Dear Pat,
We recently wrote an offer to buy a house, and our agent presented the offer along with a letter from our mortgage banker saying that we were pre-approved to buy a house at that asking price. But the listing agent said that the sellers would not consider our offer unless we also supplied a "buyer's financial statement." We've bought before, and we never heard of anything so unnecessary and invasive of our privacy. Our agent was as surprised as we were! We were in competition anyway, so we withdrew our offer. Since when is a pre-approval letter from the lender not good enough?
--Still Miffed
Dear Miffed,
Sounds as if you are among the first to run afoul of the latest form fluttering down to us from the Minnesota Association of Realtors. As it's likely to be used in transactions, the Buyer's Financial Disclosure Statement won't be so much invasive as it will be annoying, particularly for mortgage brokers. Your lender is required to fill out the form, answering questions designed to determine just exactly where you are in the loan process. Verification of funds, source of funds, credit worthiness (no specific scores) are a few of the dozen or so highly specific bits of information to be disclosed. It's obvious the form was designed to take the place of the often vaguely worded pre-approval letter, in an effort to provide sellers with more detailed information about the buyer's strength.
And why would sellers (and their agents) want more detailed information? For a dozen years the good old pre-approval letter has been a nearly infallible indicator of the buyer's ability to complete the transaction. Yet recent developments in the mortgage business are unsettling: in these days of internet lending it's hard to judge the validity or competence of the pre-approval. It's a largely unregulated industry, and anybody with a decent web site can jump in. Add to this the increasing number of real estate agents who broker loans themselves, and you have a lot of inexperienced lenders putting their blessing on transactions that may turn out to be fraught with problems. And some are.
So is this a good form, then? Well, yes--insofar as it shines a light on a murky industry, it helps protect both buyers and sellers--and no, in that it makes us all work harder, and it further slows an already cumbersome process. After all, when listing agents knew virtually every mortgage company and worked with the same well-trained loan officers time and again, it was easy to rely on a simple pre-approval letter. It's important to point out that the form is not (yet) state-mandated, so many of us will simply continue to rely on our experience and instincts instead.
Here's how it affects you, Miffed: if you want to be the best, most-qualified buyer that a seller sees the next time you compete in multiple offers, then get your mortgage banker to bring your pre-approval as far along as possible without having an actual house to appraise. Bug her to give you the most completely filled-out Disclosure Statement before you shop for houses. If your lender is unknown to the listing agent, the Disclosure Statement will go a long way toward establishing your credibility. If you're competing with another buyer who can only provide a pre-approval letter, you'll have an edge. And that edge might get you roasting chestnuts by your new fire this holiday season. Good luck!
Friday, October 1, 2004
Monday, September 6, 2004
Go ahead, Look in the Basement
Dear Pat,
We plan on selling in three years, when my wife has completed medical school. Meanwhile, we're outgrowing our little bungalow. We've considered finishing our basement to get more space, but we heard that a finished basement doesn't really add much to value. Would we be wasting our money?
--Bursting at the Seams
Dear Bursting--
Adding usable space to a too-small house is never a waste of money. While it's true that a below-ground finished room has less appraisal value that its upstairs counterpart, it's also much less expensive to build. In our older neighborhoods, it can often make the difference between a functionally obsolete home and one that meets the needs of today's buyers.
Before you reach for your tools, Bursting, please make sure that your basement stairway has sufficient headroom. A completely finished basement counts for little if a full-size grownup can't access it easily. But even this situation wouldn't preclude a nice semi-finished space, or a good clean open basement for your toddler to ride a tricycle. Let's look at the minimums for any basement space:
1. The basement must be dry--most basements require drain-tiling to be sure (please see my article "A Realtor's Dream" at www.riverrealty.net) Cost: about $3000.
2. Glass block windows with vents give the basement a chance to breathe. Cost: about $200 each.
3. Wire brush and patch the block or limestone walls, and seal with Drylock or other moisture blocking paint. Cost: DIY or around $500 if contracted.
This above conditioning should give you a clean, usable space that is already superior to most of the basements in our area (and likely worth the $4000 cost at sale time). With some added lighting and outlets, a painted floor, a few rugs and room dividers, you can inexpensively create a semi-finished space that may well suit your needs now, and profoundly enhance buyer appeal when you sell.
A completely finished basement space will require much greater effort and expense. And, of course, the return is much higher. You'll need to spend $3000 at a minimum for an egress window (full-size daylight window that allows for escape in the case of fire) and be prepared to pay a contractor, or have the necessary skills for the insulating, framing, electric, plumbing, drywall and trimming required to create a truly finished, livable space. This can easily run past $20,000 for 500 square feet if contracted, and require lots of your time as well. If you choose this route, be careful that your contractor is completely current on the proper method for insulating basement walls: the common method of sealing fiberglass insulation under a plastic vapor barrier is a recipe for future mold problems. Best to apply a foil-faced foam insulation board such as Thermax directly to the foundation wall, before framing, then drywall without a vapor barrier. Remember, no work should be started until you've done items 1, 2, and3 above.
