Archive for the 'Real Estate Tips' Category
If The Radon Levels In Your Home Are High Don’t Inhale
April 10th, 2008 Categories: Buying a Home, Real Estate Tips
Several months ago, I sold a new construction home and as usual, I insisted that some language be added to the builder’s contract giving my buyers the right to test for high radon levels, and the right to demand that any high levels that were discovered be remediated. My buyers ended up being very glad this language was added for their protection.
As it turned out, this home tested positive for high radon levels. Real high. The EPA says that radon levels over 4.0 pico curies (there’s my fancy word for the day) can cause long term health problems and death. That’s right, death. It’s not much fun to talk about, but 20,000 people die each year from lung cancer linked to exposure to high levels of radon gas. The average level in this home was 20 pico curies. This is serious stuff.
The radon issue in the home I sold was taken care of with a relatively simple foundation fan system that was installed at the builder’s expense. The radon levels in this home retested at far below the EPA threshold. My buyers can now breath easy. They shouldn’t ever have to worry about radon again.
Had my clients not had an agent who was willing to negotiate the additional terms regarding radon testing and responsibility for remediation into the contract, they could have ended up paying for the solution themselves. Or, worse. They might have never known what they were breathing.
I remember the first time I heard about the dangers of radon gas back in real estate school. It sounded pretty scary to me. I figured that with the seriousness of the issue, all buyers must surely have access to information on the dangers as well as the right to test and either have the seller fix any problems, or terminate their contract. When I began my real estate business back in 2002 I found the reality to be quite different.
The good news is that the standard North Carolina real estate contract used for resale homes includes really good terms that protect the buyer with regards to radon. The bad news is that when I explain that part of the contract to my buyers, they typically have never heard of radon gas before.
Most of the homes I list for sale have never been tested. I always ask at the listing appointment. Can you imagine selling your home and discovering from the buyer’s radon test that you have been inhaling high levels for years? Now you are struck with fear of the unknown effects on your health and you must install a system that could have protected you. The time to test for radon is when you buy a home.
Sometimes it feels pretty lonely counseling home buyers on the merits of having a $140 test done that could save their life. I’ve had listing agents tell me there is nothing to worry about because they don’t know of any radon issues in the area. I’ve had builders and their agents tell me the same thing. And their contracts usually just ignore the issue altogether.
I’m sure my buyer clients wonder why I’m sometimes the first person they have ever heard talk about the health risks of radon in such a passionate way. And their doubts may be strengthened when, as it turns out most of the time, they pay for the test and the radon levels in their new home are normal. Is it worth $140 to know if you are at risk of developing lung cancer from a gas you cannot smell, see, or taste? I think so.
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Real Estate Expenses Are Profitable Tax Deductions
February 12th, 2008 Categories: Buying a Home, Real Estate Tips
Most people want to keep as much of the money they earn as possible. Tax deductions are one way to accomplish this. Do you know which real estate expenses are eligible tax deductions?
First, let me warn you that I am not a tax accountant, nor do I play one on TV. By the way, my Broker-in-Charge just stuck his head in the door and said I have to tell you to check with a tax professional to make sure any of this stuff applies to your particular situation.
That being said, I can certainly let you know about some of the common real estate related tax deductions that you should be asking about if you have recently purchased a home, or if you own a home.
Mortgage Interest
This is the big one. You should be able to deduct the amount you pay in interest from your earned income. That means you don’t have to pay tax on that amount of money. If you just got a 30 year loan, this is a big number.
You should also be able to deduct any interim interest you payed at closing if you purchased your home last year. If you are one of my clients, you will be receiving a copy of your closing statement in the mail in the next few days. Be sure to have your tax preparer consider this as a deduction for you.
Real Estate Taxes
Hey, my accountant tells me that I can deduct the amount I paid in real estate taxes from my income taxes. Hmmm. Deducting your taxes from your taxes. Sounds like fun, doesn’t it? Maybe I should have been a tax accountant if I think this stuff is fun. Sorry, I digress. be sure to ask your tax preparer about deducting real estate taxes you paid from your earned income.
Discount Points
This one doesn’t come up too often because not many people use discount points to buy down their loan rate. With the historically low rates we continue to see, this option just doesn’t get used very much. But, just in case you closed on a home last year, and paid discount points, be sure to ask your tax person if you can use this as a deduction.
Other Stuff Like Origination fees
This is a little more tricky. Definitely get professional advice on origination fees, etc. Although usually these items are not deductible, there are certain instances where they might be.
Need a good tax accountant? I’m really happy with the person who keeps me straight. Just email me and I’ll be glad to pass his contact info along.
