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Home Sellers: Hiring Contractors Without Hitting Snags

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | January 15th, 2014

It's rare for homeowners to require major repairs or remodeling to prep a property for sale, but there are exceptions. For example, you might need to replace a leaky roof, overhaul a flawed electrical system or remodel an antiquated kitchen that's not up to neighborhood standards.

Unfortunately, there are many pitfalls on the road to finding solid and reputable contractors, according to Tom Philbin, author of "How to Hire a Home Improvement Contractor Without Getting Chiseled."

"When it comes to horror stories, the home improvement field can sometimes make you think you're reading Stephen King," Philbin says.

Though a professional writer rather than a contractor, Philbin thoroughly researched the field, and his book documents many tales of woe involving homeowners who were cheated by contractors or suffered from shoddy workmanship.

"If your electrical work is bad, you risk burning the house down," he says.

Debbie Farson, who heads HomeWise Referrals, (www.homewisereferrals.com), which connects homeowners with qualified contractors, cautions that too much attention on price can yield unfortunate results.

"If you get three bids and one is vastly lower than the others, there could be something seriously wrong, and if you take that bid you might open yourself to problems. Maybe the contractor didn't realize the extent of the work involved in your project," she says.

Farson, a lawyer who meticulously prescreens the contractors in her network, says a small, family-owned firm can be just as qualified for major home improvements as a large company. But she insists experience counts tremendously.

"My rule of thumb is that the principal of the company should have been in the same business for at least five years," she says, adding that experience is especially crucial if your project involves major electrical, plumbing or HVAC work.

Farson urges homeowners to watch for red flags that could foreshadow problems. For instance, she says you should avoid any contractor who insists on payment in cash.

"That's a practice that could indicate a very shady contractor," she says.

Here are a few pointers for those who need major pre-sale work:

-- Make sure your contractors meet local government requirements.

Sid Davis, a seasoned real estate broker and author of "Home Makeovers That Sell," says not all home repairs or upgrades require government permits to ensure that the work complies with local codes. For example, your electrician likely won't need a permit to change a light fixture and your plumber won't need one to fix a leaky faucet.

But in many areas, larger-scale projects -- such as a kitchen overhaul or the installation of a new bathroom -- do require government oversight.

Maybe you think you'll get a lower price from a contractor who circumvents the need for government permits and inspections. But as Davis says, hiring a firm that skirts the law can be risky, especially if you're planning to sell.

"It could come back to haunt you if your contractor turns a blind eye to regulations. That's because the home inspector hired by your buyer could blow the whistle on the contractor and ruin your chance for the sale," Davis says.

-- Consider contractor referrals through your listing agent.

To help their clients, many long-time real estate agents maintain lengthy lists of contractors -- ranging from carpenters to roofers. Such a list can be a useful starting point for home sellers, says Eric Tyson, a personal finance expert and co-author of "House Selling for Dummies."

No matter who sends you a contractor's name, Tyson says you should always check references.

"Maybe the contractor's work has slipped since the last time your agent worked with him. So you should always double-check," Tyson says.

-- Ask many questions before hiring a contractor.

According to Davis, a face-to-face meeting is an important element in the process of screening contractors.

"By meeting the contractor at your house, you can identify sloppy or disorganized companies before it's too late," Davis says.

To make sure your project won't get squeezed out of a contractor's schedule by a larger job, he says you should always ask whether the company is overbooked. You also need to know who will perform the work.

"There's nothing wrong with an estimator coming out to give you a proposal that covers price and terms. But you still need to determine who will do the actual work and whether they're licensed for their trade," Davis says.

-- Get the contractor's promises in writing.

Davis says you should never count on verbal guarantees -- even from a contractor you've previously hired. As he says, there's no substitute for a written contract that provides details on all aspects of the job, including price, timing and scope.

"What if the contractor cheats on the current job or damages your house? Without a written agreement, you'll never recoup your losses in small-claims court," Davis says.

-- Ensure that deadlines are included in the contractor's proposal.

Those planning to put a home up for sale in the near term can't afford delays in necessary home improvement or repair work. That's why Davis says it's very important to have deadlines built in to any agreement you sign.

"There should be real penalties should the contractor fail to perform on time. When selling, the last thing you want are delays," Davis says.

You should also make sure the agreement guarantees that the contracting company carries insurance and that all its employees and subcontractors are covered.

-- Refuse to pay for the entire project at the outset.

In some cases, it can be perfectly legitimate for a contractor to ask for a partial payment at the front end -- especially if substantial material costs are involved.

On a roofing job, for example, you might be asked for a down payment to help pay for the cost of shingles. And a painter might request that you pay in advance for the cost of paint and rollers.