One final caution, Bursting: make sure your basement investment doesn't exceed 20% of your home's current value before the improvement. Call me, or another Realtor you trust, for an evaluation. Good luck!
We plan on selling in three years, when my wife has completed medical school. Meanwhile, we're outgrowing our little bungalow. We've considered finishing our basement to get more space, but we heard that a finished basement doesn't really add much to value. Would we be wasting our money?
--Bursting at the Seams
Dear Bursting--
Adding usable space to a too-small house is never a waste of money. While it's true that a below-ground finished room has less appraisal value that its upstairs counterpart, it's also much less expensive to build. In our older neighborhoods, it can often make the difference between a functionally obsolete home and one that meets the needs of today's buyers.
Before you reach for your tools, Bursting, please make sure that your basement stairway has sufficient headroom. A completely finished basement counts for little if a full-size grownup can't access it easily. But even this situation wouldn't preclude a nice semi-finished space, or a good clean open basement for your toddler to ride a tricycle. Let's look at the minimums for any basement space:
1. The basement must be dry--most basements require drain-tiling to be sure (please see my article "A Realtor's Dream" at www.riverrealty.net) Cost: about $3000.
2. Glass block windows with vents give the basement a chance to breathe. Cost: about $200 each.
3. Wire brush and patch the block or limestone walls, and seal with Drylock or other moisture blocking paint. Cost: DIY or around $500 if contracted.
This above conditioning should give you a clean, usable space that is already superior to most of the basements in our area (and likely worth the $4000 cost at sale time). With some added lighting and outlets, a painted floor, a few rugs and room dividers, you can inexpensively create a semi-finished space that may well suit your needs now, and profoundly enhance buyer appeal when you sell.
A completely finished basement space will require much greater effort and expense. And, of course, the return is much higher. You'll need to spend $3000 at a minimum for an egress window (full-size daylight window that allows for escape in the case of fire) and be prepared to pay a contractor, or have the necessary skills for the insulating, framing, electric, plumbing, drywall and trimming required to create a truly finished, livable space. This can easily run past $20,000 for 500 square feet if contracted, and require lots of your time as well. If you choose this route, be careful that your contractor is completely current on the proper method for insulating basement walls: the common method of sealing fiberglass insulation under a plastic vapor barrier is a recipe for future mold problems. Best to apply a foil-faced foam insulation board such as Thermax directly to the foundation wall, before framing, then drywall without a vapor barrier. Remember, no work should be started until you've done items 1, 2, and3 above.
One final caution, Bursting: make sure your basement investment doesn't exceed 20% of your home's current value before the improvement. Call me, or another Realtor you trust, for an evaluation. Good luck!
Sunday, August 1, 2004
Disputes: Arbitration or Court?
Dear Pat,
We recently made an offer on a house. One of the forms in the purchase agreement required us to make a decision about signing up for arbitration. Our agent said it was a good idea, so we signed, but now we're not so sure we should have What do you think? I think we should have asked . . .
--More Questions
Dear Questions,
Here's an answer that should make you feel tons better: you definitely, probably, or possibly made the right decision. First, a brief explanation of arbitration: it's an alternative to the courts as a way to settle disputes between buyers and sellers concerning physical problems in the house. A single arbitrator is most often used, but with party for an extra cost may choose a 3-member panel. A request for arbitration must be made within 2 years of the sale date. Administrative cost is $450, to be paid when the claim is filed. The hearing is usually held at the property site; either party may have an attorney present; and the arbitrator's aware must be made within 30 days. For detailed look at the process, go to www.cas-usa.org, the website of Construction Arbitration Services, the company that administers the program for Minnesota Association of Realtors.
Both buyer and seller must agree to use arbitration by signing the appropriate agreement on the the purchase contract. If the buyer signs but the seller refuses, then the buyer will have to use the much more cumbersome (and often much more expensive) courtroom process to redress future grievances. Yet, if the seller signs he/she is agreeing that arbitration shall be the buyer's only recourse; that the buyer has only two years to make a claim, and that the arbitrator's aware shall be binding, with virtually no possibility of appear. (Beware the arbitrary arbitrator.) Seems to cut both ways, doesn't it?
So which to choose, the easier-to-use arbitration system--or the cumbersome, but relatively limitless, umbrella of the justice system? I used to recommend that my clients decline arbitration; because, in theory at least, the courts system offers more flexibility. In the past few years, however, I've become aware of many situations where arbitration might be a more practical choice.
