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Odd Parcels: Of Glass, Flips and Stats

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 30th, 2017

Privacy windows are starting to find their way into new homes.

Builders are putting these decorative glass windows in such spaces as bathrooms, hallways, stairways, even bedrooms and home offices, to add a decorative touch. No curtains or blinds necessary.

The windows feature silk-screened, tempered glass with clear decorative lines on the interior. And they fit a standard 3-by-5-foot opening, so they install “just as quickly and easily as a standard clear glass window,” says Roger Murphy, president of Hy-Lite, a popular window brand.

Here’s an interesting twist -- or flip, if you will -- on flipping houses: A company that buys places on the cheap, fixes them up and resells them at a big profit is sharing the largesse with the owners who sold the “flipped” houses in the first place.

Typically, the fix-and-flip set lowball sellers, make only rudimentary repairs and walk away with a huge chunk of change. But Brian Peavey, of the aptly named ProfitShare, is paying his sellers back.

How much is returned to the seller? Peavey doesn’t have a set percentage -- rebates are based on each individual deal and the profits they generate -- but the average is between 1 and 3 percent of the price he pays sellers.

Not only is profit sharing a way to keep sellers happy and away from sites that rate businesses, says Peavy, it “promotes client engagement and loyalty, lowers the cost of doing business and increases revenue and net income.”

The company, based in Boise, Idaho, is the only company in the fix-and-flip business to adopt this model, Peavy claims. “This is a radical take not only on real estate and house flipping, but on business in general. There is no need to make money off the pain of others. By sharing the profits everybody wins!”

It costs money to move from smaller to larger digs. Exactly how much more depends on numerous factors. But new research from Zillow found it ain’t cheap.

A family looking to expand from a three-bedroom house it purchased in 2009 to one with four bedrooms now can expect to pay $614 more on average for their mortgage. That’s $7,368 a year, and it doesn’t count higher property taxes, larger insurance bills and perhaps homeowner association dues.

Of course, the new mortgage payments were even larger on the East and West Coasts than in Middle America, where houses are far less expensive. In the notoriously expensive Los Angeles, San Francisco and San Jose markets, moving from three to four bedrooms added at least $2,000 to the average monthly payment, according to Zillow.

In Cleveland and Indianapolis, on the other hand, such a move would raise the monthly payment by less than $200. In Baltimore, the increase would be $289. But in Washington, D.C., about 40 miles away, it would be $647.

Some more figures to consider:

New houses always sell at a premium; after all, they are brand-new. But because relatively few houses are being built -- in the decade between 2006 and 2016, the shortfall is about 6.6 million -- new houses are now selling at a 32 percent premium over existing homes. Normal is about 18 percent.

According to Black Knight Financial Services, it currently takes 22.6 percent of the median income nationally to make the monthly principal and interest payment on the median price home of $277,500. That means $12,795 out of the median annual income of $56,616 goes to housing.

Still, the current median monthly PI payment is far below the peak of 35 percent of income required in 2006, before the housing meltdown. Furthermore, it is not yet up to the pre-crisis level of 26.7 percent on average between 2000 and 2005.

The cost of utilities -- electricity, natural gas, water and sewer -- add 25 percent to the cost of owning a home, ATTOM Data Solutions says in a new white paper. That’s why instead of PITI -- principal, interest, taxes and insurance -- home buyers should absolutely consider a new acronym -- PIETI -- with the “E” standing for energy when trying to figure what the new house will cost.

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How to Sell With a Tenant

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 23rd, 2017

Selling a house is complicated enough. But when the house is being rented and occupied by a tenant, the degree of difficulty is compounded exponentially.

Because tenants are protected by various state and local laws that prevent landlords from kicking out occupants for no good reason, they are in the driver’s seat, at least until their leases expire. But there are several ways to get them to move before then, or at least to cooperate in the sale.

(Note: This column does not constitute legal advice. Before taking any action, check with an attorney who specializes in real estate matters.)

First, check your lease to see what it has to say on the matter. Generally, the lease precedes the sale of the house, meaning the tenant is entitled to stay until the end of the lease. But it might also spell out what is required of both parties should the property be put up for sale.

For example, as long as the landlord gives the tenant proper notice, the lease might call for the tenant to keep the house in good condition for showing and make it available to would-be buyers during certain times. If she doesn’t, that in itself could be grounds for eviction.

Eviction, of course, is the last thing you want when selling your property. So it is imperative that you communicate with your tenant and answer any questions he or she may have.

Although the tenant is entitled to stay, some will pick up and move on their own because of the uncertainty surrounding the new owner and landlord. In that case, the tenant could be breaking the lease, in which case he would not be entitled to the return of his security deposit. Still, agreeing to return his deposit may be just the incentive he needs to leave early.

But moving out early cuts both ways. An empty house is easier to sell than one occupied by an uncooperative tenant. However, while losing a tenant makes things easier logistically, it also means a loss of rental income until the house is sold. If you need that money to make your mortgage payment, you could be in a world of hurt, especially if it takes more time than expected to fix up and sell the house.

So keep the communication lines open and try to work with your tenant as much as possible.

If the house hasn’t been kept up as well as it should and you really have to fix it up, you have a couple of options. One, offer the tenant a cash incentive to move out early; or two, simply wait until the lease expires before listing the house.

