Home Inspections

A colleague has been talking to me recently about a house that was sold last year and foundation problems that have shown up since the settlement. It's led us into a discussion about home inspections and some of the pitfalls.

In this particular case a home inspection was done and the inspector did tell the buyer that there were issues related to the foundation. The agent suggested asking the current owner to rectify in the home inspection addendum. The buyer agreed and they asked. The seller rejected this request. The buyer then chose to go ahead with the purchase anyway.

The inspector found the problem, mentioned the problem and noted the problem on his report. That's his job and it appears he did it and did it professionally. But none of what was said apparently raised the kind of red flags with the buyer that foundational issues would suggest.

So we've been talking about how home inspectors are trained to not be alarmist. Since buyers usually don't know a home inspector and rely on the recommendation of their agent to find one, the home inspectors rely on real estate agents for their business. They've learned to stay low key about anything they find in a house in order to continue to have business referred by real estate agents. There are plenty of agents out there who worry that a home inspector who is too aggressive in finding and highlighting potential problems put deals at risk.

And the truth is that a home inspector can do a disservice to a buyer by scaring them out of a perfectly good home that needs relatively minor repairs.

But the scales have perhaps tipped too far towards protecting the deal over the buyer. That doesn't mean all home inspectors are shady. It doesn't mean that real estate agents are trying to pull the wool over their clients' eyes to protect the deal. But it does mean that there are some natural inclinations to minimize issues and that we all need to be aware of these and make sure that alarm bells go off when they should!

Ideally buyers would always know a home inspector that they trusted and would hire him or her without needing the agent to give them a referral to someone. But since that seems unlikely to happen I guess we'll all just have to get a little more vigilant about making sure buyers get every protection possible.

Condos vs. Townhouses

I've had several discussions with potential buyers recently about the differences between townhouses and condos. Often people use these terms interchangeably and they're definitely two very different things. So for those of you who are interested or confused, here are the basics!

A townhouse has to do with the structure of the home. It's attached to the house next to it and potentially to one on each side. But other than that, it is essentially much the same as owning a detached home that's in a Homeowner's Association. You own the entire property. If the roof leaks, it's your roof and you must get it fixed. (Or get wet!) If the grass needs mowing, you'll be the one doing the mowing or you'll have to hire the neighbor's kid. The homeowner's association has a set of rules you must abide by and they will collect dues to be used for things like upkeep of common areas.

A condo has nothing to do with the structure of the property. Theoretically, a detached house can be a condo. But the form of ownership is different. With a condo you own only the property from the paint on the walls inward. If the roof leaks the condo association owns that roof and is responsible for fixing it. The grass is mowed by the association. In return for this lower level of responsibility and less ownership you will pay less for the condo itself and more for the monthly association fees.

Condos overall are much cheaper in our area right now. There is a glut of them on the market. And many companies that planned to convert rental apartments into condos have backed out of that.

Each type of property has its advantages and disadvantages. If you've got questions on what's right for you, give me a call or drop me an e-mail and we can talk about what makes sense.

Asking For the Moon

I heard one agent recently explaining that buyers "just didn't get it" and that the offers he was getting were ridiculously low. My hunch is it's not the buyers who aren't reading the tea leaves!

Any offer from any buyer ought to be aggressive right now. Yes, that means aggressive on price. But it also means thinking about what else you might want. A home inspection should be a no-brainer. By the way, that was true during the height of the hot seller's market as well, in my opinion. Ask for a home warranty. Why wouldn't you? If you need help with closing costs, ask! 3% for closing cost assistance is fairly normal right now in this market.

But you might also get creative. Really want the flat panel TV? Why not ask them to throw it in! Need a riding lawn mower for that three acre place you just bought? See if the sellers will leave it with the house. Do they have a fabulous gas grill that has you drooling? Why not ask? Listen, sellers can always say no! You will never have a better market in which to push hard for a great bargain. Get aggressive!