So since I can't really answer your question, Questions, I'll leave you with an actual comforting thought: my own experience working with over a thousand clients through the years has resulted in no arbitration hearings; I've only had one client use reconciliation court. Certainly there have been problems that showed up after the sale, but the sellers, buyers, and agents involved have always been able to reach a satisfactory settlement outside the system. I say this not to toot my own horn--in fact, I'm sure many professional Realtors can make a similar statement--but to not that, in the real world, most sellers and buyers are simply reasonable people who want to do the right thing.
We recently made an offer on a house. One of the forms in the purchase agreement required us to make a decision about signing up for arbitration. Our agent said it was a good idea, so we signed, but now we're not so sure we should have What do you think? I think we should have asked . . .
--More Questions
Dear Questions,
Here's an answer that should make you feel tons better: you definitely, probably, or possibly made the right decision. First, a brief explanation of arbitration: it's an alternative to the courts as a way to settle disputes between buyers and sellers concerning physical problems in the house. A single arbitrator is most often used, but with party for an extra cost may choose a 3-member panel. A request for arbitration must be made within 2 years of the sale date. Administrative cost is $450, to be paid when the claim is filed. The hearing is usually held at the property site; either party may have an attorney present; and the arbitrator's aware must be made within 30 days. For detailed look at the process, go to www.cas-usa.org, the website of Construction Arbitration Services, the company that administers the program for Minnesota Association of Realtors.
Both buyer and seller must agree to use arbitration by signing the appropriate agreement on the the purchase contract. If the buyer signs but the seller refuses, then the buyer will have to use the much more cumbersome (and often much more expensive) courtroom process to redress future grievances. Yet, if the seller signs he/she is agreeing that arbitration shall be the buyer's only recourse; that the buyer has only two years to make a claim, and that the arbitrator's aware shall be binding, with virtually no possibility of appear. (Beware the arbitrary arbitrator.) Seems to cut both ways, doesn't it?
So which to choose, the easier-to-use arbitration system--or the cumbersome, but relatively limitless, umbrella of the justice system? I used to recommend that my clients decline arbitration; because, in theory at least, the courts system offers more flexibility. In the past few years, however, I've become aware of many situations where arbitration might be a more practical choice.
So since I can't really answer your question, Questions, I'll leave you with an actual comforting thought: my own experience working with over a thousand clients through the years has resulted in no arbitration hearings; I've only had one client use reconciliation court. Certainly there have been problems that showed up after the sale, but the sellers, buyers, and agents involved have always been able to reach a satisfactory settlement outside the system. I say this not to toot my own horn--in fact, I'm sure many professional Realtors can make a similar statement--but to not that, in the real world, most sellers and buyers are simply reasonable people who want to do the right thing.
Wednesday, July 7, 2004
Landscaping for Fun and Profit
Dear Pat,
My husband and I just bought our first house, which needs lots of work inside and out. We don’t expect to live here more than five years, and naturally we want to use our resources to get the best price when we sell. My husband wants to start with wall and ceiling repair, but I want us to work on the yard right away. I say the neighbors have waited long enough. Can you settle this?
---First Things First
Dear First,
Your concern for your neighbors is admirable, and you may be rewarded at the closing table as well as in heaven: I know of no home improvement with a better return than landscaping. I don't have hard data to support this, but I have seen that a $1000 landscaping investment can add perhaps $10,000 to value in just a few years-by making the home seem "just right" to a prospective buyer. Naturally, it's important to start planting trees and bushes right away-every year you wait can make a big difference in how mature and impressive your yard will look to a buyer.
Start with a top view of the house and yard, and lay out the design of how you want the yard to look eventually. Now is the time to plan for a future patio or deck-you'll want to plant complementary shade or light-filtering trees right away, even if you build the structure years from now.
Flower gardens add charm and value as well, of course, but they can be planted later. Trees and shrubs should be planted immediately, although the fastest-growing varieties will not always be your best choice-nurseries, books, landscape designers and grateful neighbors can help you make the right decisions.
So get your husband to put aside the trowel for a while, First, and hand him a shovel-think of it as digging for gold. May your backs be strong, and your ground soft!
My husband and I just bought our first house, which needs lots of work inside and out. We don’t expect to live here more than five years, and naturally we want to use our resources to get the best price when we sell. My husband wants to start with wall and ceiling repair, but I want us to work on the yard right away. I say the neighbors have waited long enough. Can you settle this?
---First Things First
Dear First,
Your concern for your neighbors is admirable, and you may be rewarded at the closing table as well as in heaven: I know of no home improvement with a better return than landscaping. I don't have hard data to support this, but I have seen that a $1000 landscaping investment can add perhaps $10,000 to value in just a few years-by making the home seem "just right" to a prospective buyer. Naturally, it's important to start planting trees and bushes right away-every year you wait can make a big difference in how mature and impressive your yard will look to a buyer.
