Q. I want to buy my first house. Are first time buyers being shut out of the housing market?
A. Congratulations on getting into the housing market. Don’t give up! In the current market it is difficult for the first time buyer. They are the only group of buyers whose share of home purchases has not increased over the last several months. Typically 40% of buyers are first timers. Now they are less than 30%.
Financing is a problem for them. 50% of loans for first timers are FHA loans where they only have to put 3.5% down. Consequently, they have to pay mortgage insurance to qualify for such a low down payment. Recently the mortgage insurance premiums have increased many basis points. Some buyers have been priced out. In multiple offer situations, some sellers don’t want to look at an FHA offer. There is steep competition from investors with cash and people with high down payments.
These days FHA loans are fine loans. There is much misinformation about them. They can close in a customary timeline and the appraisals are just as good as a conventional loan.
As a first time buyer, try to be patient. Have your Realtor present you and your offer in a positive way. Most sellers care about their neighbors. The agent should demonstrate, perhaps through a letter, as I’ve suggested before, about what a great addition you would be to the neighborhood.
Q. Do you think we are experiencing another housing bubble?
A. I certainly hope not. My other answer is that I really don’t know. What I worry about is affordability. I know many buyers who have been priced out of the market. Investors are not bidding on as many properties as they use to either. Prices have gotten too high for them to fix up, resell and make a profit.
If the buyer pool gets smaller there will be less demand. If the supply gets larger and the demand gets smaller, prices might go down. If interest rates go up less people will be able to afford their loan. Rates can’t stay this low forever. I do expect prices to level off. I hope after that we can resume normal appreciation which is 1-6% a year.
The reason we might not have a bubble is because current buyers are qualified for their loans. Money is tight. We don’t have the easy loans we had in the last “hot” market.
There is something I have noticed about many people. They seem to think that everything, good or bad, is permanent. If prices are going up they will continue to go up. If prices are going down they think they will be on an ongoing decline. The truth is, nothing is permanent. Everything is temporary.
Real Estate will never be as black and white as people would want.
Q. We are having a problem with the appraisal on a home we are selling coming in at the offered price. Why don’t appraisers just figure out the price per square foot? If they did that our appraisal would have come in higher than the offering price.
A. There are several approaches to appraisals on a home that an appraiser might use, but cost per square foot isn’t one of them. When a home is being built, a builder figures their building costs on a per square foot basis. When it is resold an appraiser uses criteria from previous sales.
The smaller the home, the higher the price per square foot is. The value of the land and the location, or premiums such as a view, add to the value of the home. Think of it this way: a 1,200 sq. ft. home which has a kitchen, 3 bedrooms, 2 baths, a living room and a dining area sold for $380 a square foot, or $456,000. If an 1,800 sq. ft. home, down the street, with the same amount of beds and baths, a living room and a dining room also sold for $380 a sq. ft. it would go for $684,000. Anybody can see that is too much. Nobody would pay that much for the additional air space. The larger home would have to sell for much less per square foot.
Q. My husband and I are getting up in years and are thinking of downsizing. We have a large 2-story home. The stairs are killing us. The cost of maintaining a home, where we use just a few rooms, is hard to afford. Any tips on how to proceed?
A. Now that you are starting to think about moving, you can start the process by getting rid of things that you are not using or won’t be able to take to a smaller home. After living in your home for many years you are bound to have accumulated far more possessions than you need. One benefit of paring down early is that your home will show much better when it is on the market. If you are having trouble figuring out how you will even start scaling back, you can hire someone to help you. There are people who specialize in helping organize and plan a move. Once you choose a Realtor to assist you they can give you a referral.
Many seniors and move down buyers are looking for a smaller house with one level, in a safe location, convenient to shopping and transportation. They are often interested in reducing their overall costs to have money left over to fund retirement. One thing that can be a challenge is the fact that they might find themselves in competition with first-time buyers. There is frequently a higher demand for smaller, lower priced homes, especially single story, than a higher priced home. Please realize that the price per square foot will be much higher than for a larger home. When you buy a home half the size of the one you are selling don’t expect it to sell for half the price. There are subdivisions for 55+ residents. Of course in these homes you won’t be competing with first time buyers.
Anybody that is buying and selling a home, including move down buyers, wonder whether to buy or sell first. If you sell first you will know exactly how much money you have to work with, but you may worry about finding the next home. If you buy first, you might worry about selling your current home. Many seniors are in a position to buy first, or have enough equity in the home after years of appreciation, to take out an equity line to buy the next house. If this feels too uncomfortable to you, an alternative is to sell your current home and put your things in storage, and live in a temporary rental, perhaps in the same area you want to buy, until the right house comes along. Before you put your home on the market, make sure that your Realtor has shown you enough homes for you to be confident that you will find what will work for you when your house does sell.
