointin to people in this area. Metropolitan areas in the top 50 nationally in terms of appreciation recouped more than the national average of 86.4%, those homes recovered about 109% of their costs. Those in the bottom 50 nationally (including Denver) reported an average recovery of only 65%. Northern Colorado is likely to fall right around the national average at this time. One of the things a remodel may do is help a Property sell faster than its competition. It's hard to calculate that impact but condition does play a large role in what sells quickly and what doesn't.
Our local area has some issues which are specific to our market. The enormous availability of new home construction makes it easy for a Buyer to find everything they want without having to take on the hassle of a remodel. On the other hand, our climate means it takes a long time for landscaping to mature and therefor privacy to increase so those Buyers who consider that to be a priority will almost always opt for the remodel. Additionally, develpment land is becoming more scarce and moderately priced new home construction may not be so easy to find in the future.
There are other factors to consider when contemplating a remodel project. Particularly high on the list today may be the impact of reduced energy costs when adding insulation or replacing windows. Less tangible benefits include renewed pride in your home or improving the functionality of a particular room. Need a place for your treadmill....create it. While these improvements may or may not help your house sell they do make it a nicer place for you to live. What's that worth to you?
What to do if my Lender says "No"
MY LENDER SAID "NO!" Now what?
First, you should always try to get yourself preapproved before you start looking to buy. Not only does it make the process easier, it also makes you a more attractive prospect for your eventual Seller and puts you in a better negotiating position.
But, let´s say that your dream house suddenly becomes available and you aren´t even shopping for a home. Now what? Your first step now is writing an offer and putting the house under contract before someone else does. Next, it´s off to see your lender.
Suppose your lender says you don´t qualify. Can anything be done? Absolutely!
DO NOT TAKE THIS PERSONALLY! DO NOT LET ONE "NO" BE THE FINAL ANSWER!
There are many reasons why you may have been turned down. You need to know why.
DO NOT BE AFRAID TO ASK! THIS IS INFORMATION YOU NEED! YOU MAY BE ABLE TO CHANGE THE LENDERS MIND IF YOU KNOW WHAT THE PROBLEM IS!
It could be that your lender is overly restrictive in underwriting guidelines. You might possibly be able to qualify with a larger down payment or possibly by reducing some of your existing debt. Is there another loan program which would make it easier to qualify?
There are adjustable rate programs that let you qualify on a lower interest rate even though you may be paying a higher rate in the future.
Additionally, there may be questions that your lender didn´t ask you that could make the difference. Is there a bonus in the near future for you? Are you getting a pay raise shortly?
Damaged credit is also not necessarily a reason for not getting a mortgage. Generally speaking, credit problems do not mean that you can´t qualify for a loan3;.they merely mean that you can´t qualify for the most favorable type of loan. You will probably still qualify for a loan at a higher interest rate. Lenders rate loans on a letter basis from A to D. The higher the rating, the lower the risk to the Lender. "C" grade loans might go to a borrower who had as many as six late payments on installment loans and four late payments on credit cards in the last twelve months. The same borrower might even have had a couple of late mortgage payments. This loan would typically be at a couple of interest points higher than a grade "A" loan.
THE LENDER DOES NOT MAKE MONEY UNLESS THEY ARE ABLE TO GIVE YOU A LOAN! THEY WANT THIS TO HAPPEN AS MUCH AS YOU DO!
Your home is typically the largest financial investment you'll ever make. We have become accustomed to high appreciation over the last few years. Unfortunately, that's not always the case. So, how do you protect your greatest investment?
There are several ways:
First, try to buy it in a community that is likely to increase in value over time. What are the things buyers look for in determining whether or not a particular city is one where they would choose to move.
According to CNN Money Magazine, the criteria they look at include income, cost of living, housing prices & appreciation, colleges & universities, above average state test scores, crime stats, cultural and recreational facilities, weather and health. (Please note that Fort Collins/Loveland was selected as their number one place to live for 2006)
Good Morning America's real estate contributor, Barbara Corcoran states that Buyers should look for a charming downtown area. Good public schools, affordable home prices. According to Corcoran, this means the median home prices shouldn't be greater than three times the annual median gross income.