Start with a top view of the house and yard, and lay out the design of how you want the yard to look eventually. Now is the time to plan for a future patio or deck-you'll want to plant complementary shade or light-filtering trees right away, even if you build the structure years from now.
Flower gardens add charm and value as well, of course, but they can be planted later. Trees and shrubs should be planted immediately, although the fastest-growing varieties will not always be your best choice-nurseries, books, landscape designers and grateful neighbors can help you make the right decisions.
So get your husband to put aside the trowel for a while, First, and hand him a shovel-think of it as digging for gold. May your backs be strong, and your ground soft!
Tuesday, May 4, 2004
Haunted By Ghost House
Dear Pat,
Last year we set out to buy our first house. Our agent showed us a wonderful house on our first day looking. It had everything we wanted at the right price. We wrote a purchase agreement, but we lost in a multiple offer situation. Now we understand we should have bid higher, but it came up so fast that we simply weren’t prepared. Months later we’ve seen many more houses and nothing can compare to the one we lost. Our agent gave up on us so we go to open houses on our own, but it all seems like a waste of time. Is it hopeless?
---Haunted
Dear Haunted,
Your “ghost” house is keeping you from seeing reality. Fortunately, most buyers who have been similarly afflicted go on to find a home that makes them happy—but it’ll take a conscious attitude adjustment, and may take a larger financial commitment. Here’s some concrete advice to help you stop grieving, get realistic, and start over:
1. Stop grieving. Challenge the superiority of that “wonderful” house. No house is perfect, and your lost dream house probably had its share of flaws. Drive over there again, lurk about—is it really large enough? Is the roof OK? Concrete need repair? Enough kids on the block, or too many? Maybe the street’s a little busier than you remembered. Ask yourself, in the light of all the houses you’ve seen since, why was this house priced so low? And since the house was bid up in multiple offers, make an effort to find out its actual sale price. A house selling for ten or twenty thousand over the asking price may ultimately seem rather average, in comparison to others in that more rarified price range. Remember, your task here is to throw a few well-researched sour grapes at the fairy tale bubble you’ve created. Burst it, and move on.
2. Get realistic. Consider spending more to get a lot more house. Carefully look into your finance options to see how much you can afford to spend. An additional $30,000 in mortgage debt would cost you less than $170 month at today’s rates. Use your new-found realism to evaluate your chances of earning that much more over the next few months or years. New programs and lending instruments are created all the time allowing buyers to own more house than ever before. My advice to all buyers in our rising market is to buy at the top of your comfort level—it just makes good investment sense. If it helps exorcise your ghost house, all the better.
3. Start over. You’ve got a new attitude, and a whole new market to explore. Work with a savvy, ghost-busting agent. Expand your search to include not only more expensive houses, but lesser-priced houses of great potential often passed over by first-time buyers (see last month’s article “Picking the Bones” reprinted at www.riverrealty.net). There’s a learning curve here, but with intelligent expenditure and hard work you can create equity and a worthy home.
And finally, Haunted, please remember that whatever house you wisely chose you’ll likely sell within five years, and you’ll probably make a pile of money to apply toward your next, even-better home. That’s the statistical cycle of home ownership—don’t let a ghost house keep you stuck behind.
Last year we set out to buy our first house. Our agent showed us a wonderful house on our first day looking. It had everything we wanted at the right price. We wrote a purchase agreement, but we lost in a multiple offer situation. Now we understand we should have bid higher, but it came up so fast that we simply weren’t prepared. Months later we’ve seen many more houses and nothing can compare to the one we lost. Our agent gave up on us so we go to open houses on our own, but it all seems like a waste of time. Is it hopeless?
---Haunted
Dear Haunted,
Your “ghost” house is keeping you from seeing reality. Fortunately, most buyers who have been similarly afflicted go on to find a home that makes them happy—but it’ll take a conscious attitude adjustment, and may take a larger financial commitment. Here’s some concrete advice to help you stop grieving, get realistic, and start over:
1. Stop grieving. Challenge the superiority of that “wonderful” house. No house is perfect, and your lost dream house probably had its share of flaws. Drive over there again, lurk about—is it really large enough? Is the roof OK? Concrete need repair? Enough kids on the block, or too many? Maybe the street’s a little busier than you remembered. Ask yourself, in the light of all the houses you’ve seen since, why was this house priced so low? And since the house was bid up in multiple offers, make an effort to find out its actual sale price. A house selling for ten or twenty thousand over the asking price may ultimately seem rather average, in comparison to others in that more rarified price range. Remember, your task here is to throw a few well-researched sour grapes at the fairy tale bubble you’ve created. Burst it, and move on.
