To avoid a bad experience that could end up in a legal battle with the sellers over property problems, make sure your purchase agreement includes an inspection contingency.
Your mission during the inspection contingency period is to find out as much as possible about the property and surrounding area, insurability of the property, permit history, zoning issues and cost to repair defects. Investigate any issues that could affect whether or not the property will suit your long-term needs at a price you can afford.
Most states have home seller disclosure requirements. If you are buying in a state that doesn't require sellers to disclosure material facts, ask the sellers to disclose in writing any property defects or neighborhood issues they know about.
Also, find out if there are systems that require routine maintenance, such as the furnace, drainage system, skylights and roof. After you clear the inspection hurdle, ask the seller to provide you with contact information for any people who have worked on the property that the sellers would recommend.
Find out when major components were replaced and when the house was last painted. Find out how much the sellers pay for utilities. Ask for copies of proposals and paid invoices for any significant work done on the property.
Basically, you want to know any problems the seller had with the property, what was done about it, by whom and when. If the roof was recently replaced, find out if it's covered by a warranty and if it's transferable to you.
You may feel uncomfortable asking the sellers to provide additional information at the time you make the offer, particularly if there are multiple offers. In this case, ask the sellers for answers to your questions during the inspection contingency time frame. Questions will undoubtedly come up during your inspections.
HOUSE HUNTING TIP: Even if the sellers have provided presale inspection reports and disclosures, have your own inspectors give the property a thorough exam. Some buyers hire the seller's home inspector to meet them at the property to explain the presale report and ask questions. This may save you money. But, saving money should not be the primary goal when having a property inspected.
Buyers of newly built homes should ask the sellers for any construction-related documents like the geotechnical report, engineering calculations, and letters to the planning department confirming that the geotechnical engineer monitored the construction and confirmed that the house was built according to his recommendations. Ask the seller to leave the architectural plans, if they're available.
Verifying livable square footage is a big issue in today's cautious mortgage environment. Many lenders won't count additions or renovations that add square footage in the appraised valuation of the property.
If the sellers can't provide the supporting documentation, such as copies of approved permits, the property could appraise for less than you agreed to pay. This might jeopardize the transaction if the lender approved a lower mortgage amount than you requested.
It's a good idea to check the permit history at the planning department yourself if the sellers can't provide copies of permits for work done. This should let you know if renovations were done with permits and if the permits received final approval. You should have this information before removing the inspection contingency.
Many planning departments won't issue a new permit if there is a permit on record that never received final approval. The new owners might incur fees to clear up any outstanding permits before they can move forward with new improvements.
THE CLOSING: With probate and REOs (bank-owned properties) you will receive minimal, if any, information about the property condition. Be extra careful with your due diligence investigations.
By Dian Hymer
Wednesday, June 2, 2010
Fixing to sell: Don't go overboard
Fixer-uppers with upside potential were in high demand when the market was appreciating at a fast pace. Once depreciation took over, speculators disappeared until 2009, when low-end foreclosure properties in some areas became hot properties -- particularly if they were selling at a 50 percent discount from the peak in summer 2006.
In California, 70 percent of the homes bought by investors in 2009 were distressed-sale properties, according to the CALIFORNIA ASSOCIATION OF REALTORS®. Some were stripped of appliances and fixtures. But, at half price, there was profit potential for buyers who were up for a redo -- especially seasoned investors buying multiple homes to fix up and resell, or rent out.
Fixers priced over $500,000 aren't as easy to sell today. Most buyers in higher price ranges are buying a home to live in. They want a home in move-in condition that will suit their long-term needs.
There are exceptions. In high-demand market niches with few listings, there is occasionally a fixer-upper that draws a lot of attention. Usually, these fixers sell to buyers who will live in the property and fix it up themselves to save money. Often this is the only way they can afford to move into the neighborhood.
Sellers of fixers in such neighborhoods should make their property as presentable as possible by cleaning out clutter, both inside and out. Many homebuyers can't visualize a property's potential. It's often worth a modest investment to show the house at its best advantage.
