Buying a Home
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Janet is a featured writer for The Town Common community newspaper. In addition to the articles on this page, check out Janet Hilton's blog and real estate articles page, where you will find amusing and informative articles on situations encountered when buying and selling a home, the real estate market and trends.
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Negotiating tips
Some people are born negotiators. They'd negotiate the time of day if they had the opportunity. Many people, however, feel uncomfortable negotiating. If you fall in the second camp, think of a home purchase negotiation as a dialogue between you and the seller. It's a forum for exchanging ideas with one another to see if you can come to mutually agreeable terms. If you can: Great. You've bought a home. If you can't: that's OK, too. You'll find yourself another home and the seller will find another buyer.
There are many ways to negotiate a home sale. It's hard to generalize because each transaction is unique. But, in most cases, a successful negotiation involves give and take from both parties. Keep in mind that you want the sellers to feel good about selling their hometo you. You may need their cooperation during the transaction.
For example, you may want to renegotiate the purchase contract if your inspections reveal unanticipated defects. You'll stand a better chance of successfully working through these negotiations if you've built good rapport with the sellers. A cooperative, rather than adversarial, stance usually produces good results.
First-Time Tip:
In the spirit of give and take, you may want to plan your negotiation strategy so that you give up something you want in exchange for the seller giving you something you want.
For instance, let's say you know that the sellers prefer a short close, and you think his price is a little high. You might start the negotiation offering a 60- or 90-day close and a price that's a bit below the top price you'll pay. When the seller counters back with a 30-day close, you can accept this if the seller is willing to sell at your price.
With this strategy, it's effective to save a bargaining chip, or two, until a critical point in the negotiation. That bargaining chip is often your best price. You may be willing to pay the seller's price if he agrees to take care of some deferred maintenance. In this case, you would hold back on agreeing to pay his price until the seller agreed to make the necessary repairs.
Another strategy that can break an impasse is the "either/or" approach. With this strategy, you give the sellers two options. They can take their pick.
Suppose you're locked into a lease that runs 4 more months, and costs you $2000 a month. You can't afford to pay the seller's asking price and make double monthly payments for mortgage and rent.
The seller wants to close in 30 days; you prefer 90 or 120. If the home is fairly listed for $300,000, you might offer to pay $300,000 with a 120-day close, or $294,000 with a 30-day close. The seller can choose. By the way,it can further the negotiations if the other party understands your circumstances.
It helps to plan out your negotiation strategy in advance. Find out as much about the seller's situation as you can. Determine the highest price you're willing to pay. Make a pact with yourself to walk away from the propertyif you have to significantly overpay to get it.
Sometimes it's best to stand firm during negotiations. Perhaps you've negotiated to your best and final price. You may want to lay your cards on the table and let the other party know this. There's no rule that says you must counter with a new price.
The closing:
And remember, all elements of the purchase agreement are negotiable, not just the price.
By: Dian Hymer
Dian Hymer is author of "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
Copyright by Dian Hymer
Distributed by Inman News Features
Buying a new home
What are the pros and cons of buying a brand new home?
What a joy it would be to own a home that required little, if any, maintenance for 5 or 10 years. This is a major attraction of buying a new home. There's no need to fuss with remodeling and repairing. You simply move in and enjoy. That is, unless you have the misfortune of buying a lemon.
Several years ago, a couple bought a new home in a small development in Marin County, Calif. They thought they'd lucked into the home of their dreams until one house after another in the project developed similar problems. First, the windows and skylights leaked. Then, the drainage systems failed. Finally, water seeped through some exterior walls. The only recourse was to sue the builder. He, however, had fallen into financial hard times soon after building the development.
New homes are usually built with approval of the local building department. This involves a building permit application process including such requirements as a soils report, architectural plans and structural calculations.
Licensed professionals - soils engineer, architect, and contractor - are involved in creating a new home project, which is inspected by city building inspectors during the course of construction. At the end of the project, a certificate of occupancy is issued.
You might expect that with all this planning and scrutiny, new homes would be perfect. But, just because a home is new and built with permits doesn't mean that it was properly built, or that it's free of defects. Sometimes builders make mistakes. City inspectors aren't infallible either, and they are usually immune from liability.