2. Get realistic. Consider spending more to get a lot more house. Carefully look into your finance options to see how much you can afford to spend. An additional $30,000 in mortgage debt would cost you less than $170 month at today’s rates. Use your new-found realism to evaluate your chances of earning that much more over the next few months or years. New programs and lending instruments are created all the time allowing buyers to own more house than ever before. My advice to all buyers in our rising market is to buy at the top of your comfort level—it just makes good investment sense. If it helps exorcise your ghost house, all the better.
3. Start over. You’ve got a new attitude, and a whole new market to explore. Work with a savvy, ghost-busting agent. Expand your search to include not only more expensive houses, but lesser-priced houses of great potential often passed over by first-time buyers (see last month’s article “Picking the Bones” reprinted at www.riverrealty.net). There’s a learning curve here, but with intelligent expenditure and hard work you can create equity and a worthy home.
And finally, Haunted, please remember that whatever house you wisely chose you’ll likely sell within five years, and you’ll probably make a pile of money to apply toward your next, even-better home. That’s the statistical cycle of home ownership—don’t let a ghost house keep you stuck behind.
Tuesday, April 6, 2004
Picking the Bones
Dear Pat,
My wife and I have been renting in the Seward neighborhood for the last few years while finishing grad school at the U. Although we’re from the suburbs we’ve come to love this end of town, and we want to buy a nice older house in Seward or Longfellow soon. Here’s the problem: our dad(s) tell us that housing construction around here is often substandard and that we’d be better off buying something newer and built to current code. We would need some financial help from them to buy this year so we can’t ignore their preferences. What can we say to reassure them that it’s OK to buy an older home around here?
-Hearts in the City
Dear City Hearts,
Tell them that our neighborhood enjoyed a higher rate of appreciation than any suburb over the past five years. Tell them that you will only make an offer on a house is it’s contingent on a full home inspection by a qualified housing inspector. But mainly, tell them you’ll find a Realtor who can help you pick good bones.
There is no substitute for good bones in a house. By “good bones” we mean solid construction, appropriate elements and standard designs. Of course construction standards have improved over the years: we can see vast changes over the decades from 1910 to 1960 as floor joists widened from 8 to 10 and even 12 inches, wiring went from knob-and-tube to metal sheathing and Romex; as windows, insulation, roofing, boilers, furnaces and a wide array of materials conformed to higher building standard. That’s great, but it doesn’t mean that a 1960 house is necessarily a better buy than a home built in 1925, or that it has better bones.
Tell your folks that most homes in our neighborhoods came from standard designs used again and again, which include identifiable floor plans and elements for a specific period. For instance, a 1920’s bungalow was typically trimmed using 4” oak window and door casing with back band, a cased archway between the living and ding rooms, hardwood of oak or maple, a ceramic tile bath nestled between two bedrooms, and a kitchen at the rear with a sink window overlooking the back or side yard. We’ve all seen this house--savvy buyers expect a 1920’s bungalow to conform this standard.
These are the design bones we’re looking for. As to elements, let’s pick a little deeper. Light fixture from the period are a plus, as are original built-ins, ceiling coving, and plate rails. Of course most buyers would prefer a “grandma’s” house in perfectly preserved condition, along with a tastefully remodeled kitchen and bath. But every generation for 80 years has taken a shot at “improving” our housing stock, so buyers often have to do mental surgery to determine the quality of a house’s bones. For example, sprayed ceilings are unfortunate, but fairly simple to undo: what you’re looking for here is whether the ceiling is sagging, and why.
Remember, City Hearts, bones are not roof covering, furnaces, or water heaters. These items we expect to replace over time. Think classic design, appropriate elements, and solid basic construction: the bones that frame the soul of a house. Rattle them right, and you’ll make your parents happy when it’s your turn to sell.
My wife and I have been renting in the Seward neighborhood for the last few years while finishing grad school at the U. Although we’re from the suburbs we’ve come to love this end of town, and we want to buy a nice older house in Seward or Longfellow soon. Here’s the problem: our dad(s) tell us that housing construction around here is often substandard and that we’d be better off buying something newer and built to current code. We would need some financial help from them to buy this year so we can’t ignore their preferences. What can we say to reassure them that it’s OK to buy an older home around here?
-Hearts in the City
Dear City Hearts,
Tell them that our neighborhood enjoyed a higher rate of appreciation than any suburb over the past five years. Tell them that you will only make an offer on a house is it’s contingent on a full home inspection by a qualified housing inspector. But mainly, tell them you’ll find a Realtor who can help you pick good bones.