By the way, I've written offers where I've asked for a dog to convey! (In my defense, the owners seemed to view the dog as a nuisance and my clients were passionate dog lovers!) I've heard of people asking for the car they admired in the garage. Now is the time to be creative!

If you've got a story about asking for something out of the ordinary I'd love to hear it!

Accountability

I'm not normally a big fan of finger pointing. It generally seems more important to me to solve the problem. But I'm troubled that I'm not seeing much personal accountability in this whole mortgage market mess.

Sure, we've seen plenty of mortgage companies go belly up. And there are no doubt more to come.

But there were individuals pushing these mortgages, often with encouragement or even direction to do so from the top. There were clearly many instances of out right fraud with lenders deliberately misleading borrowers about the terms and conditions of the loans they were getting.

And, yes, the consumer is responsible for reading the fine print and knowing what they were signing. And many of them are going to suffer serious consequences for their failures there. But what about the lenders who led them down the garden path? I'm not hearing any stories about individuals being fired for what they did. I'm not hearing about government investigations and charges being filed. Strangely enough, I'm not even hearing about law suits being filed. (How unAmerican!)

Maybe it's too early in the cycle yet. Maybe all that will still show up some months down the road as this mess plays itself out.

Personally, I'm hoping some of these guys get run out of town on a rail and are never heard from again! Maybe real estate and mortgage company offices ought to have a bulletin board of bad guys like they do at the post office?

Rental Market

The rental listings I have seem to be flying "off the shelves". It's a pretty dramatic contrast to what's going on with the houses listed for sale. Looking at the statistics overall, over half the rentals have been rented in less than 60 days during 2007. Contrast that with an average days on market for sale properties in Fauquier County of 162 right now.

I've argued before that the DOM (Days on Market) number understates how long properties are really taking to sell. But it works well enough for our purposes here in highlighting the fact that rentals are clearly moving better right now than sales.

So, my advice to all my sellers is that if you have the option of renting out your home and riding out the current market cycle, it makes sense. I recommend listing it as a sale and as a rental.

For what it's worth, all real estate agents hate doing rentals and they especially hate them in this kind of situation. I'm going to do all the work I'd do to market your home for sale. I'm going to do additional work to market it as a rental. And the odds are the rental will sell first and I'll get a very, very small paycheck!

But in this market, it's the right thing for a lot of sellers. And it's always a good idea to have the conversation. If you get a renter in there for a year, who knows what the market will look like a year from now. At the very least you've bought yourself some time!

Careful Sellers

Today I was out at a number of listings and saw something that seemed worth mentioning here. If your house is for sale, with any luck, strangers are going to be trooping through it on a regular basis. Yes, they will be accompanied by a licensed real estate agent, but it's impossible to watch every move everyone makes every second.

Today I saw a diamond ring laying on a dining room table! Anyone in this business for any length of time has heard horror stories about things going missing from homes for sale. It doesn't happen often and there's much you can do to protect yourself. First of all, get expensive jewelry out of the house if you're not wearing it. A safe deposit box is an excellent idea unless you've already got a safe in the house. Don't leave valuable items laying in plain sight where it might create a temptation. And the temptation doesn't have to be an inclination towards theft. A toddler seems something pretty and shiny and wanders off with it. Believe me, these things happen!

One of the other things to think about is prescription medication. This is especially true if you have any medication in the house that is likely to sell well on the black market, think anything in the narcotic family. Hide these in a place other than the medicine cabinet.

And it's always a good idea to start packing up now! Rent a storage unit or stick boxes in basements or garages.

Some things are an annoyance if they go missing. Other things are irreplacable. Whatever the case, you're much better off taking precautions ahead of time!

Real Estate is Local

The blog posts have been few and far between this week because I'm on vacation in Manhattan. But real estate does cross my mind, even on vacation! And I thought this might be a good time to reinforce an old real estate adage. You may have heard "all real estate is local." And it's certainly true. That's spectacularly true comparing NYC and Virginia.

