Friday, January 31, 2014

How Much Are Transaction Fees on a Real Estate Sale?

Many consumers believe that real estate transaction costs are simply the 5 percent to 6 percent of the sales price that the real estate agent earns as commission. But the real costs of selling property are much higher — especially when viewed as a percentage of earned equity. Avoiding recurring transaction costs is the reason experienced financial individuals believe that real estate should really be kept as an asset for the buyer’s lifetime.

Let’s use a $200,000 property as an example: Imagine you purchased this home five years ago by putting 10 percent — $20,000 — down, leaving you with a $180,000 mortgage. Now, you are selling this property for $235,000.
Here is an estimate of transaction costs you might incur upon sale:
  • Sales agent commission — 5 percent to 6 percent or about $13,000
  • Escrow costs and recording costs upon sale — $1,000
  • Title insurance costs — $600
  • Repairs to prep property for sale — $2,000
  • Credits to buyer for home inspection issues — 1 percent or $2,500
  • Housing overlap — $1,500 since you will not likely close escrow selling your property and close escrow or rent a new property one day apart. There will probably be some overlap; one and a half months is our estimate. The added cost of paying rent or mortgage on two residences for six weeks
  • Last five years’ improvements of $5,000 estimated — You will only recoup of fraction of the money you have spent on that new refrigerator, new flooring, paint and landscaping purchased in recent years. Maybe you will recoup 50 percent of your investment in a higher sales price, so losses of $2,500 are likely.
Total transaction costs: $23,100 or about 10 percent of your sales price. That’s a lot of money.
Now consider this: Your current equity in the property is the difference between the $235,000 value and the $165,000 current mortgage balance, or $70,000. If you are paying $23,100 in transaction costs, you’re wiping out 33 percent of the equity you had in the property.
This is why it makes sense to hold real estate for long periods of time. In fact, forever is the optimal holding period.


 

Thursday, January 30, 2014

Do You Own the Land Under Your Home?

When you buy a home, you probably assume that you own everything in and around it within the property lines. But in some parts of the country, homeowners are discovering the property they’re buying does not fully include the land beneath it.

Property Disclosure ReportFor example, in Tampa Bay, FL a family realized at closing that their home builder had already signed away the rights to the land underneath their home to its own energy company. The “mineral rights” grant gave the energy company the freedom to drill, mine or explore for precious minerals beneath the home.

How is this even possible, and how can it be avoided? Who really owns the land beneath your home? Here’s what you need to know.

You Probably Own the Land

Generally speaking, it’s likely that you own the property underneath and around your house. Most property ownership law is based on the Latin doctrine, “For whoever owns the soil, it is theirs up to heaven and down to hell.”

There can be exceptions, though. On occasion, a buyer will uncover an easement for a driveway or walkway that goes through their property. This is why it’s important to carefully review contracts and disclosures.

Contract and Disclosures

A seller, be it a home builder or a homeowner, can’t claim any sort of rights to the property without first disclosing those rights in the real estate contract or in some sort of disclosure statement.

Each state is different with regard to how things are disclosed. Many disclosure statements require the seller to tell the buyer whether or not someone else has laid claim to the property or if the buyer is limited to claims in the future. If the seller is unaware, or the home you’re purchasing is in a state that doesn’t require the seller to disclose, then you should carefully review the property’s title report before signing off.

Preliminary Title Report

There can be a situation in which a seller doesn’t know that someone else has laid claim to the property. For example, this could happen in the case of a resale in a newer subdivision where the current owner bought from a homebuilder directly.

Throughout the years, there have been instances when an easement, encroachment or even a small mechanic’s lien sits on a title unbeknownst to the current seller. When this happens, all parties must work together to determine the best course of action. Access to the land below your home would have to be granted via a deed and, as such, it would show up on the preliminary title report.

The title report provides ownership information and acknowledges loans, deeds or trusts, easements, encroachments, unpaid property taxes or anything else that has been recorded against the property. If a homebuilder deeded mineral rights to themselves, for instance, they would have had to record that deed. If so, it stays on the title report until they and the current owner agree to take it off.

How to Avoid Last-Minute Disclosures

In Tampa Bay, unsuspecting homeowners signed over to the builder’s holding company the “eternal rights to practically anything of value (found) buried underground, including gold, groundwater and gemstones,” according to the Tampa Bay Times. If that weren’t enough, homeowners who didn’t realize they had signed over the mineral rights, or who did so at the last minute under duress, could have trouble selling their home later to wary buyers.