Many homes built after the Oakland Hills firestorm in 1991 developed costly dry-rot problems within several years after they were completed. The culprit in most cases was lack of adequate ventilation. City building inspectors had inspected and approved all the homes during construction.
House Hunting Tip:
Don't assume that because a city inspector looked at the property during construction that you don't need to have it inspected. You should include an inspection contingency in your purchase agreement, regardless of the home's age.
It's best to have a new home inspected by a home inspector who has experience inspecting new homes. You may want to have an engineer evaluate the soils report, plans and structural calculations for you.
In addition to inspecting the structure, make sure that you investigate the builder's reputation. You want to buy from a builder who values his good reputation and will promptly take care of any construction-related problems that might surface in the first year or so of ownership.
Ask the builder for a list of homes or developments that he has built in recent years. Visit these. How do they look? Speak to some of the homeowners to find out how satisfied they are with his product. Be sure to ask how the builder responded to requests to take care of problems.
Ask the builder to give you a written warranty, which states that he will repair construction defects that develop within your first year or so of ownership. Some builders won't do this. Also, the law is not always clear about what a builder's responsibilities are to you. Consult with a knowledgeable real estate attorney if you have any questions about a builder's responsibilities.
Older homes need updating, they often aren't energy efficient, and they may be poorly designed. Renovating is expensive and time-consuming. But, a benefit of buying an older home is that it has stood the test of time.
The Closing:
You should exercise diligent care in buying a new home.
By: Dian Hymer
Dian Hymer is author of "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
Copyright by Dian Hymer
Distributed by Inman News Features
Remodeling - 7 Rules of Survival
Reams have been written about the glamorous part of remodeling — the architect's (often incomprehensible) commentary; the client's bubbling enthusiasm; the glossy magazine spreads. A lot less is said about the bumpy road most remodelers travel to arrive at a great project.
Problems and surprises are endemic to the remodeling process, but they can be minimized by careful planning and a healthy dose of pragmatism. Herewith are seven rules of survival:
1. Educate yourself.
Discover remodeling pitfalls the painless way — by taking a class or seminar — not by living through a disastrous project. Learning from a pro is easier and a lot less expensive than enrolling in the school of hard knocks. Look for homeowner education organizations in your area, or check the architecture department of your local junior college; many have a wide variety of classes on design and remodeling topics.
2. Set a realistic budget.
The days of $35 per square foot construction costs are just a distant memory now; realistically, you should allow from $200 to $300 per square foot, depending on the size, complexity, and quality of your remodel. Extensive kitchen or bath remodels will cost even more. If you plan to hire an architect, add an additional 12-15 percent fee to the total.
3. Know where to save and where to spend.
It's easy to be seduced by trendy design, but high-fashion items are notoriously bad investments. Spend your money where it counts: on top-quality doors, windows, roofing, and exterior finishes. The frou-frou can be easily upgraded later.
4. Do as much of the work yourself as you can, but be realistic about how much you can do and how well you can do it.
Finish work, especially, is not the place for on-the-job training — novice work can ruin an otherwise first-rate job. And be forewarned: Many contractors dislike sharing construction responsibilities with owners, since any tardiness on owner's part can raise havoc with the contractor's schedule. If you're confident of your time and abilities, fine; otherwise, forget it.
5. Choose a contractor (or an architect) by what he builds, not by what he says.
Always ask for references, and then follow up on them. Most contractors and architects are dedicated, competent and take great pride in their work — and they'll be glad to let their references prove it.
6. Be prepared for more of everything...
More expense, more time, more disruption, and more problems than you planned on. Surprises of one kind or another are endemic to working with existing buildings — expect them.
7. If you need design help, get it.
That 12-15 percent architect's fee may sound like a waste of money until you find yourself spending $30,000 to correct errors or add items you've forgotten. If I do say so myself, investing in a professional's experience will usually repay itself many times over. In any case, a well-detailed set of plans is an absolute must if you plan to bid the job out, since vague plans will invite many costly "extras" later on.
All of the above point to two fundamentals of remodeling: Being informed, and expecting the unexpected. A little mental preparation will go a long way toward smoothing out the road to a remodel.