There is no substitute for good bones in a house. By “good bones” we mean solid construction, appropriate elements and standard designs. Of course construction standards have improved over the years: we can see vast changes over the decades from 1910 to 1960 as floor joists widened from 8 to 10 and even 12 inches, wiring went from knob-and-tube to metal sheathing and Romex; as windows, insulation, roofing, boilers, furnaces and a wide array of materials conformed to higher building standard. That’s great, but it doesn’t mean that a 1960 house is necessarily a better buy than a home built in 1925, or that it has better bones.
Tell your folks that most homes in our neighborhoods came from standard designs used again and again, which include identifiable floor plans and elements for a specific period. For instance, a 1920’s bungalow was typically trimmed using 4” oak window and door casing with back band, a cased archway between the living and ding rooms, hardwood of oak or maple, a ceramic tile bath nestled between two bedrooms, and a kitchen at the rear with a sink window overlooking the back or side yard. We’ve all seen this house--savvy buyers expect a 1920’s bungalow to conform this standard.
These are the design bones we’re looking for. As to elements, let’s pick a little deeper. Light fixture from the period are a plus, as are original built-ins, ceiling coving, and plate rails. Of course most buyers would prefer a “grandma’s” house in perfectly preserved condition, along with a tastefully remodeled kitchen and bath. But every generation for 80 years has taken a shot at “improving” our housing stock, so buyers often have to do mental surgery to determine the quality of a house’s bones. For example, sprayed ceilings are unfortunate, but fairly simple to undo: what you’re looking for here is whether the ceiling is sagging, and why.
Remember, City Hearts, bones are not roof covering, furnaces, or water heaters. These items we expect to replace over time. Think classic design, appropriate elements, and solid basic construction: the bones that frame the soul of a house. Rattle them right, and you’ll make your parents happy when it’s your turn to sell.
Saturday, March 6, 2004
Get Outta Town
Dear Pat,
I’ve accepted a terrific job offer from an Australian firm that wants me to start immediately. The problem is, we have a house to sell. Should I abandon my husband, two kids and both dogs until the house is sold and they can join me, or would it be OK to sell a vacant house? It would be a hardship for us to be apart, but I’m concerned that a forlorn and empty house would sell for lots less. I’m excited, but…
-Nervous
Dear Nervous,
It may surprise you to learn that I have actually suggested selling a house empty when there is an active family to work around. It’s difficult to keep a house in proper showing condition with so much daily activity. Repairs, painting and deep cleaning are of course easier when the house is empty--and these details are essential to get top dollar in the marketplace. When the work is done, it stays fresh--no need to re-clean and get the dogs away for each show.
And a well-maintained, freshly painted house can look very appealing when empty, especially if we “stage” the home with rugs, pictures, window treatments and small furniture. Savvy agents have learned that staging is a great way to get the best offer for their clients. The advantage here is that buyers get a chance to see the rooms with a sense of scale, as opposed to empty space. The spare, clean look of small pieces in a room helps make it larger, and gives buyers a chance to visualize their own furniture in the spaces. Many times I have asked sellers to remove overstuffed, ungainly furniture from a room to create more of a blank canvass.
So no worries, Nervous--you should by all means pack up the family and get Down Under. Let your Realtor arrange for necessary repairs, painting, cleaning, and the myriad details of bringing you home to market. Your Realtor should help decide what household furnishings, if any, you may wish to leave behind to help with staging. Sign as many documents as possible before you leave, including a Power of Attorney authorization for your agent or trusted friend or family member. Rely on electronics and FedEx for the rest. Good luck!
I’ve accepted a terrific job offer from an Australian firm that wants me to start immediately. The problem is, we have a house to sell. Should I abandon my husband, two kids and both dogs until the house is sold and they can join me, or would it be OK to sell a vacant house? It would be a hardship for us to be apart, but I’m concerned that a forlorn and empty house would sell for lots less. I’m excited, but…
-Nervous
Dear Nervous,
It may surprise you to learn that I have actually suggested selling a house empty when there is an active family to work around. It’s difficult to keep a house in proper showing condition with so much daily activity. Repairs, painting and deep cleaning are of course easier when the house is empty--and these details are essential to get top dollar in the marketplace. When the work is done, it stays fresh--no need to re-clean and get the dogs away for each show.
And a well-maintained, freshly painted house can look very appealing when empty, especially if we “stage” the home with rugs, pictures, window treatments and small furniture. Savvy agents have learned that staging is a great way to get the best offer for their clients. The advantage here is that buyers get a chance to see the rooms with a sense of scale, as opposed to empty space. The spare, clean look of small pieces in a room helps make it larger, and gives buyers a chance to visualize their own furniture in the spaces. Many times I have asked sellers to remove overstuffed, ungainly furniture from a room to create more of a blank canvass.