Believe it or not, New York City still doesn't use a Multiple Listing Service! You think you have trouble selling your home now?! Try it when only the firm that listed your house is actively trying to sell it! Wow! In our area that would eliminate thousands and thousands of agents that are currently helping to try to sell your home, no matter who lists it!

And if you think it's tough getting a mortgage now in Virginia, try NYC! In Manhattan the lender is the one with the easy requirement. If you're buying a co-op or even many condos or townhouses there's a board that's going to have a say and they often REQUIRE 50% down! Some of them want proof that you have 5 times the purchase price in net worth. At NYC real estate prices that's a big number!

Now I know that many people in this area hate home owners associations. But what if you had to submit hundreds of pages of documents to them proving you were worthy to live there? I'm guessing there are some rude thoughts going through your mind right now!

Even things like how long it takes to close are much different. Typically it's about 90 days in New York City. I see plenty of settlements in our area that happen in less than 30 days. And I've seen them done in a week! 90 days would be highly unusual in our area.

This is a drastic example of differences. But the adages apply locally as well. Real estate can be practiced differently even in different parts of the Commonwealth. And if you move to Virginia from someplace else you're likely to experience lots of things that are different here.

It does make real estate endlessly interesting!

July Market Statistics

The numbers are out for July and it shows a very mixed bag! This is the first time there's been this sharp a difference between counties. Typically each of the counties have been trending in the same direction. But that's not true at all this month. We've got good news for some of you!

Fauquier County seems to be showing the biggest positive change. The best news is that the number of listings dropped from 865 to 805. The number of new listings added was lower. And the number of contracts written went from 65 to 71. It's a small uptick, but it's good news. On the down side, the number of solds actually fell from 65 in June to 58 in July. The change is good. It's too soon to tell whether it's a trend or a blip! And I would take the surge in contracts with a grain of salt. Given what's going on in the mortgage markets it's likely some of those will fall out due to an inability to get financing.

Prince William county saw the same kind of drop in active listings from 5703 to 5621. And, again, number of contracts was up slightly, number of solds down. The number of new listings coming on the market was also down.

Culpeper and Rappahannock didn't fare as well. In Culpeper it's still all headed in the wrong direction. The numbers on both active and new listings jumped. There are now 803 active listings in Culpeper, up from 784 last month. That's a new all time high. We added 145 new listings, up from 113 the previous month. While the number of solds went from 31 to 40 the number of new contracts written fell from 47 to 39. Culpeper continues to take the hardest hit in this market.

Rappahannock County always marches to its own drummer, but even they're feeling some pain this year. The number of active listings is at 83, a small number compared to neighboring counties, but a new high for Rappahannock. 14 new listings came on the market, down by 2 from the previous month. But zero contracts were written! That's a first since I've been tracking the numbers. Closed sales remained at a pretty average 3 for July.

The numbers are definitely showing a mixed picture but I hesitate to call anything a trend with only one month's data. We'll hope for good things for all the counties in August!

Air Conditioning and Selling Your Home

I've shown several homes lately where the air conditioning was either off or was set so high that it achieved the same effect. This is an incredibly bad idea for many reasons! Let's talk about a couple.

First of all, many potential buyers will wonder what's wrong with the air conditioning system. Sellers will say, they have the opportunity to check that when they do the home inspection and they'll find out then that the air conditioning is fine. That strategy might work if your home is the only one for sale! But when there are dozens more that are very similar and where the air conditioning is actually cooling the house, they're just going to keep going!

Secondly, you want potential buyers to linger in your house so they can fall in love with it. No one lingers in a hot, humid house on a day when the outside temperature is above 90 and the inside feels like a sauna! They are NEVER going to fall in love with your house under those conditions! They'll rush through and breathe a sigh of relief when they can head to the next house where the air condition is actually ON!