But Philbin warns against paying for the full cost of any job -- including all the labor -- before it's complete. As he says, if you advance the whole cost at the outset, you'll lose all the leverage you'll need should the contractor default.

"Good contractors have good credit lines. So you should never pay more than 10 to 15 percent up front. Remember that if you lose control of the money, you lose control of the job," Philbin says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

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Sellers Should Do the Prep Work

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | January 8th, 2014

After spending more than two decades selling RVs, a sales manager in his early 60s wants to retire, buy a big motorhome and take the cross-country trip of a lifetime. To make that dream possible, he must first sell his suburban house -- a plan he hopes to accomplish this spring.

But like most would-be home sellers, the RV salesman has lots of prep work to do, says Sid Davis, the real estate broker representing him. He must de-clutter, clean carpets, paint and arrange for a myriad of small repairs.

"It's always an uphill battle making a house market worthy, especially if you've lived there a long time and have lots of junk," says Davis, author of "Home Makeovers that Sell" and other books on real estate.

Of course, not all sellers have the luxury of ample lead time. But he says sellers who do have sufficient time should take full advantage.

"When you have so much money at stake, why risk razor-thin timing? Remember, too, that selling a house in "as is" condition puts you at a tremendous disadvantage," Davis says.

So long as the economic recovery shows sustained strength, Davis predicts that this year's spring housing market should remain a positive one for sellers in many areas. Still, he says those who prepare now to jump-start an early spring sale will probably fare better than those who delay.

Here are a few pointers:

-- Engage a listing agent as early as possible.

"Ideally, you'll start prepping your property at least three months before you expect to list," Davis says.

Once you know you're definitely going to move, he says it's prudent to begin interviewing prospective listing agents and then to promptly select one to represent you.

"People who have enough time to get all their ducks in a row and use it wisely have a huge advantage over those who start late," Davis says.

One reason to start early is to give your listing agent enough time to help you strategize on the best steps to maximize your sale, whether these involve replacing a worn kitchen floor or rehabbing a deck. Also, the agent can exercise more care in selecting the right listing date.

"People who try to line up contractors to squeeze in their job at the last minute are more vulnerable to exploitation and can't be as picky about who they hire," Davis says.

-- Request data on selling times.

Suppose you're an IT specialist for a national consulting firm who's accepted a promotion in a faraway state. You have seven months to relocate. How can you estimate the time needed to go from list to sale?

Dorcas Helfant, a former president of the National Association of Realtors (www.realtor.org) recommends you ask your agent for statistics on the average selling times for homes in your neighborhood.

"Keep in mind that the only numbers that are relevant are those for your own community. National statistics don't matter," Helfant says.

Take these local numbers, known as "days on market," and chart them over a six-month period.

"If your market is cooler than before, you'll want to give yourself at least one extra month beyond the average selling time to ensure a smooth transition," Helfant says.

-- Begin your packing process early.

In his experience, Davis says a majority of home sellers don't see the point of packing early for their move.

"Let's face it, we humans usually wait until the last inning to mobilize. We're a deadline-oriented species," he says.

Besides painting and repairs, nearly all sellers need to go through an exhaustive clearing-out process to ensure their property doesn't seem crowded. Your first step, Davis says, should be to remove any excess furnishings, like a large recliner or an oversized china cabinet. Then box up smaller items and position them neatly in your garage or a rented storage unit.

"It's very easy to underestimate how long it takes to go through all your personal things ... trust me, you won't miss all that extra stuff you've packed away," Davis says.

-- Give yourself extra selling time when moving to a brand-new home.

These days it's uncommon for a builder of new homes to sign a sales contract with a prospective buyer that's conditional on the sale of the buyer's property. This is called a "contingent contract."

"If the builder has a hot subdivision, he doesn't want to mess with contingent buyers," Davis says.

Consequently, those who seek to buy a place in a popular new subdivision take the gamble that they'll sell their current property before the builder has completed the new one. But that's better than the alternative.

"Buyers who don't have a contingent contract and can't afford to carry two homes at once are putting themselves in financial jeopardy. If they can't go forward with the new home purchase in a timely way, they could both forfeit their deposit and lose their dream home," Davis says.

Because it can take months to construct a house, some new-home buyers wait longer than they should before trying to sell their current property, according to Davis.

"The sales contract may let the builder finish construction late but give you little grace time to get your old place sold," he says.

Many listing agents urge sellers who intend to move to a brand-new home to be extra cautious in estimating how long they'll need to sell. It's better to be ready to move early, they insist.