To soften the stress of navigating this move you might consider the tax advantages. If you have lived in your home for 2 out of the last 5 years, you and your husband are forgiven up to $500,000 of the capital gain you realize on the sale. If you live in Contra Costa County, you can transfer your property taxes to your new home if you move to another home in Contra Costa County, as long as the sale price of the new home is the same or less than the current home. You can consult with the tax assessor to see in what other counties you can transfer taxes. Please hire a trusted Realtor early on to be your guide.
Lynne French – Real Answers
Q. What are some of the new trends in our current Real Estate market?
A. Thanks for asking that question. I have found some fun facts to share with you.
The California Association of Realtors put out their latest “One Cool Thing.” It had some interesting details from the 2011 U.S. Census that show the shifting desires of home buyers.
1. One change is that the percentage of homes built without a garage or carport is the highest since the mid 1990s. I haven’t noticed much of this in our area, though it may be more prevalent in urban areas.
Another fact is that 2/3 of new homes built in 2011 had a porch, a trend that has been on the rise for almost 10 years. On the other hand, the addition of decks has decreased.
2. For the last 5 years the trend has been toward downsizing. This year builders are reporting a higher demand for larger homes. There seems to be a renewed sense of optimism in housing. A builder’s survey showed that 84% of home owners between the ages of 18-59 have no intention of downsizing, even among Baby Boomers. I find this surprising. This, however, could be good news for upper end sellers with 3,000 to 5,000 square foot homes which lost significant value during the housing crash.
The survey also has shown that today’s buyers are equally focused on more efficient use of the space in their home. One reason for this could be multi-generations moving in together. A survey by a group of architects has shown a higher demand for multi-generational housing. They also reported a higher interest in additions and remodeling with kitchens and baths topping the list.
3. The U.S. Census Bureau reports that home owners are moving again. The rate went from 11.6% in 2011 to 12% in 2012 nationally. This rate is still historically low but increasing.
The most common state to state moves are: New York to Florida, California to Texas, California to Arizona, Florida to Georgia, New Jersey to New York, New York to New Jersey, California to Nevada, Georgia to Florida, California to Washington, andTexas to California.
4. We often talk about home owners who are having trouble with their mortgages, but nearly 1/3 of home owners are mortgage free. Even with the slump in the housing market in the last 5 years, the number of home owners without a mortgage is about the same as it was in 2000. The highest rate of home owners who owned their homes outright were in New York, Cleveland and Miami. The lowest rate was in Washington D.C., Atlanta and Las Vegas. Most of California is in the middle.
5. From Remodeling magazineI found some astonishing facts about female celebrities and their lavish homes. Oprah Winfrey has a home in Montecito, Ca. worth $55 million. Mariah Carey has one in Los Angeles worth $125 million. Jennifer Aniston has a home in Bel Air worth $21 million, and Julia Roberts has one in Malibu worth $20 million. Some more modest home prices are: Suze Orman $1 million in Ft. Lauderdale, Florida; Michele Bachman $819,000 in Stillwater, Minnesota; and Mila Kunis $540,000 in West Hollywood, Ca.
Some high profile female celebrities made purchases from other celebrities. Beyonce bought the Miami beach house of Ricky Martin for $12.5 million, while Christina Aguilera bought the Beverly Hills home of Ozzy and Sharon Osbourne for an undisclosed amount.
The size of powerful women’s homes was also interesting. Melinda Gates home is 66,000 sq. ft.; Mariah Carey’s is 41,000 sq. ft., and Oprah Winfrey’s is 23,000 sq. ft.
Some of these celebrities have unusual amenities. Hilary Duff has a gift wrapping room and a Cognac room. Nicole Kidman has a car elevator, while Viola Davis has a huge waterfall. Mariah Carey has 15 bedrooms, and Adele has a helicopter hangar.
Lynne French – Real Answers
Q. What are some of the current trends in what home buyers are looking for?
A. As in every market, but especially this current economy, buyers are looking for good value. They want a deal. They are accepting less features on their wish list if they can get a lower price. Properties under $500,000 and especially under $400,000 in our area are selling like hot cakes.
Home builders identified 10 amenities buyers are looking for in new home construction. These ranked at the top: Walk-in closet in the master bedroom; separate shower and tub in the master bath; indoor laundry; a great room; higher than 9 foot ceilings on the first floor; low-E windows; energy efficient appliances and lighting; more linen closets; programmable thermostat and an insulated front door.
Buyers are also looking for smaller floor plans. “McMansions” are off the wish list of the majority of buyers. Over 50% of the homes sold range from 1,400 to 2,600 square feet.