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What is Earnest Money?
February 4th, 2008 Categories: Buying a Home, Real Estate Tips
When making an offer to buy a home in North Carolina, it is customary for the buyer to offer something called earnest money. As a home buyer, it is very important for you to understand the benefits as well as the risks before you write that check!
What Is it?
Earnest money is just what it sounds like. It is money presented with an offer that proves to the seller you are serious about buying their home. Typically it goes into the trust account of the listing agent’s firm and is held in escrow until closing.
If all goes well, and closing takes place as planned, the earnest money is simply credited to the buyer’s side of the transaction. This money is not a fee, but rather an advance payment towards the purchase price of the home.
How Much is Enough?
I’ve always been told that the earnest money should be between 1-3% of the purchase price. So, the earnest money deposit on a $200,000 home purchase should be between $2,000 and $6,000.
If we are making an offer on a new construction home, many times the builder has a required amount. Be careful with the terms of earnest money on new construction. If the builder is not using the standard North Carolina contract, this money could be non-refundable.
The Risk
When using the standard NC contract, earnest money is only at risk when the buyer breaches the contract. If you just change your mind after signing a contract, and refuse to close, your earnest money could be at risk. Other ways to put your earnest money at risk include not providing proof of loan application on time, or failing to close without providing proof that your loan was denied, through no fault of your own.
Competitive Advantage
There is a strategy behind determining the amount of the earnest money. If you want to make your offer more appealing, compared to competitive offers, more earnest money is a way to do this. I have had offers accepted in a competitive situation more than once because we offered a higher earnest money amount. Keep in mind that this money is only advance payment on a home you intend to buy anyway.
Even if there is not a competitive bid, a larger earnest money amount can make a lower offer look more attractive to the seller. The bottom line is that a larger earnest money amount could contribute to a lower overall purchase price.
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How Two Fed Rate Cuts Impact Your Home Buying Power
January 31st, 2008 Categories: Real Estate Market Trends, Real Estate Tips
Last week the Federal Reserve cut short term rates by 75 basis points. This week they cut another 50 points. What does this mean to home buyers and sellers?
It means you have more buying power than ever before. Mortgage interest rates are already very low. They have been that way for quite a while. 30 year rates under 6% are common now. Many of the riskier products have gone away, but that is probably a good thing.
Combine the low mortgage rates with a larger than usual inventory of homes and life is good for anyone wanting to buy a home in the Raleigh area. Prices have not dropped dramatically like they have in many other parts of the country. But prices never ran up to ridiculous levels either. We never had anything to correct in the Raleigh real estate market.
My wife and I are going looking at homes this weekend. Hey, when the Realtor recognizes it’s a good time to buy, that probably means something. If you need to move, do it. We need to move and we are very confident we will be happy with our decision.
We feel completely comfortable that we will be able to find the perfect home from the larger than usual inventory that is available right now. And we are also confident that our interest rate will be very low, which of course will help us afford more home than we could otherwise.
Want to get started pursuing your dream home in one of the best markets for buyers that we have seen in quite a while? Call me at 919–602–7000 or send me an email and we can talk about how to help you succeed too!
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Where Are All The Chimneys
December 3rd, 2007 Categories: Real Estate Tips
From time to time, when helping a client buy a home in Raleigh, I get someone who really wants a wood burning, masonry fireplace. This is becoming increasingly harder to find. It is almost to the point of being impossible to find unless it is an older home.
Pre-fabricated fireplaces came on the real estate scene a while back and are common place nowadays, even in very high end homes. The first versions of these had an insulated metal flue that was vented through the roof. This was the first time that the masonry, or brick chimneys began to disappear. With the pre-fabricated flue, it became possible to began building the chimneys out of the same siding materials that were used on the rest of the home.
A few years later the direct vent, and then the vent-less fireplaces became available and the chimneys began to disappear all together. The direct vent version used a special flue that makes a sharp turn just above the fireplace and exits the building on the side, rather than using any type of chimney. Of course, with the vent-less, there is no need for a flue at all. This is very useful for economically placing a fireplace on an interior wall of a home.
Eliminating chimneys has certainly changed the look of the modern home. Some think it is for the best while many homeowners long for the old style masonry chimneys like the homes where they grew up.
Looking on the bright side, the modern fireplaces have solved a few building design problems. Masonry fireplaces, especially if wood was burned in them, needed periodic cleaning by a chimney sweep to remove carbon and tar build up. Not doing this on a regular basis could lead to possible fire hazards. Another issue that the modern fireplace has eliminated is chimneys pulling away from the main structure of a house.