With any home purchase, you should give yourself enough time so that you can do your due diligence, either as a contingency to the contract or in the period leading up to the contract before you sign it.

When buyers think about due diligence, they immediately think “property inspection.” And in the case of new construction, it’s uncommon to do an inspection. But there is so much more to due diligence than a simple property inspection.

Never wait until the closing to discover such a big disclosure, as the unfortunate buyers in Tampa Bay experienced. It’s common practice for a good listing agent or seller, in states where disclosure is required, to raise something like mineral rights as a red flag to all buyers from the get-go.

Deeding access to the land below your home isn’t simply some “fine print” buried in the closing papers that could be easily overlooked. Such a disclosure would require paragraphs, if not pages, of documentation.

Best course of action: Review all documentation, disclosures and title paperwork prior to signing a real estate contract or during a due diligence period. If you’re uncertain, ask your agent for help reviewing the documents or hire a real estate attorney to pore through the paperwork on your behalf.


 

Wednesday, January 29, 2014

Protecting Your Home From Snow Damage

While you can't change the weather, you can minimize some of winter's biggest threats to your home.
Heavy snow accumulation can pose a threat to your home or business -- both as it builds up and as it melts. The three most important precautions to take:
  • Watch for snow accumulation on the leeward (downwind) side of a higher-level roof, where blowing snow will collect. For safe removal that won't endanger you or damage your roof, consult a roofing contractor for a referral.
  • Remove snow from basement stairwells, window wells and all walls. Melting snow can lead to water damage and moisture intrusion.
  • Keep your attic well-ventilated to maintain a temperature close to that of the outdoors to minimize the risk of ice dams forming. A warm attic melts snow on the roof, causing water to run down and refreeze at the roof's edge, where it's much cooler. If ice builds up and blocks water from draining, water is forced under the roof covering and into your attic or down the inside walls of your house.
Water intrusion and flood damage from melting snow and ice can threaten homes and businesses, but you can take these steps to help minimize the potential damage.
Immediately after the threat of physical danger has passed:
  • Make sure the building is structurally safe to enter or reoccupy.
  • Turn off electrical power. Do not use electricity until it is safe to do so.
  • Ensure that natural gas sources are safely secured.
  • Secure the exterior to prevent further water intrusion. This can include boarding up broken windows, making temporary roof repairs, sealing cracks or tacking down plastic sheeting against open gaps in walls or roofs.
When it's safe to begin cleanup:
  • Disconnect all electronics and electrical equipment and move them to a safe, dry location.
  • Remove as much standing water as possible from inside the building.
  • Begin to remove water-damaged materials immediately.
  • Ventilate the home as best you can with fans and/or dehumidifiers.
  • Contact a water extraction company, if necessary, for assistance.
By taking immediate action, you will reduce the amount of damage and increase the chance of salvaging usable materials. You'll also reduce the amount of rust, rot, mold and mildew that may develop, and lower the likelihood that the water will lead to structural problems.
Ice dams are an accumulation of ice at the lower edge of a sloped roof. When interior heat melts the snow, water can run down and refreeze at the roof's edge, where it's much cooler. If the ice builds up and blocks water from draining off the roof, water is forced under the roof covering and into your attic or down the inside walls of your house.
To help reduce the risk of ice dams:
  • Make sure your gutters are clear of leaves and debris.
  • Keep the attic well-ventilated so snow doesn't melt and refreeze on the roof's edge.
  • Make sure the attic floor is well insulated to minimize the amount of heat rising through the attic from within the house.
Bursting pipes occur when frozen water causes a pressure buildup between the ice blockage and the closed faucet. Pipes in attics, crawl spaces and outside walls are particularly vulnerable to extreme cold. To keep water in your pipes from freezing:
  • Fit exposed pipes with insulation sleeves or wrapping to slow heat transfer.
  • Seal cracks and holes in outside walls and foundations near water pipes with caulking.
  • Keep cabinet doors open to allow warm air to circulate around pipes.
  • Keep a slow trickle of water flowing through faucets connected to pipes that run through an unheated or unprotected space.