Most seem to be looking for improved energy efficiency. They want homes with “green” features such as energy-efficient heating and A/C systems; efficient design; energy star appliances; more natural light; solar systems and extra insulation in the attic.
In 2011 “green” homes made up 17% of overall residential construction. By 2016 experts predict that number could climb to 38%.
Q. I just closed escrow on my new home. I have a huge stack of paperwork. What documents should I file away and keep? How long should I keep them?
A. You should keep the following:
- Insurance policies to show proof of coverage and keep a record of any claims for at least 5 to 7 years.
- The Settlement Statement (HUD-1) for the following year’s taxes, to show all fees paid. You should keep it for as long as you own the home because when you sell it you can add some of the fees to your base price to lessen your capital gains.
- The mortgage and note which spell out the terms of the loan and the Truth in Lending statement, which details your annual percentage rate. Keep this for as long as you carry this mortgage loan.
- The Deed which transfers ownership to you should be kept as long as you own the home.
- Any riders or affidavits from the sellers or you for 5 to 7 years.
Q. You have spoken in the past about the National Association of Realtors being a strong lobbying group. Which presidential candidate were they promoting?
A. The National Association of Realtors doesn’t support a particular candidate in the presidential race. They do, however, support individual congressional candidates who support the housing market’s interests. Their spending, this year, broke down about 54% for Republicans and 46% Democrats.
Some of the issues they are promoting are: Reforming the secondary mortgage market (Fannie May and Freddie Mac) and reforms that ensure mortgage availability not be so stringent that it is out of reach for majority of households; Extension of the mortgage tax relief – exempting under water home owners from being taxed on the forgiven amount in a modification or a distressed sale; Reform of federal flood insurance; Protecting higher FHA loan limits and reforming FHA rules to make condo financing more widely available.
LYNNE FRENCH – REAL ANSWERS
Q. We will be selling a property that our realtor calls “non-conforming” for the neighborhood. It happens to be in the middle of a subdivision of newer homes. Though older, our property is expanded to a much larger size than the others in the neighborhood. It is also on a double lot. It was practically rebuilt with very rich upgrades. It is also gated. How can we arrive at a true value for sale?
A. Unusual properties definitely pose a valuation challenge. It would be relatively easy to establish market value if it was one of the other homes in your subdivision. Appraisers determine market value by comparing the property in question with three similar properties in the neighborhood that have sold and closed within the last six months. In our current market there are plenty of closed sales within the last six months. But for a truly unique property, finding comparables to use can be taxing.
Before putting your property on the market I would recommend you get a professional appraisal. The cost could be in the $400 to $800 range. It is well worth it so you have documentation to support your price. Ask your realtor or your loan broker for recommendations. From what you are telling me your home could be considered an estate. The appraiser could go to the nearest upscale area and find comps there. They might look for areas with a similar school district. Schools affect the value of an area. Also, value-added benefits such as expensive upgrades and awesome landscaping help improve the value of a property. The appraiser might have to go back further than the normal six months then adjust for the increase of the market since then.
In the current market where there is low inventory, a buyer might waive the appraisal and pay the additional funds if it doesn’t appraise for the offering price. This happens especially when there are multiple offers. Some buyers are making cash offers these days so they don’t need an appraisal to get a loan. However, they often still want to make sure the property is worth what they are paying. So they would want it to appraise.
Q. Our family will be putting our house up for sale next month. We want to have a garage sale to get rid of years of stuff. Do you have any tips on conducting a garage sale?
A. A garage sale, like many things in life, takes more time and energy than you might expect. Start planning well before making the preparations for selling the house, such as staging and cleaning. Sometimes the neighbors want to join you so you can have a block wide event. This could generate more shoppers.
Double check your items so you don’t end up selling things that you want to keep. Decide if things are worth selling or not: if it is junk, toss it out, don’t sell it. Lay out your items by category, displayed neatly so customers don’t have to dig through boxes. Put removable price stickers on the items. Remember, garage sales are supposed to be bargains, so be objective and don’t over-price. Keep a calculator handy. Keep a tally of what you sold and don’t lose sight of the cash box.
Advertise the sale on internet sites such as Craig’s List (www.craigslist.com); create a flyer and post it at local businesses and posts around town the week before the sale; borrow sandwich board signs with arrows from a local realtor and fly balloons on them the day of the sale. Saturdays and Sundays will generate the most traffic. Whether you are religious or not, pray for good weather. Start your garage sale as early as 8 a.m. and be prepared for early birds.
Now that the garage sale is over and you sold all the treasures you could part with, donate or throw away the rest. This is the time to start preparing your home for sale.