If you choose option one, how much to offer depends on how important it is to you to sell right now: that is, when the market is tight, inventory is low and houses are selling at warp-speed. Offering to pay the tenant’s moving expenses up to a certain limit might just do the trick.

But the incentive doesn’t have to be in cash. For example, you might offer to cut the rent by a certain percentage if he cooperates in the selling process. If he straightens up the place every morning in case of visits from potential buyers, you might offer a steep discount on the rent. Here, it is important to set some ground rules. For example, in what condition must the property be kept? How much advance notice will be required for showings? When will open houses be held?

If the tenant doesn’t want to cooperate, your other option is to wait. And it may be the best choice. After all, why bring interested buyers to the house when you don’t know whether or not the door will be deadbolted, or what shape the place will be in if you do get inside? Nothing turns prospects off like a kitchen sink piled high with dishes, or clothes tossed all over the place. Or opening the front door and finding the tenant and a bunch of buddies noisily sitting around, drinking beer.

Ideally, you’d sell the house while it’s occupied, but still clean and tidy. But an empty house is preferable to one in embarrassing disarray. Plus, there’s a huge upside to the 24/7 ease of access for showings without having to go through a third party.

If you decide to wait to sell until the tenant has vacated, you’ll want to follow the exact procedure described by the lease. If it requires that the tenant be given 60 days notice, than make sure you provide a written notice of your intent exactly 60 days before the lease comes to an end. If you wait until the lease ends before sending the notice, than the tenant can remain two more months before leaving.

You can send the notice by registered mail with a signed receipt required, but sending it by regular mail should be enough to satisfy a judge that you met your obligation. Remember, though, to keep a copy of the notice, and perhaps a stamped receipt from the post office.

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For Millennials, Security Tops Speed in Lending Priorities

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 16th, 2017

Millennials, the population cohort whose members were practically born with electronic devices in their hands, are generally considered the most likely to finance a house through a totally automated process. But even they want some hand-holding, according to a recent survey.

Millennials -- generally, folks born in 1982 or later -- are the most likely to start the mortgage process online. But many of them still want to talk to a real, live person to seal the deal, according to a study by Ellie Mae, a loan origination system used by numerous lenders.

Three out of 10 millennials used a high-tech/personal combination to obtain their mortgages. That surpassed Gen Xers, at 28 percent, and baby boomers, at 20 percent.

Ellie Mae polled more than 3,000 borrowers between the ages of 18 and 70 last December, hoping to pass along some useful information to the lenders that use its mortgage software and solutions.

Some of the findings caught CEO Jonathan Corr off-guard.

Corr said he was surprised by the high percentage of electronic-savvy millennials who are obtaining their first mortgages through the Federal Housing Administration (FHA), the stodgy old government agency still using outdated software. (Does the computer language FORTRAN ring a bell?)

FHA-insured mortgages have been a traditional first conduit into homeownership for generations of Americans. And according to the Ellie Mae study, 35 percent of millennials surveyed took their initial step onto the housing ladder with a government-backed loan.

The study suggested that the FHA holds the same appeal to this latest generation of first-time buyers as it has for those who went before them. That is, it is attractive to buyers carrying high amounts of student debt -- which millennials have more of than any previous generation -- and those who haven’t been able to accumulate enough cash for a sizeable down payment.

Others in the mortgage lending business are seeing similar patterns. For example, in credit unions, which have increased their mortgage originations steadily over recent years, FHA lending now accounts for a full 50 percent of their lending portfolios.

Credit unions, like other banking institutions, have to be up to snuff technologically when a millennial wants to open an account. But more and more of their new members, after starting accounts online, want to come into the branch and talk to someone face-to-face about getting more connected to the world of finance.

“Younger members may come in for financial advice,” says Jason Schwabline, senior vice president of product development and strategy for Alogent, a Georgia-based financial software firm with 1,400 credit union clients. “They want a real person to tell them how to plan a savings strategy, how to finance a car, how to pay down their student debt. And the branch officer who counsels them may become not only a trusted adviser, but an influencer of that millennial’s financial decisions for a long time to come.”

Overall, the Ellie Mae survey found that 57 percent of all borrowers filled out their mortgage applications the old-fashioned way, completely in person, while 28 percent used the hybrid online/in person method. Just 11 percent applied for mortgages totally online. So much for paperless mortgages!

Thirty-five percent of millennials said security was the most important factor in their application process, significantly higher than the 23 percent who sited speed as their primary reason. Twenty percent wanted simplicity, while 12 percent rated transparency the biggest factor.

“I was surprised to see that security, rather than speed, was the most important factor for millennials in applying for a loan,” says Ellie Mae’s Corr.

Meanwhile, speed was ranked most important to both Gen Xers (34 percent) and baby boomers (36 percent). And in the battle of the sexes, security topped the women’s list (32 percent), while speed was most important for men (30 percent).

Speaking of the sexes, Ellie Mae, which also keeps an eye on millennial trends on a monthly basis, says male millennials are twice as likely to take out mortgages as females (65 percent vs. 32 percent). Just over half of millennial borrowers are married, and their average age is 29.6 years.

Their average credit score? A good, but not excellent, 722. Average mortgage amount? A relatively modest $183,907.

-- Freelance writer Mark Fogarty contributed to this report.

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