Like them or not, the direct vent and vent-less varieties of the fireplace are here to stay. Most builders will not even consider building a masonry fireplace, or they charge so much that it is not economically feasible. Another thing to consider is the the skill set required to build a masonry chimney is probably beginning to fade away. Insisting on a masonry chimney, even at an elevated price, could result in a problematic design and installation.
With the addition of fans to circulate the warm air, and all kinds of automatic ignition and remote control systems for the gas logs in the modern fireplace, for some of us, hauling wood inside to stoke the fire has lost some of its appeal. If a masonry chimney is still important to you, give me a call and I can show you some wonderful older neighborhoods where they still exist.
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The Inside Story on Appraisals
November 2nd, 2007 Categories: Buying a Home, Real Estate Tips, Selling a Home
You would think that with such a steady real estate market as we have in Raleigh that appraisals would never be a problem, wouldn’t you? Well the truth is, from time to time, home buyers and sellers get a big surprise when an appraisal comes in below the contract price. Lets discuss how an appraiser goes about determining value and then spend a little time talking about what to do if you are ever in a situation where the appraisal fails to support the contract price of a home you are buying or selling.
It can be quite a shock to both the seller and the buyer in a transaction when at the 11th hour the lender lets everyone know that the appraised value is below the contract sales price. How can this happen? It’s important to understand how an appraiser determines value to fully appreciate what is going on in this process.
The first thing to remember is that the appraiser is completely independent from lenders, buyers, sellers, and real estate agents. Appraisers use guidelines that are dictated to them by the Uniform Standards of Professional Appraisal Practice (USPAP) and rules set forth by Fannie Mae.
The second thing to remember is it doesn’t matter if three buyers bid on a property and make offers above the listing price. In a situation like this you would think that the bidding activity might indicate the home is under priced. After all, that’s what a “market” does, right? Markets determine value based on supply and demand and what buyers are willing to pay. The appraiser does not take any of these indicators of value into consideration.
Basically, the USPAP and Fannie Mae guidelines help appraisers determine value based on past comparable sales in which the home is “bracketed” in size and value. A good example of bracketing is any improvement made to the property, such as a pool. A seller might put in a very nice pool and pay $40,000 to have it installed. So in this case, most reasonable people might think the value of the improvement is $40,000. What happens from time to time is that the appraisal guidelines might dictate that a pool in a certain area of the country is worth $25,000. As crazy as it might sound, regardless of how nice the actual pool is, the appraisal guidelines could in fact set a maximum value of only $25,000.
In this case there is an immediate $15,000 difference in value that sellers and buyers (even their Realtors too) will have a difficult time understanding. There are many examples of how these variances in value can occur on an appraisal.
I recently had a case where there was a 450 square foot finished space over an detached garage that one appraiser adamantly refused to value the same as the space in the main structure. There was a very expensive stone breeze way connecting the two structures and the detached space had a separate bathroom and its own HVAC system. It was done up nicely! And the buyer was very passionate about this particular property because of the detached space. He considered it at the very least the same value.
If you ever find yourself in a situation where the appraisal does not support the contract price, there are a few things that can be done. A second appraisal could be ordered. This costs extra money and the seller might have to pay this cost. If the buyer offered a higher amount, that means the home was worth that amount to him, so many times both parties want everything to work out. And the seller typically would pay for the second appraisal because he has the most to loose if a value equal to or above the contract price cannot be determined by an appraiser.
If none of this produces a satisfactory appraisal, the NC real estate contract says that the seller can either lower the price, or release the buyer from all obligation and return all earnest monies. If the deal falls apart over an appraisal, then everybody looses. The seller is back on the market with serious decisions to make regarding the listing price of the home. The buyer is starting all over again looking for a home. Keep in mind that any other expenses, such as loan application fees, the appraisal that just went south, inspection costs, surveys, and any other expenses incurred in the process cannot be recovered.
My final advice is to always work with a buyer’s agent who knows the area and can pull comparables before an offer is made. Sometimes, especially in older neighborhoods where there is a lot of variance in the size and style of homes, comparables are very hard to find. This is a service I provide for all my buyers and I tell them up front if I think there might be an appraisal problem. If I cannot find good comparables, I tell my buyers this too. I don’t like surprises and I find that most of my clients don’t either.
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Option ARM Loans - If You Have One You Need to Read This
October 24th, 2007 Categories: Buying a Home, Mortgage and Finance, Real Estate Tips
I’ll have to say that in all my years of selling homes in the Raleigh area, I do not remember any client using an Option ARM to finance their purchase here locally. I guess I must deal with a more conservative group of home buyers. So what is an Option ARM and what should you do if you have one?