 

Monday, January 27, 2014

VA Loans Have Record-Setting 2013

The Department of Veterans Affairs backed 630,000 mortgages in fiscal year 2013, an all-time high for the benefit program. That record volume punctuates an incredible recent run for VA loans, which have experienced tremendous growth in the wake of the financial collapse.

VA loan volume has soared 372 percent since fiscal year 2007, driven in large part by historically low interest rates and a more restrictive lending environment that made conventional and even FHA financing tough to secure.

In addition to the record volume, the VA made history in 2013 by guaranteeing its 20 millionth mortgage, which went to the surviving spouse of an Iraq War veteran.

VA lending boom

Here’s a snapshot of national VA loan volume over the past seven years:

Fiscal year 2013: 629,312
Fiscal year 2012: 539,884
Fiscal year 2011: 357,592
Fiscal year 2010: 314,011
Fiscal year 2009: 325,690
Fiscal year 2008: 179,670
Fiscal year 2007: 133,313

The need for higher credit scores and bigger down payments has reinvigorated this home loan program. VA loans have no required down payment and feature more flexible and forgiving requirements.

Uncle Sam, Despite that flexibility, they’ve had the lowest foreclosure rate of any mortgage on the market for nearly all of the past five years, according to statistics from the Mortgage Bankers Association.

Most VA lenders are looking for a credit score of at least 620. Even that can be a difficult benchmark for some veterans, but it’s considerably lower than typical requirements for both FHA and conventional financing. In November 2013, the average credit score on a successful conventional loan was 756, according to Ellie Mae; for FHA loans, it was 690.

Conventional and FHA loans also require a minimum down payment, typically 5 percent and 3.5 percent, respectively. About 9 in 10 VA borrowers purchase a home without putting down a single dollar.

Seven decades of success

This home loan program celebrates its 70th year in 2014. Created to make home ownership possible for soldiers returning from World War II, this benefit is in many ways more important than ever.

Credit and savings can suffer given the sacrifices required of those who serve and their families. VA loans aren’t the best fit for every veteran, but they’re often the only realistic path to homeownership for scores of prospective buyers.

As interest rates begin to inch higher, it’s likely the VA’s 2013 record will stand for some time. But these government-backed loans will continue to make a tremendous difference in the lives of those who’ve fought to preserve the American Dream.

Friday, January 24, 2014

Average Size of New Single-Family Homes Continues to Rise


The size of a typical new single-family home rose in third quarter of 2013, continuing a post-recession trend. The recent increase in size is likely due to an atypical mix of buyers.

According to data from the Census the Quarterly Starts and Completions by Purpose and Design survey, the average and median size of single-family homes that began construction rose during 2013. For the third quarter alone, the average single-family square footage increased from 2,646 to 2,701, while the median rose from 2,446 to 2,491.

On a less volatile one-year moving average, the trend of increasing size during the post-recession period is clear. Since cycle lows and on a moving average basis, the average size has increased almost 12% to 2,652, while the median size has increased more than 15% to 2,433.

As noted in NAHB’s analysis of 2012 Census construction data, the recent rise in single-family home sizes is consistent with the historical pattern coming out of recessions. Home sizes fall into the recession as some homebuyers cut back, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions.


 

Thursday, January 23, 2014

How Far Will Your 2014 Housing Dollar Stretch?

While we’re just a few weeks into the New Year, you’ve likely seen headlines showcasing what will cost more this year. You’ll have to dig even deeper into your pocket to pay for everything from food to stamps to college education, travel, healthcare and more. In fact, even your biggest expense — housing — is getting pricier in 2014:

Home Values


Zillow Projections: +3% nationally in 2014
While 2013′s double-digit gains in home appreciation were certainly economically beneficial (home prices are back at their peak levels in some areas), let’s be realistic: they’re not sustainable.This year, expect home values to continue to rise but at a more modest, balanced pace of about 3 percent, nationwide.


Home Loans


Zillow Projections:
5% As the Fed tapers its bond-buying programs and the economy continues to improve, expect mortgage rates to rise from a current level of about 4.6 percent to 5 percent by the end of 2014, making homes more expensive to finance. For example, the monthly payment on a $200,000 loan will rise by about $160. But there’s a silver lining for potential home buyers: it should be easier to get a mortgage this year because higher rates have slashed refinancing activity, prompting some banks to ramp up their purchase lending. Additionally, there will be more inventory on the market, and less competition from investors, as the home-buying process becomes less frenzied.