So no worries, Nervous--you should by all means pack up the family and get Down Under. Let your Realtor arrange for necessary repairs, painting, cleaning, and the myriad details of bringing you home to market. Your Realtor should help decide what household furnishings, if any, you may wish to leave behind to help with staging. Sign as many documents as possible before you leave, including a Power of Attorney authorization for your agent or trusted friend or family member. Rely on electronics and FedEx for the rest. Good luck!
Thursday, February 5, 2004
Crunch This: The Miracle of Leverage
Dear Pat,
We’ve been saving the past several years for a down payment, but now that we’re finally ready to buy, the stock market appears ready to take off again. We missed the wild stock upswing a few years ago, and I’d hate to tie up our money in the wrong place now. What do you think? We are…
-Crunching the Numbers
Dear Numbers,
The silence you’re sensing is the sound of me trying to politely stifle my guffaws, for while I’m happy to see the stock market moving again--especially for the folks whose retirement portfolios were devastated three years ago--the market simply never could compete with home ownership as an investment. Now, if that statement sounds brash to you consider the parable of the Players and the Smarts as I’ve outlined in painfully numbered detail below.
But first, let's take a look at the three major stock indexes over the last ten years. The Dow rose about 266% during the period, while the Nasdaq rose a similar 268%, and the broader S&P 500 gained 238%. So let’s use a 250% average of these averages, and assume that $10,000 invested in XYZ wholemarket fund in 1994 would be worth about $25,000 today.
And that’s exactly what the Players (Jim and Wanda) did: they ponied up their ten grand to buy the wholemarket fund in 1994, watched it peak at $36,000 in 2000, and ease back to $25,000 today. They continue to rent the same apartment, which has risen from $600 to $950 per month. Meanwhile, John and Mary Smart, the Player’s neighbors across the hall, bought a nice two bedroom bungalow in Longfellow that same year for $73,248--the average price of a home in our neighborhood back then. Down payment and closing costs totaled $10,000. The Smarts monthly payment, including principal, interest, taxes and insurance, has averaged $582 over the last ten years. And in this time the value of the Smarts home has risen to the Longfellow average of $181,400--an increase of 248%. Thus, the value of local real estate has grown about two-and-a-half-fold over the period, virtually the same as the stock market.
So what’s the big deal, you say? Well, crunch this, Numbers: the Player’s cash investment has grown from $10,000 to $25,000, while the Smarts cash investment has grown from $10,000 to $124,772 (their current net equity)--a whopping 1248% increase! What’s responsible? The principle of leverage, where a down payment (in this case, 10 percent) allows a buyer to control the entire asset as it grows in value. I’ve simplified the Smart’s example to illustrate my point--you may further crunch the numbers by subtracting their costs of repair and sale, but it barely affects the outcome. Real estate is without question the highest-yielding, safest investment you can make. Play the market if you like, but please--buy the house first!
We’ve been saving the past several years for a down payment, but now that we’re finally ready to buy, the stock market appears ready to take off again. We missed the wild stock upswing a few years ago, and I’d hate to tie up our money in the wrong place now. What do you think? We are…
-Crunching the Numbers
Dear Numbers,
The silence you’re sensing is the sound of me trying to politely stifle my guffaws, for while I’m happy to see the stock market moving again--especially for the folks whose retirement portfolios were devastated three years ago--the market simply never could compete with home ownership as an investment. Now, if that statement sounds brash to you consider the parable of the Players and the Smarts as I’ve outlined in painfully numbered detail below.
But first, let's take a look at the three major stock indexes over the last ten years. The Dow rose about 266% during the period, while the Nasdaq rose a similar 268%, and the broader S&P 500 gained 238%. So let’s use a 250% average of these averages, and assume that $10,000 invested in XYZ wholemarket fund in 1994 would be worth about $25,000 today.
And that’s exactly what the Players (Jim and Wanda) did: they ponied up their ten grand to buy the wholemarket fund in 1994, watched it peak at $36,000 in 2000, and ease back to $25,000 today. They continue to rent the same apartment, which has risen from $600 to $950 per month. Meanwhile, John and Mary Smart, the Player’s neighbors across the hall, bought a nice two bedroom bungalow in Longfellow that same year for $73,248--the average price of a home in our neighborhood back then. Down payment and closing costs totaled $10,000. The Smarts monthly payment, including principal, interest, taxes and insurance, has averaged $582 over the last ten years. And in this time the value of the Smarts home has risen to the Longfellow average of $181,400--an increase of 248%. Thus, the value of local real estate has grown about two-and-a-half-fold over the period, virtually the same as the stock market.