By: Arrol Gellner
Copyright by Arrol Gellner
Distributed by Inman News Features
Fixer-Uppers: Wise Investment Or Money Pit?
Would you spend $650,000 for a beachfront home with sagging shutters, no landscaping, peeling paint, old appliances, outdated wallpaper and a generally drab exterior?
On paper, the house sounds less-than-desirable -- okay, it sounds hideous. But before you answer, consider that this potential fixer-upper is located in California just steps from the Pacific. Drab as it may be, could this home sparkle one day? With a coat of paint, some "sweat" equity, and thorough revamping inside and out could this property be an investment gem?
All homes are different, but there are certain criteria which can help you spot a fixer-upper with good potential. Here are a few basic questions to ask:
What needs to be changed?
There are some homes which are structurally sound that require only cosmetic changes -- say that worn carpet from the 1960's, the historic appliances, or that inefficient heating system which consumes more fuel than a high school.
It makes sense to inventory a home to see what can remain and what must go. A good home inspection can help you spot mechanical, structural, and system upgrades that should be made, and also provide some cost estimates.
Does the area support a new and higher price?
If you buy a home for $300,000 and add improvements worth $100,000 are you ahead if area homes only sell for $350,000? What about $400,000? You need to recover the value of your investment, your time, and the cost of improvements. Many who specialize in fix-up work won't touch a project unless they can get a 100 percent mark-up -- two dollars in new value for each dollar invested.
What about the land?
In some close-in areas a home may simply not be worth an up-grade, instead it's the land and location which have value. In this case, the question is not whether to improve, it's whether to tear down. Essentially, the property's purchase price is equal to the combination of what you pay to buy it plus the expense of removing the old house. The addition of a new house is extra.
Who will do the work?
The economics of fixing-up vary enormously depending whether you're considering a do-it-yourself project or reconstruction contracted out to professionals. For the lowest cost and highest quality, it often makes sense to do both -- do much of the work yourself and then call in professionals for specialized work such as wiring, gas, and roofing.
Do You Need Repairs Or Remodeling?
According to Addie Mae, a mortgage lender, those contemplating the purchase of a fixer-upper should consider first whether the home "is in need of repair, remodeling, or both. Many homes need both types, but both don't provide equal returns on your investment."
Repair work, according to Addie Mae, usually falls under the "out of sight, out of mind" category and includes such major projects as plumbing, electrical systems and foundation repair. Remodeling, though labor-intensive, involves aesthetic projects such as kitchen updates, installing tile or wood floors, painting bathroom cabinets, etc.
"The important thing to remember is repair work usually costs money, while remodeling makes money," Addie Mae advises. "You may find a home needing $25,000 in repair costs may only be priced $15,000 below current market value. On the flip side of that, a home in need of a little cosmetic painting may be $10,000 below market value.
"One way to turn that equation around is to make your repairs into a remodel," the lender advises. "For example, if you need to replace a large amount of dry rot in a wall, try adding a picture or bay window. If you need to replace the roof anyway add skylights. If you have sheetrock damage as well you might consider vaulting the ceiling or adding recessed lighting. These simple things can turn what would normally be a money drain into a money maker."
How Much Time Do You Have?
The general rule for fixing up is that everything takes longer than planned. If you need to re-sell quickly, then fixing-up becomes increasingly risky. If you have more time available, getting the job done becomes more plausible.
How Will You Pay For Your Fixer-Upper?
A fixer-upper requires two forms of financing: acquisition money to buy the home and additional dollars to do the actual repairs and improvements. In the best case, you want one loan to provide both forms of financing so that you do not have to pay for a second closing. Some mortgages to consider include the FHA 203(k) program, Fannie Mae's HomeStyle loans, Freddie Mac's HomeWorks financing, and similar programs. If you now live in a home and need money for improvements, consider HUD's Title 1 program for loans up to $25,000.
Be aware that for financing purposes it makes a big difference whether you are an owner-occupant or an investor not living on the property. For details, speak with brokers and lenders.
Author: Courtney Ronan
Courtney Ronan is a freelance writer who contributes a weekly column profiling various communities. She also writes a weekly review of real estate related web sites. Courtney's career in journalism has included recent stints as managing editor of Agent News and as associate editor of Texas Business magazine.