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The Forgotten Costs of Remodeling

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | April 12th, 2019

You’ve asked three highly rated contractors to bid on your planned kitchen remodel. You made sure each quote covers exactly the same items, so you can compare them more easily. But have you made sure everything is included?

Many people don’t, and they end up paying more for their remodeling projects than they thought they would.

It’s not that remodelers are dishonest, although some certainly are. But they often leave out key costs -- sometimes to lowball their estimates so they can win the job, sometimes because they simply forget. Either way, it will end up costing you more.

Permits are one often-omitted cost. Most remodeling projects require building permits -- in Bonita Springs, Florida, you need a permit to change out a garage door, for crying out loud -- but many contractors leave this cost out. Some want their clients to obtain the necessary permits, while others just overlook it.

Either way, if a permit is necessary, don’t try to get by without one. When soliciting bids, make sure you ask that the cost of permits be included, and specify who will “pull” them. Realize, too, that the cost of one or more permits may not be a fixed amount. Depending on where you live, it could be a percentage of the total cost of the renovation.

Another cost sometimes omitted: waste removal and cleanup. If it isn’t included in the contractors’ bids, you’ll have to pay for dumpsters to be delivered, then hauled to the landfill and emptied.

Some of remodeling’s hidden costs have nothing to do with your contractor. For instance, your property taxes are likely to increase. Once a permit is pulled, the local tax assessors will be notified. And sooner or later, they will show up at your front door to have a look at the job and recalculate the value of your property.

In California, according to design-build firm New Avenue, the typical tax increase is 0.5 percent of the amount you spend on your project. So, if your remodeling project runs $300,000 -- things are costly in California -- you could expect an increase of $1,500 or so in your annual property taxes.

If you are renting out the property, you’ll likely recover the extra cost in the form of a higher rent. But if you are an owner-occupant, that jump has to be part of your deliberations in whether to move forward or not.

Your utility bills are likely to go up as well -- certainly during construction, if only because the workers will need heat or air conditioning to be comfortable as they perform their magic. They’ll also be going in and out constantly, which puts even more of a strain on your HVAC system.

Furthermore, you’ll be supplying the electricity needed to run those table saws, nail guns and other power tools, not to mention the water for bathroom breaks and end-of-the-day cleanup. You might even have to pay for port-a-potties if your bathrooms are being demolished, or if they’re off-limits to workers.

Figure on paying a higher homeowner’s insurance premium, too, for your improved property. And don’t forget to tell your insurer about the project ahead of time, so you’ll be covered if an accident injures an uninsured worker while on your property.

If you are yanking out walls, you might run into some unforeseen, yet costly, problems. For example, you could have a termite infestation, or you could find snakes or rodents living behind the drywall. Faulty wiring, old plumbing and hidden asbestos or lead paint will have to be taken care of, as well, and any further work will be delayed until they are.

Finally, consider the disruption that a major remodeling project will be to you and your family. Workers will show up early in the morning, upending your usual routine. If you ask that workers don’t arrive until later -- say, 9 a.m. instead of 7 -- that will only serve to lengthen the project and cause even more turmoil.

If you’re redoing your kitchen, you could be without a stove, oven or even a refrigerator for days, if not weeks. That means you’ll be eating out -- a lot -- or ordering tons of takeout. Depending on the size of your family and their tastes, that could run into the hundreds, if not thousands, of dollars.

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Tool Compares Instant Offers

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | April 5th, 2019

Sellers who receive offers to buy their homes from a third party who will fix the place up a bit and resell it are always left with a nagging question: Could I have gotten more?

Now there's a new tool to help sellers answer those questions. It's called the "Offer Optimizer," and it will help you make a side-by-side comparison of offers made online or in person. That's the only way sellers can make a sound monetary decision on how to proceed.

The "I" in the term I-Buyer stands for several things. The internet, for one, because most of these outfits work almost exclusively on the web. Instant, for another, because they promise to make you an offer within just a few days and, if you accept, to close quickly, paying you in cash.

This kind of service is nothing new. Many realty firms and agents offer what are known as "buy-in" programs that will be happy to take your property off your hands. Then there the so-called bottom-feeders like HomeVesters of "We Buy Ugly Houses" fame and House Buyers of America.

None of these buyers will pay sellers top dollar. After all, they have to make something for their troubles. Worse, the discount sometimes can be steep, as much as 50 percent less than what you might sell for on the open market if the house is in good shape and in a solid market.

Lately, though, there has been a movement to institutionalize buy-in programs so the rules are the same nationally for everyone. And everyone, it seems, is getting in on the act. So far, the leading I-Buyers are Offerpad and Opendoor, but Zillow is ramping up quickly, as is Redfin Now and several others.

Offerpad and Opendoor, the two largest players so far, work very much the same way. Take five minutes to complete Offerpad's online form -- include pictures, if you like -- and you'll receive an offer within 24 hours or so. It uses automated valuation algorithms and artificial intelligence to determine its offers, which it says are "competitive."

Similarly, tell Opendoor about your home's details and receive an offer within a few clicks. Add unique details for a more precise offer. If you accept, the company will send out an inspector to confirm what you said. And if everything checks out, you can close within a few days.