So what’s the big deal, you say? Well, crunch this, Numbers: the Player’s cash investment has grown from $10,000 to $25,000, while the Smarts cash investment has grown from $10,000 to $124,772 (their current net equity)--a whopping 1248% increase! What’s responsible? The principle of leverage, where a down payment (in this case, 10 percent) allows a buyer to control the entire asset as it grows in value. I’ve simplified the Smart’s example to illustrate my point--you may further crunch the numbers by subtracting their costs of repair and sale, but it barely affects the outcome. Real estate is without question the highest-yielding, safest investment you can make. Play the market if you like, but please--buy the house first!
Sunday, January 4, 2004
In the Modern World
Dear Pat,
Two years ago we bought a bungalow that needed remodeling in the kitchen and bath. We are fairly young and have little regard for Old-world charm, preferring instead the simplicity of Scandinavian design (minimalist, bright and unadorned). We remodeled the house with that aesthetic in mind, installing flat-fronted, unvarnished birch cabinets in the kitchen, grey quarry tile for the floors in the bathroom, and Ikea light fixtures in several places. The styles we have chosen are very popular amongst people our age, and there is a deep affinity between the style of our house and the modernist vernacular expressed most purely by the Riverview Theater. We love it, but have we overly narrowed our pool of potential buyers?
------Best, Modern
Dear Modern,
Not at all, as long as there's a tub in the bathroom. In fact, the few bungalows I've listed in recent years with "modern" looking kitchens and/or baths have been some of the quickest to sell. For readers who are simply thinking "remodeled," I should clarify: by "modern" I mean the clean-lined look that blossomed in the 1930's and peaked in the 1950's (the lamented Terrace Theater in Robbinsdale was a fine example of later modern). Think Art Deco, flying saucers, hoola hoops. Fixtures and materials creating or hinting at the modern look are appealing to many new homeowners unwilling to march to the Home Depot drummer. Stainless steel countertops and utility tables, composite floor tiles, Euro-style cabinetry and new incarnations of track lighting are all finding their way into bungalow kitchens, making the spaces more colorful, and often larger.
Here's the (real estate) Bungalow Rule: be as creative as you want to be in kitchens and baths. While some purists are offended at the notion of removing the claw foot tub or changing the old pantry, they are a small minority--most buyers want the convenience that remodeled spaces afford them. And I daresay most of them would welcome your creative effort to go beyond the cash-and-carry look we get from the big home improvement stores. But stop there, Modern. From a real estate standpoint, you are much safer preserving the original look in the other rooms, particularly the front rooms and porch. Restore or duplicate the original woodwork wherever needed. Sand the hardwood floors. Please refer to a previous article now online (September, 2000) for my complete rant on vinyl replacement windows. And feel free to call me anytime for a market analysis--I'd love to see what you've done!
Two years ago we bought a bungalow that needed remodeling in the kitchen and bath. We are fairly young and have little regard for Old-world charm, preferring instead the simplicity of Scandinavian design (minimalist, bright and unadorned). We remodeled the house with that aesthetic in mind, installing flat-fronted, unvarnished birch cabinets in the kitchen, grey quarry tile for the floors in the bathroom, and Ikea light fixtures in several places. The styles we have chosen are very popular amongst people our age, and there is a deep affinity between the style of our house and the modernist vernacular expressed most purely by the Riverview Theater. We love it, but have we overly narrowed our pool of potential buyers?
------Best, Modern
Dear Modern,
Not at all, as long as there's a tub in the bathroom. In fact, the few bungalows I've listed in recent years with "modern" looking kitchens and/or baths have been some of the quickest to sell. For readers who are simply thinking "remodeled," I should clarify: by "modern" I mean the clean-lined look that blossomed in the 1930's and peaked in the 1950's (the lamented Terrace Theater in Robbinsdale was a fine example of later modern). Think Art Deco, flying saucers, hoola hoops. Fixtures and materials creating or hinting at the modern look are appealing to many new homeowners unwilling to march to the Home Depot drummer. Stainless steel countertops and utility tables, composite floor tiles, Euro-style cabinetry and new incarnations of track lighting are all finding their way into bungalow kitchens, making the spaces more colorful, and often larger.
Here's the (real estate) Bungalow Rule: be as creative as you want to be in kitchens and baths. While some purists are offended at the notion of removing the claw foot tub or changing the old pantry, they are a small minority--most buyers want the convenience that remodeled spaces afford them. And I daresay most of them would welcome your creative effort to go beyond the cash-and-carry look we get from the big home improvement stores. But stop there, Modern. From a real estate standpoint, you are much safer preserving the original look in the other rooms, particularly the front rooms and porch. Restore or duplicate the original woodwork wherever needed. Sand the hardwood floors. Please refer to a previous article now online (September, 2000) for my complete rant on vinyl replacement windows. And feel free to call me anytime for a market analysis--I'd love to see what you've done!
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