The “what is it” part of that question is more difficult to answer than the “what should you do if you have one” part. Let’s talk about what it is first. It is a very creative loan product that allows the borrower to choose from multiple payment options including an option to pay zero principle and only a portion of the interest. This payment option, called negative amortization, actually allows the loan balance to increase as payments are made. Sounds a bit scary to the more financially conservative among us, doesn’t it?
No need to discuss any of the other payment “options” because they are all totally boring, like paying interest AND principle which will reduce your loan balance. So why in the world would someone want to choose a loan payment option that results in increasing the balance owed? The obvious answer is to have a lower monthly payment. How much lower? I’ve seen examples where the payment could be cut in half! How would you like to only pay $1,200 for your $2,400 mortgage? Tempting, huh?
This might make sense if you were in a market where the value of the home is increasing at a much greater rate than the negative amortization is increasing your loan balance. If that scenario is sustainable, and you plan to sell the home in a few years, I guess you could come out ahead in terms of cash flow. The problem is this idea of the value of the home increasing is not sustainable. Just ask some of my clients in California and Florida.
According to an article in the Wall Street Journal, Countrywide is about to face yet another crisis; this time it involves Option ARM loans. The best estimates are that the default rate has more than doubled for these types of loans which made up $93 billion, or 19% of their volume for the year 2005. Keep in mind that these borrowers were not classified as subprime.
What should you do if you have one of these loans? If you live in an area where your home has not decreased in value, refinancing might be a pretty good choice. You see, the value of your home is important even if you do not plan to sell. If you need to refinance, and your home has decreased in value while the loan balance has stayed the same or actually increased, you might not be able to qualify for the new loan.
If you want the name of a good lender to talk to about your situation, give me a call and I will connect you with someone who is trustworthy.
Always remember, especially when it comes to financing something as large as a home purchase, if it sounds too good to be true, it usually is. And also remember you simply cannot detach the financing process from the home buying process and expect to get the best possible results. Every single one of my consultations with home buyers in the Raleigh area includes a thorough analysis of financing options with one of my lending partners. Finding your dream home and messing up the financing can quickly turn your dream into a nightmare. Get all the facts, look at all your options, and seek wise counsel.
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North Carolina Home Inspection Reports Are About to Change
October 19th, 2007 Categories: Buying a Home, Real Estate Tips, Selling a Home
You may not be aware but a controversial issue is being decided by the NC Home Inspector Licensure Board that could affect how the inspection report on the next home you buy is structured. The issue is whether or not recommendations by the inspector on upgrades that could possibly enhance the function, efficiency or safety of the home can be included in the summary section of the report. Right now there is no standard and it is left to the inspector’s discretion as to whether or not these items are included in the summary.
The key thing to remember is this debate is over where these “non-repair” items will be mentioned in an inspection report, not if they will be allowed in the report. Currently an inspector is free to put anything he feels is worth noting in the summary regardless of whether it is in need of repair. The new rule would only allow items in the summary that do not function as intended and are in need of immediate repair, or warrant further investigation.
Under the new rule any item that is not eligible for repair consideration that an inspector wishes to mention for enhanced function, efficiency, or safety can be included in the appropriate section in the body of the report. It just will not be allowed in the summary. It seems that those opposed to the changes fear that buyers will not read the whole report and might miss some of the inspector’s recommendations for non-repair types of improvements.
Any recommendations for future enhancements to the home that an inspector wishes to provide will be right there in the body of the report. Hey, give the buyer some credit. Don’t you think they will have at least a little interest in reading beyond the summary section of a report for which they just paid hundreds of dollars? Especially when it contains important information regarding the condition of a home they are paying hundreds of thousands of dollars for!
From my perspective, I think this is a good idea. With the new rule the summary section will serve as a place in the report where items can be listed that more closely match the real estate contract’s definition of repairable items. The NC Offer to Purchase and Contract says that all of the major systems of the house, such as plumbing, electrical, HVAC, etc, “shall be performing the function for which intended and not be in need of immediate repair.” Previously the summary section of an inspection report could be cluttered with items that did not meet this repair standard.
The new rule for the summary section will make it much easier for buyers, sellers and their agents to focus on repair negotiations that are covered in the contract as agreed to by both parties. The only items that a buyer and their agent have any authority to request action on is these repair items. Why add more drama to the negotiations with discussions regarding items that the seller is under no obligation to address? The primary purpose of the home inspection is to discover any of the items listed in the real estate contract that need repair. It makes sense to me to have a clean list of those items that can be the topic of repair negotiations between the buyer, seller and their agents.