In a perfect world less than 5% of the homes in town should be for sale. She suggests looking to see whether or not the empty nesters have left town or chosen to stick around because the quality of life appeals to them too. She prizes zoning regulations even though they can be difficult to deal with at times. Her rationale is that they help protect property values.
Once you have settled in Fort Collins/Loveland (we of course meet the criteria described), it is time to decide on the house itself. Corcoran suggests that the best price range to consider is the middle. Neither too high, nor too low. Staying in the middle of the pack will give you the greatest number of potential buyers when you are ready to sell. Brick is the exterior of choice. This can vary area by area so it's best to discuss this with your Realtor. Sunlight is prized by Buyers everywhere. Few people choose to live in a cave these days.
Now that you have decided on your home, there are other important decisions to make. Chief among those is financing. You want to find a loan that will work for you in good economic times and bad. So, be very careful when considering an adjustable rate mortgage. If you plan on being in this home for a short time then it can be a great idea. However, if you plan on being there more than 3-5 years, it may not be advisable. Avoid extreme mortgages such as interest only unless they are being used as a VERY SHORT TERM stop gap measure.
Let's assume a couple of years have elapsed. What can you do to retain or improve your home's value? Keep it updated. Every few years you should visit new construction homes and see what's happening. Take the best of what you see and consider applying it to your home. Keep the exterior of your home painted and the landscaping in good condition. Most buyers make up their minds before they even walk in the front door. Make their first impression of your home a good one.
How to Protect Yourself When Buying a New Home
Many buyers opt for new construction because they view buying an existing home as buying someone else's problem. This is sometimes true, but certainly not always. So, how do you protect yourself when buying a new home?
The first thing may be to readjust your expectations. Buying a new home does not necessarily mean buying a perfect house. The price you pay does also not always guarantee that the house will be problem free.
The first thing you want to do is find out about your building partner. Ask your builder to supply you with references from Buyers they have worked with previously. You might also call the Better Business Bureau in the community in which you are building. The National Association of Home Builders is another good resource. Your Realtor may also have knowledge about a particular builder. Remember, this is likely to be your greatest single investment, treat it accordingly. Some Buyers hire home inspectors or engineers to monitor the process over time. Others are opting to be present themselves during certain phases construction. If you do hire an inspector or engineer, make sure they go over any architectural drawings with you. These are always preferable to the basic floor plans printed in the sales brochures. Ask your builder whether or not they would be willing to share them with you. Check with your builder before you sign a contract with them to make sure they will allow you to have an inspector visit the property on your behalf from time to time.
One thing you may ask your Realtor to check on is whether there are plans for any of the vacant land near where you are looking to build. Your Realtor can also check on the types of incentives the builder may be offering. It is common for a builder to offer free upgrades if you use their lender. However, the upgrades may not be free at all. Always be sure to compare the rates and costs their lender is offering with others in the area.
If you take out a construction loan, try to negotiate with your builder that he get your signature when making withdrawals from the account. That way you can verify that progress has been made before more funds are released.
One of the problems with new construction can be interest rates. It is very difficult to lock in a rate for permanent financing at the time you start construction. See if your lender will allow you to extend your lock in the event there are construction delays. You might try to secure a guarantee form the builder that he will help pay to bring your interest rate down to the originally locked in rate if construction delays occur for reasons other than an act of nature.
Once the house is completed, be sure to do a detailed walk-thru. It is best not to close until any of the flaws you spotted have been totally corrected. Most builders will give you a minimum of 11 months to continue to find items that need to be fixed. Some builders prefer you to keep an ongoing list that they can do all at one time. Others want to know immediately if there are any items needing attention. Taking pictures or videos of the flaws can give you added protection.
Ask the builder what time of warranty you will be receiving. Make sure you take advantage of it in a timely manner and document all requests you have made.
Take a look at the the Pre-Settlement Walk Through Check List provided by the National Association of Home Builders. Now relax, after all it's a new house and it shouldn't have any problems, right?
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