Cosmetic improvements, such as painting, replacing outdated floor covering, or refinishing worn hardwood floors can pay off. Some fixers are staged, even though the property needs a lot of work, so that buyers can envision themselves living there.
Presale inspections will help buyers make a decision about whether or not to tackle the project. Make reports available to buyers before they make an offer to avoid having to put the home back on the market if the deal falls apart because the buyer's inspectors discover defects not previously disclosed.
HOUSE HUNTING TIP: How much you spend preparing a fixer for sale depends on several factors. How much did you pay for the property? How much do you owe against the property? Is there demand for fixer-uppers in your area? Finally, how much does your real estate agent think you can sell the home for given current market conditions?
Sellers who have equity in their home and cash to invest in fix-up for-sale work should consider making cost-effective renovations, like a kitchen upgrade, but not an entire renovation. Ask your agent what the home would sell for with and without these improvements before doing anything to it.
The investment may not yield a profit, but could recover the costs when the home sells. In areas where fixers aren't selling, sellers might need to enhance the property to sell at all. A good real estate agent should be able to provide references for reliable, reasonably priced professionals who can do the jobs for sellers who haven't the time or expertise to do the work themselves.
Buyers who bought at the peak may not be able sell for even close to what they paid. One possibility would be to rent the property, if it makes sense financially. You may need to fix up the property somewhat to attract a good tenant. Consult with a certified public accountant about the tax consequences of converting a single-family residence to a rental.
Another option, if you don't have to sell now, is to stay put for awhile and fix the property up gradually over time. Avoid investing a large amount of money in the hopes of getting a bigger return.
THE CLOSING: The housing market in your area may be too uncertain for speculation.
By Dian Hymer
In California, 70 percent of the homes bought by investors in 2009 were distressed-sale properties, according to the CALIFORNIA ASSOCIATION OF REALTORS®. Some were stripped of appliances and fixtures. But, at half price, there was profit potential for buyers who were up for a redo -- especially seasoned investors buying multiple homes to fix up and resell, or rent out.
Fixers priced over $500,000 aren't as easy to sell today. Most buyers in higher price ranges are buying a home to live in. They want a home in move-in condition that will suit their long-term needs.
There are exceptions. In high-demand market niches with few listings, there is occasionally a fixer-upper that draws a lot of attention. Usually, these fixers sell to buyers who will live in the property and fix it up themselves to save money. Often this is the only way they can afford to move into the neighborhood.
Sellers of fixers in such neighborhoods should make their property as presentable as possible by cleaning out clutter, both inside and out. Many homebuyers can't visualize a property's potential. It's often worth a modest investment to show the house at its best advantage.
Cosmetic improvements, such as painting, replacing outdated floor covering, or refinishing worn hardwood floors can pay off. Some fixers are staged, even though the property needs a lot of work, so that buyers can envision themselves living there.
Presale inspections will help buyers make a decision about whether or not to tackle the project. Make reports available to buyers before they make an offer to avoid having to put the home back on the market if the deal falls apart because the buyer's inspectors discover defects not previously disclosed.
HOUSE HUNTING TIP: How much you spend preparing a fixer for sale depends on several factors. How much did you pay for the property? How much do you owe against the property? Is there demand for fixer-uppers in your area? Finally, how much does your real estate agent think you can sell the home for given current market conditions?
Sellers who have equity in their home and cash to invest in fix-up for-sale work should consider making cost-effective renovations, like a kitchen upgrade, but not an entire renovation. Ask your agent what the home would sell for with and without these improvements before doing anything to it.
The investment may not yield a profit, but could recover the costs when the home sells. In areas where fixers aren't selling, sellers might need to enhance the property to sell at all. A good real estate agent should be able to provide references for reliable, reasonably priced professionals who can do the jobs for sellers who haven't the time or expertise to do the work themselves.
Buyers who bought at the peak may not be able sell for even close to what they paid. One possibility would be to rent the property, if it makes sense financially. You may need to fix up the property somewhat to attract a good tenant. Consult with a certified public accountant about the tax consequences of converting a single-family residence to a rental.
Another option, if you don't have to sell now, is to stay put for awhile and fix the property up gradually over time. Avoid investing a large amount of money in the hopes of getting a bigger return.