And, if you need another reason, it's not good for your house! Now, if you're just out for the day and have turned the a/c way up, no problem. But if your house is vacant, as many of them are right now, running the air conditioning is helping to take the moisture out of the air and prevent the growth of mold and mildew. Believe me, that's very important when you're not there scrubbing things down on a regular basis.

I'm sure there are other reasons as well, but I'm hoping these are enough to convince you. Turn that air conditioning on and/or up!

And this winter, keep it warm in there!

Instant Equity?

I'm seeing an increasing number of listings with this kind of verbiage in the description "Instant equity of $40,000!" "Priced lower than assessed value."

This is absolutely absurd!

When prices were increasing at a ridiculous prices no one would have sold their home for assessed value. Tax assessments have very little relation to market value. That's true when the market price is going up and it remains true when the prices are going down.

Typically the assessed value lags what's actually going on in the market place. They may occasionally be in the same place at the same time. But generally speaking you should assume that there's absolutely no relationship between the assessed value and what a home will sell for.

So, if someone is telling you that there's instant equity in the home because the price is below the tax assessment value, they're wrong! Be very careful about those kind of advertisements.

How the Mortgage Market Meltdown Effects You

If you haven't been on another planet for the last couple of weeks you're probably well aware of the problems many lenders are having. The media focuses a lot on what's happening to the companies involved, i.e. bankruptcy, layoffs, etc. but I'm not sure they're doing a good job, in most cases, of explaining the impact this is going to have on home owners, home buyers, and home sellers.

Let's start with home buyers because that's where the cycle starts. Mortgages are much, much harder to obtain for first time home buyers. 100% financing mortgages are almost impossible to get at the moment. There are exceptions for people with stellar credit. But for most would-be first time home buyers they're going to have to come up with substantial amounts of cash. That probably means at least 5% down, maybe 10%. The lender will probably still let the seller help out with closing costs. I've also heard that some of the lenders are now requiring larger reserves. For example, if you settled on your home a year ago, the mortgage company probably wanted you to have two months mortgage payments in the checking account as a cushion. Now that number may go as high as five or six months. And that's after you've come up with the down payment!

What this means to sellers is that there are a lot fewer people who CAN buy your home. That's true whether your home is perfect for the first time home buyer or whether it's more suited to a growing family. If the first time home buyers aren't there, the people selling their first homes can't move and so on and so forth. It ripples up the chain. (We're not even going to talk today about less people WANTING to buy your home!)

For home owners, even those not interested in selling right now, it means your home is worth less. It means if something happened tomorrow and you needed to sell suddenly, you will need to readjust your ideas of what it could sell for. If you have a home equity line of credit this would be an excellent time to think about paying it off! You want as much maneuvering room as possible if you should need to sell your home unexpectedly.

I also think we're about to see the revival of something that's been pretty dormant for many years now. I think you're going to start seeing a lot more seller financing. When mortgage money was being handed out on every street corner at ridiculously low rates, who needed seller financing?! But we're in a different world now. If you need to sell your home and there's any possibility of you carrying at least a second mortgage, it's time to think about it.

If you'd like to consider the possibility it makes sense to talk to a financial planner or someone equipped to help you with a complex financial transaction. While I can give you the outlines of how such programs work and can point you to the right experts to help, this is not an area where you should rely solely on my expertise.

That's how the current mortgage mess relates to you. I hope that's helpful. Any questions? Does anybody have a different take on this? How do you all feel about seller financing?

I look forward to your responses!

What I Learned Previewing

I've spent a lot of time the last couple of weeks on previewing homes for sale in the area. I've looked mostly at homes priced in the mid and upper-ranges. And I've come to one inescapable conclusion. Homes are still seriously overpriced in our area.

No seller wants to hear this. And I don't want to be the one to break it to you all. But the vast majority of homes I toured have absolutely no chance of selling for anything near their asking price.