"Granted, if you sell earlier than expected you might have to take a short-term rental or move in with family temporarily. But the hassles of interim housing are a lot better than the disappointment of surrendering your chance for a wonderful new house," Davis says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

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How to Buy an Overpriced Home

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | January 1st, 2014

With the economy on the upswing, most homebuyers aren't in the catbird seat of a few years ago. It seems like ancient history when buyers could practically dictate terms to sellers. Now the tables are turned in many, though not all, areas.

"Sellers clearly know they're in a much stronger position now," says Fred Meyer, a veteran real estate broker who sells property around Harvard University.

One manifestation of seller strength is that the owners of special properties, including homes with stunning views or special historical significance, are willing to wait it out rather than compromise on price.

As a rule, and even in strong sellers' markets, homeowners who list their property for an unreasonably high price are eventually punished for their greed. However, the owners of some rare and truly exceptional homes can sometimes get away with pricing high and refusing to bargain.

One example involves an aeronautical engineering professor who owned an elegant beachfront property on a lake in a suburban enclave where lakeside properties were scarce. The professor and his wife, a social worker, had vague plans to retire but were under zero pressure to move. They waited for more than a year with no price cuts yet ultimately found buyers willing to pay their high asking price.

"Even in a strong sellers' market, that wait-and-see strategy only works for the owners of houses that are truly extraordinary in some way -- such as for their architecture or unique setting. An overpriced house that's not exceptional will just languish unsold until steep discounts are taken," says Meyer, who's a real estate appraiser as well as a broker.

Do you love a home you believe to be overpriced? If so, these pointers could prove helpful as you seek to shape an offer:

-- Update yourself on local property values.

The asking price isn't always a reliable measure of a property's value, says Eric Tyson, the co-author of "Homebuying for Dummies." Rather than relying on the owners' opinion of their home's worth, he suggests that buyers increase their own knowledge of neighborhood values.

Prior to offering a bid, Tyson says buyers should ask their agent to prepare a "comparative market analysis." To do this, the agent should gather data on transactions that sold recently on homes in the immediate area. Then these should be adjusted -- adding value, for instance, if the place you're seeking to buy has a larger yard than the others.

Your evaluation of neighborhood sales should yield a general estimate of the value of a property that interests you. Then, if you're opening with a low starting offer, Tyson encourages you to attach comparable sales data to support this. This is usually a better approach than complaining that the sellers are asking too much --criticism that could backfire if they take it personally.

-- Try to find out about the owners' level of motivation to sell.

Not everyone with property on the market wants to sell immediately, says Tom Early, a real estate broker and former president of the National Association of Exclusive Buyer Agents (www.naeba.org).

"(Some) sellers ... are really just testing the market to see if their excessive expectations can be met," he says.

How can you find out what's caused the sellers to put their place on the market? Often your agent can obtain answers by simply asking the sellers' agent direct questions, according to Early.

How can you get less-than-eager sellers to bargain? One idea is to volunteer a late closing date in exchange for a price cut on the property.

-- Don't be too hasty when responding to a seller's counter offer.

Apart from the exceptions, most sellers are eager to move promptly, particularly if their home has gone unsold for weeks. But that doesn't necessarily mean they'll let their property go without a struggle over price.

"Nowadays, in neighborhoods where real estate has yet to rebound, it's not unusual for negotiations between buyers and sellers to go for several rounds before an agreement is reached. If you really want the house, it's worth pursuing the process, so long as the sellers are bargaining earnestly," Early says.

As Early notes, most sellers have their egos tied up in their property. That can cause them to make unreasonable counter offers, even when they have an urgent need to sell. Should you respond to such a challenge on their terms? Not necessarily, says Early. In fact, failing to answer immediately could be an effective way to cause them to become more realistic. He calls this tactic the "walk-away."

Temporarily disappearing from negotiations won't cause unmotivated sellers to yield on price. But it might prompt motivated sellers to take a serious second look at your latest offer, especially if their property has sat unsold for a long time and they've received no other bids.

-- Recognize the signs of inflexible sellers.

Early, who's sold homes for more than two decades, says he can tell immediately when his clients become enamored of a home.

"Their eyes light up and their excitement becomes obvious. For most people, home selection is an incredibly emotional thing," he says.

Just as some people believe in a "one and only" in marriage, so others believe in a "soul mate" home.

But what should you do if the owners of a home you love demand a price you know to be excessive and all attempts to negotiate seem futile? In that case, Early recommends that, hard though it is may be, you let go of the property and begin seeking another one immediately.

"Don't fret about your 'lost' house. Even today, with the real estate recovery well underway, chances are you'll find an even better house for a fair price," Early says. (To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

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