THE CLOSING: The housing market in your area may be too uncertain for speculation.
By Dian Hymer
What is post-consumer content?
By Michelle D. Alderson
What is it?
You've most likely heard of the common green jargon: energy-efficient, recycled material, reusable -- the list continues. However, the term post-consumer content might be new to you. You may even be using products that are made with post-consumer content already and you just don't know it. Earth911.org (http://www.earth911.org) defines post-consumer content as "a material that has served its intended use and instead of being disposed of it is being reused in a different product. If a product is labeled 'recycled content,' the material might have come from excess or damaged items generated during normal manufacturing processes-not collected through a local recycling program." Simply put, products made with post-consumer content are items you can buy that have been made with recycled material.
Why is it important to buy it?
Probably the most common post-consumer content product you will find is paper goods: toilet paper, paper towels, envelopes, napkins, etc (http://www.nrdc.org/land/forests/gtissue.asp). The following are just a few examples of other products that can be made with post-consumer content: paint, carpet, mulch, bathroom and office partitions, office furniture, printing ink, corrugated cardboard boxes, cleaners, and hardwood floors. You might ask why it is necessary to buy these products when regular toilet paper seems quite fine. It is important to know that recycling doesn't just end when you put a can in a blue bin. It truly is cyclical. Buying post-consumer content products keeps the country's growing recycling programs afloat. If consumers don't buy products made with recycled materials, companies won't waste their time making them. In essence, buying such products keeps the landfills lean, the recycling business running, and inevitably helps the environment.
How much will it cost?
In today's economy, some consumers might fret over purchasing post-consumer content products because of cost. Is it better to help keep the environment green or keep that green in your pocket? If you are buying a post-consumer content product like used office furniture, you will see a significant discount, but new post-consumer content products can cost a little more. According to greenguardian.org (http://www.greenguardian.org), some products, such as post-consumer content recycled paper can cost about 10 percent to 20 percent more than regular paper. The good news is that as the demand for post-consumer content products grows, the price for such goods continues to drop. In addition, supplier competition often can create bargains for the consumer. The key is to search for the best price.
What is it?
You've most likely heard of the common green jargon: energy-efficient, recycled material, reusable -- the list continues. However, the term post-consumer content might be new to you. You may even be using products that are made with post-consumer content already and you just don't know it. Earth911.org (http://www.earth911.org) defines post-consumer content as "a material that has served its intended use and instead of being disposed of it is being reused in a different product. If a product is labeled 'recycled content,' the material might have come from excess or damaged items generated during normal manufacturing processes-not collected through a local recycling program." Simply put, products made with post-consumer content are items you can buy that have been made with recycled material.
Why is it important to buy it?
Probably the most common post-consumer content product you will find is paper goods: toilet paper, paper towels, envelopes, napkins, etc (http://www.nrdc.org/land/forests/gtissue.asp). The following are just a few examples of other products that can be made with post-consumer content: paint, carpet, mulch, bathroom and office partitions, office furniture, printing ink, corrugated cardboard boxes, cleaners, and hardwood floors. You might ask why it is necessary to buy these products when regular toilet paper seems quite fine. It is important to know that recycling doesn't just end when you put a can in a blue bin. It truly is cyclical. Buying post-consumer content products keeps the country's growing recycling programs afloat. If consumers don't buy products made with recycled materials, companies won't waste their time making them. In essence, buying such products keeps the landfills lean, the recycling business running, and inevitably helps the environment.
How much will it cost?
In today's economy, some consumers might fret over purchasing post-consumer content products because of cost. Is it better to help keep the environment green or keep that green in your pocket? If you are buying a post-consumer content product like used office furniture, you will see a significant discount, but new post-consumer content products can cost a little more. According to greenguardian.org (http://www.greenguardian.org), some products, such as post-consumer content recycled paper can cost about 10 percent to 20 percent more than regular paper. The good news is that as the demand for post-consumer content products grows, the price for such goods continues to drop. In addition, supplier competition often can create bargains for the consumer. The key is to search for the best price.
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