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3 Reasons Why Everyone Needs a Radon Test
October 18th, 2007 Categories: Buying a Home, Real Estate Tips, Selling a Home
Buying a home is a complicated process. There are lots of moving parts. There are many things that buyers need to be aware of. I write about many of these potential pitfalls on this blog and today want to let you know about one that could threaten your very life!
There are a series of optional inspections that I always consult with my buyer clients about before we look at the first home. One of these inspections is a radon test. This is, in my opinion, the most important test anyone could have done on their home. Amazingly, as important as this is, over half of my clients do not even know what radon is, or the potential health risks of breathing high levels for extended periods of time.
Radon is a colorless, odorless, tasteless gas that occurs naturally. It is actually a mildly radioactive gas that is released from rocks in the soil of the earth. Granite is one of the biggest contributors, but there are many rocks that emit this carcinogenic gas. As it escapes from the soil it can pass through the floor of your home and become trapped inside, leading to elevated levels that the EPA has determined are hazardous to human health.
Reason #1: Radon Can Kill You
As you may have gathered already, radon gas can be deadly. The EPA says that radon gas is the number one cause of lung cancer among non-smokers. Over 21,000 people die every year from radon caused lung cancer. Everyone talks about second hand smoke, but only about 1,000 people who have never smoked contract lung cancer from this source. Radon causes 21 times more lung cancer deaths every year than second hand smoke.
Reason #2: The Standard Real Estate Contract Requires the Seller to Correct High Radon Levels
The standard NC Offer to Purchase and Contract contains language that gives buyers the right to have a radon test performed and requires the seller to take corrective action if elevated levels are found. If the seller refuses, earnest money is returned to the buyer and the contract is voided because of the seller’s breach.
The correction procedure is to have a ventilation system installed in the foundation to evacuate the gas before it can enter the home and create elevated levels. This procedure can, in most cases, permanently eliminate the risk of elevated levels of radon in the home.
Reason #3: Not Testing Now Could Cost You When You Sell Later
Just because you choose not to have a radon test done does not mean the person who offers to buy your home in the future will not want to test. What a mess this could be. For the sake of saving $150 or so you could expose yourself and your family to deadly gases over time and be faced with the cost of installing a radon mitigation system yourself to make your home salable in the future. That’s called lose-lose and it’s not very smart either.
What should you do if your home has never been tested?
If you are reading this article and are realizing your home has never been tested, there are a few things you might want to do.
First, have a test done immediately. Email me, or give me a call and I can recommend a good home inspection company that can administer a highly accurate test that will answer the radon question once and for all.
And don’t go to the hardware store and buy a do-it-yourself kit. There are canisters available that you can set in your home and then mail off to have them analyzed. Don’t be a penny pincher with your life. If these canisters tests are not administered correctly, or if the lab makes an error, you may have an invalid test and never know it.
The other thing you might want to do is consider having a buyer agent represent you on your next home purchase. I always ask my sellers if they had a radon test done when they purchased their home, so that I will have some idea if there could be the potential for a problem with radon. Whenever someone tells me they did not have a test done when they purchased, it is always someone who bought directly from the builder, or direct from the listing agent. In both cases these people were unrepresented when they purchased and had no one to advise them of the risks you have read about here today.
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How to Move Before Selling Your Home and Not Break the Bank
October 9th, 2007 Categories: Real Estate Tips, Selling a Home
I’ve written before about how various markets around the country are affecting home sales in the Raleigh real estate market. Several of my relocation clients in major markets are having great difficulty selling their homes so that they can move to the Raleigh area. Some of these other markets have more than a year of inventory. Ouch! There is an alternative that is becoming popular and, if you are in this situation, it might just be the answer you are looking for.
About a month ago one of my clients from the west cost asked me what I thought of the idea of a lease to purchase for the home they were trying to sell in the Washington state area.
The way the deal would work is that someone would have a lease on the property for two years. During that time the tenant would pay enough to cover the mortgage, some profit for my client, and some money that would be applied towards the tenant’s equity, or forfeited as additional profit for my client if the purchase option was not exercised at the end of the term. This is a great idea!
The market where my client is trying to sell their home is really bad right now and you just have to believe that it will be better in two years. The lease to purchase allows them to move forward with their plans to relocate to Raleigh without stretching their budget too thin. If the purchase option is used at the end of the term, great… problem permanently solved. If not, they have a nice profit for their troubles and they can put the home back on the market at a time that should be more conducive to selling in a reasonable amount of time.
In challenging times it pays to think outside the box. Sometimes it pays big. Give me a call, or email me if you would like to discuss this in more detail. I can also connect you with an expert in your area who can help you find a tenant/buyer and negotiate a good lease to purchase agreement for your home.
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