Both companies say what they pay -- in cash -- is fair, depending on the home's condition and the state of the local market. And both charge service fees "similar to what a traditional real estate agent would charge." The fee averages 6 percent with both companies. But it can be lower or higher -- lower if the house is pristine and in a hot market, and higher if it requires lots of work.

I-Buyers, sometimes known as "disruptors" because of how they hope to reshape the market, command only a small portion of the business now. One source says homes sold via instant offers accounted for a minuscule 0.2 percent of all existing home sales last year.

But they are expected to grow exponentially. In Phoenix, where several I-Buyers compete for business, they bought in 5 percent of all resale houses -- one in 20 -- in 2018. Meanwhile, Zillow has made its buy-in program a high priority. And Opendoor expects to be up and running in 50 major markets by next year.

Realize, though, that all offers are not the same. Which again begs the question: How do you know you're being offered as much as you can get?

Enter Offer Optimizer, which will make three comparisons: one from a national I-Buyer, one from a local I-Buyer and one related to what you can expect to obtain by using a local agent to sell the traditional way. If more than one I-Buyer is active in your market, the tool will obtain offers from all that are available.

The online tool will provide a detailed breakdown of each offer's fees and costs as well as the typical time frame for a sale to be completed.

At this time, the Optimizer is operational in 21 major markets where I-buying is taking hold. It's a free service from zavvie, a matching service that connects buyers and sellers to agents who specialize in their local markets and never travel far afield to score a listing or a sale.

"Time is money. The question for most sellers is: How much money?" says zavvie's Lane Hornung. The program (zavvie.com/offer-optimizer) "puts instant offers on overdrive, ensuring sellers squeeze every last dollar out of their home sale."

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Planned Communities in Greater Demand

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | March 29th, 2019

When it comes to new home communities, bigger is often better, to builders as well as buyers.

Master planned communities, or MPCs, are defined as properties for which every element and consideration is planned from the get-go and the community is contracted to follow that plan exactly.

“Developers have learned that they can achieve even more sales and higher prices by joining forces with adjacent land owners to create larger master planned communities with scale,” John Burns Real Estate Consulting, based in Irvine, California, said in a recent report. The company calls these “mega masterplans.”

John Burns Real Estate Consulting figures some 28,000 people bought new homes in the top 50 MPCs last year. That’s nearly 5 percent of the estimated 613,000 new houses sold in 2018. The company also reports that each of the top 50 sold at least 320 new units last year, or nearly one a day.

The problem with MPCs is that houses within their borders usually come at premium prices. After all, someone has to pay for all that good stuff. So, if you are extremely cost-conscious, you might want to stick with stand-alone communities. “There are plenty of nicely done free-standing communities,” says Jody Kahn, a senior vice president at the Burns consulting outfit.

If you are after the perks, though, there are perhaps 500 or so MPCs throughout the country to choose from. Here are some things to consider:

-- Amenities: If you can’t find a house you like, then this is a moot point. But once you do, take a hard look at the amenities package. There’s no rule of thumb about what has to be offered, but Kahn says that “at a minimum,” the place should feature “a solid water-themed amenity,” a pool and clubhouse, perhaps a lagoon or lake. “People really gravitate to water.”

Twenty years ago, a golf course or two was a must-have feature, but no more. Lately, interests have shifted toward things like walking and biking trails that are not paved to give the property a less-developed appearance. Estrella in Goodyear, Arizona, outside Phoenix, will include more than 50 miles of paths and trails for residents’ use.

Parks in and between neighborhoods are popular these days, too, as are social networks and a healthy lifestyle. Harvest in Argyle, Texas, near Dallas, has a working farm with community and private plots.

“Our research -- and my own personal experience -- shows that we boomers value organic, unplanned, authentic, and experience-based housing amenities the most,” says Kate Seabaugh, a Burns research manager. “What should also interest the boomers is that these amenities are generally not expensive.”

-- Housing: A well-designed and successful MPC will offer a wide range of houses, sizes and prices to draw a variety of owners, from millennials to seniors. Look for small, medium and large lot offerings, as well as a broad offering of housing types, both single and multi-family.

-- Competition: There’s no rule of thumb, either, on the ideal number of builders active in the MPC, but there shouldn’t be so many that they cannibalize each other. A certain amount of overlap won’t hurt, says Kahn. But if every builder is marketing to the same buyer, some are going to fail.

-- Financials: Check your builder’s financials to make sure they have the wherewithal to weather a downturn in sales and will be around to live up to their warranty, whether one year or longer. Also check on the stability of the developer so you can be as certain as possible that all that has been promised will be delivered.

During the 2006-2008 housing recession, one of the four builders who joined together to develop Inspirada in Las Vegas slipped into bankruptcy, putting extra pressure on the other three to carry on. Luckily, they managed to pick up the slack, and the property is now flourishing.

-- The Rules: The regulations with which you will have to live by are there to maintain the common areas and housing values. They help create a “nice little wonderland,” says Kahn. But in an MPC, there might be rules for your neighborhood as well as another set of requirements for the overall community, so you have to be doubly attentive. Otherwise, you might run afoul of the law. For example: You may not be able to park your boat, RV or working vehicle at your own house.

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