Home Rents


Zillow Projections: +2.5% nationally in 2014
Rents have been rising for some time and there’s no end in sight, especially now, when the market is seeing limited supply coupled with high demand. The foreclosure crisis, tight credit conditions and economic uncertainty have forced more Americans to rent. Expect rents to continue to rise throughout 2014, so budget accordingly. Research prices in your area with tools such as Zillow’s Rent Index, maintain good credit, and consider bringing in roommates so that you don’t become a statistic. According to a recent report by Harvard Joint Center for Housing Studies, half of all U.S. renters are spending more than 30 percent of their income on rent, up from 19 percent a decade earlier.


 

Thursday, January 16, 2014

Take A Look Inside The Real Estate Market










Market Update

QUOTE OF THE WEEK... "But to look back all the time is boring. Excitement lies in tomorrow." --Natalia Makarova, Soviet-Russian-born prima ballerina

INFO THAT HITS US WHERE WE LIVE... Fannie Mae's December National Housing Survey asked consumers to look into tomorrow and it was somewhat exciting to see that people are becoming more confident in the housing recovery. Evidence of this came in the finding that 49% of those surveyed believe home prices will rise over the next 12 months, up from 43% a year ago. The size of that price increase was expected to be 3.2%, compared to just 2.6% last year. Even better, 33% of consumers polled said now is a good time to sell, a significant gain from the 21% who felt that way last December.

Fannie Mae's chief economist commented: "The marked improvement in housing market sentiment over the course of 2013 bore out our view going into the year that the housing recovery was on a firm footing." He now sees "a continued but measured housing recovery as we move through 2014." Wednesday, the Federal Housing Finance Agency said it will delay plans to raise the base guarantee fee for mortgages securitized by Fannie Mae and Freddie Mac in order to give their new director time to review the changes. That's good news for now.

BUSINESS TIP OF THE WEEK... When you're trying to come up with a solution, avoid negative language. Use constructive phrases, such as "How might we...?" This suggests that anything's possible and encourages team effort.
>> Review of Last Week

WEAK JOBS, MIXED MARKETS... The first full week of trading on Wall Street ended with a weak December jobs report that shook things up a bit. But by the time the dust settled, the S&P 500 and the Nasdaq had recorded their first weekly gains of the year, though the Dow edged downward for the second time in a row. Nonfarm payrolls came in with a measly 74,000 jobs added for the month. This was the smallest increase since the start of 2011 and brings the economy into 2014 with a lot less momentum. The unemployment rate fell to 6.7%, although most of the drop came from a decline in the labor force.

There may be fewer people still looking for work, but at least those with jobs continue to make progress. Average hourly earnings rose 0.1% in December and are up a combined 3.4% over a year ago. This indicates consumer incomes are increasing enough to keep spending headed up, which is all to the good economically. ISM Services showed that sector growing in December, though less than expected. But, amazingly, the Trade Deficit shrank to $34.3 billion in November. Exports are now up 5.2% and imports down 1.1% in the past year.

The week ended with the Dow down 0.2%, to 16437; the S&P 500 up 0.6%, to 1842; and the Nasdaq up 1.0%, to 4175.

Bonds surged Friday after the disappointing December Nonfarm Payrolls number hit the wires. The FNMA 3.5% bond we watch ended the week up .94, to $100.07. National average fixed mortgage rates dipped by a whisker in Freddie Mac's Primary Mortgage Market Survey for the week ending January 9. The Mortgage Bankers Association reported loan applications up 2.6% overall for the week ending January 3. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?... The cost to build the average U.S. single-family home hit $246,453 in 2013, reaching its highest mark since 1998, according to the National Association of Home Builders.
>> This Week’s Forecast

RETAIL AND HOME BUILDING SLOW DOWN, INFLATION AND FACTORIES PICK UP... Tuesday we get December Retail Sales and, unfortunately, a flat reading is expected. Housing Starts should also disappoint in December, with the annual rate below a million units. Both wholesale and consumer prices picked up a bit in December, according to forecasts for the Producer Price Index (PPI) and the Consumer Price Index (CPI).

Happily, manufacturing continues its surprising renaissance in the recovery. Both the New York Empire Manufacturing Index and the Philadelphia Fed Index are predicted to show stronger growth in factory activity in those major regions.
>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of Jan 13 – Jan 16