Mind you, this is only my opinion! And I'll no doubt be proven wrong on at least one! I saw a property today in Amissville, listed for $575K where the house would need to be bulldozed so you could start over! I'm entirely serious here! Granted there was also a barn (in rough shape!) and it was on 12 acres, but seriously! I was nervous going upstairs as the ceilings on the lower level were clearly compromised and I wasn't sure how extensive the damage was!

You're thinking that's only one property and that I exaggerate the nature of the problem. Unfortunately, that was just one example among many of truly overpriced properties.

If you're a buyer looking for a real fixxer upper, I'd be turning in seriously lowball offers on some of these places. I don't know that the sellers are mentally and emotionally ready yet to accept the deal, but I'd sure be trying right now!

On the flip side of this, what is selling are the properties that show beautifully and are very aggressively priced.

Strangely enough, I'm also seeing good movement on rentals all of a sudden! It's got me wondering if a lot of potential first time buyers have given up on the idea given the current credit crunch in the mortgage markets.

July numbers should be available to me in the next day or so and we'll see if inventory's deceasing substantially.

Deed in Lieu of Foreclosure

Since foreclosures are still rising in our area and since it's a fairly complex subject, I thought we'd talk about one aspect of it today. If you owe more to the bank than your house is worth there are a range of possible remedies. The worst one, by any measure, is foreclosure. You should definitely be working to avoid that if at all possible.

A slightly less worse option is deed in lieu of foreclosure. In this scenario the bank isn't coming after you to take the house. You're going to them, keys in hand, and saying "It's all yours! I can't make the payments any more."

The reason this is a slightly better choice for the borrower is that it looks less bad on your credit report. It is better because you have stepped forward rather than the bank having to come after you. It may also benefit you financially in the sense that the lender may be more willing to negotiate more favorable financial terms on the difference between what you owe and what the house is worth. That's because they didn't have to spend the money that a formal foreclosure process would have cost them.

There's another advantage in this for most people. When you're in this situation the last thing you need to see is your name in the paper as going through foreclosure. This allows you to keep the entire transaction a little more private.

You should also know that if you decide to go this route, you can't call the mortgage company up, let them know the keys are in the house and walk out. You will need to send them a letter telling them you're requesting deed in lieu of foreclosure. I would also recommend that you provide some information about the circumstances that make this a necessity. It is not a bad idea to involve an attorney to help you in this process. But I realize that if you're in this situation attorneys fees may be completely out of reach.

This is one option if you're in a tough spot. There are others. Every situation is unique and the best thing to do is to talk to a real estate agent about your particular situation so you can discuss each option, the pluses and minuses and get help in making the wisest decision for you and your family.

Pending Legislation

A lot of senators and congressmen and women are going to be leaving Washington and heading towards home this week. I'd like to make an appeal to all of you to find them and give them an earful about a couple of bills awaiting their return to Washington.

HR1876 and Senate Bill S1394 are both designed to help homeowners who have been through what's known as a short sale. For those of you who aren't familiar with the term, it's when you sell your home and actually owe money to the bank as a result of that transaction.

These transactions are becoming pretty frequent as home values decline or, at the very least, stall. If you get transferred a year after you bought your house, in this market, you're going to have a short sale. If you lose your job and have only been in your house two years and have to sell because you can no longer afford it, it's likely to be a short sale. And there are an increasing number of people with adjustable rate mortgages who are going to be forced to sell because the adjusted payments are unaffordable.

Whatever the reason for a short sale, it's a miserable situation currently made worse by our friends at the IRS. Current law says that if the bank forgives any additional debt owed on the house, a not uncommon situation, the amount of the debt forgiven is taxable income.

There's going to be enough economic misery before this housing market recovers. The law as currently written just adds insult to injury. This would be a very practical move by Congress to help not just their constituents involved in short sales, but the overall economy of the country. There are certainly a lot of sellers who could use a little good news right now!

So, go find your Representatives and Senators in August. And, if you can't find them around locally, write them a letter, send them an e-mail or make a phone call!