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How to Avoid an Impulse-Buy Mistake

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | July 4th, 2018

A couple in their early 30s -- a writer engaged to a federal employee -- spent months preparing to buy their first jointly owned property. They both clocked hours at second jobs to help build a substantial down payment. They perfected their credit scores and then met with a lender to gain mortgage preapproval.

Just hours after they left their lender’s office, they immediately happened upon a house they loved from the moment they stepped inside. It was a brick colonial with gleaming hardwood floors, an updated kitchen and an artfully landscaped patio. Excitedly, they made a nearly full price offer for the place, which pushed them to the top of their price range.

But will the couple in this true story later suffer buyers’ remorse? Despite their love-at-first-sight feel about the property, should they have done more comparison shopping before bidding on the first house they’d toured with their real estate agent? Should they have thought through the pros and cons of the neighborhood? Longtime real estate pros say only time will tell.

“When I hear buyers have fallen in love with the first house they visited, I cringe. That’s like marrying the first person you’ve ever dated. That person could be absolutely wonderful. But have you had enough experience to know for sure?” says Merrill Ottwein, who heads his family’s real estate brokerage

This year, many buyers are grappling with tight inventory markets, rising mortgage rates and competitive multiple-bidding situations in popular neighborhoods. This buying frenzy is also fueled by home values that are still rising.

Lawrence Yun, chief economist for the National Association of Realtors (realtor.org), predicts that the volume of home sales will drop slightly this year. But he projects that prices will continue to rise, which only adds to the sense of urgency among buyers determined to make a purchase in coming months.

“Realtors in most of the country continue to describe their markets as highly competitive and fast-moving. But without enough new and existing inventory for sale, activity has essentially stalled,” Yun says.

If you’re seeking to own in a place where demand exceeds supply, it can be tough to guard against a mistaken property selection. Here are a few pointers:

-- Search for an area where properties are selling quickly.

Obviously, those seeking to buy for appreciation potential should avoid neighborhoods where many homes languish unsold for a lengthy time. Indeed, evidence that available properties are snapped up quickly is a strong sign of the desirability of a community.

“You’re unlikely to experience eroding values in any area where homes are flying off the market,” Ottwein says.

How can buyers gauge the velocity of sales in an area they’re considering? He suggests they ask their real estate agent for statistics on “days on market” for homes sold in the area during the past two years or longer. The quicker the sales, the more coveted the community.

-- Screen for pride of ownership.

Though sales statistics and census data speak volumes about a neighborhood, subjective information can be equally meaningful.

Ottwein encourages buyers to stroll through any neighborhood they’re considering to look for signs that residents are committed to upkeep -- including the greenery that surrounds their homes.

“Pride is not an intangible when it comes to real estate. It translates into carefully manicured lawns, fresh paint and the absence of such unsightly clutter as junk cars and beat-up building materials,” he says.

-- Don’t rule out an up-and-coming city neighborhood.

Fred Meyer, a real estate appraiser and broker who sells property near Harvard University, says more Americans are becoming like Parisians in their preference for prime city and semi-city areas over communities deep in the suburbs. And that bodes well for values in popular urbanized areas.

“The outer concentric circles around metropolitan areas won’t appreciate as much in the future,” Meyer says.

One way to identify prime urban or semi-urban communities is to look at data from the U.S. Census Bureau -- available online -- which show where high-income people are living.

Why is a wealthier neighborhood a better bet for appreciation? Because over time, Meyer says, “rich areas tend to progress in value, while poor ones tend to regress in value.”

He advises buyers to choose the wealthiest neighborhood they can afford -- even if that means picking one of the smallest homes there.

“Want good clues to a city neighborhood that should hold and gain in value? See if there’s a Starbucks nearby, or pricey restaurants or an upscale department store. Those are very strong signals,” Meyer says.

-- Choose a home with both now and later in mind.

Ottwein says more purchasers now view real estate as a durable good -- like a car or a refrigerator -- that’s purchased for its utility rather than appreciation. But he says all buyers should also factor in a property’s resale potential.

“A home is the ultimate price-sensitive purchase. Buy it the way you would a growth stock. People who think only about lifestyle get hurt,” Ottwein says.

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

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For Houses Too, Beauty Can Be Skin-Deep

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | June 27th, 2018

To fund their retirement and move to a cheaper neighborhood, a couple in their 60s had to liquidate their 1912 colonial. Acting on a professional stager's instructions, the couple cleared away every piece of their furniture and also removed all their art and window coverings. Then the stager arrived with a U-Haul full of her own upscale furnishings.

In this true story, the stager’s magic had a seemingly miraculous result. The first day the house went on the market, it attracted five offers at the list price or above.

Whether the couple buying the property -- a pair of lawyers in their early 30s -- got a fair deal on a solid place without serious flaws won’t be known until after they move in. That’s because when they wrote their all-cash offer, they waived their right to a home inspection.

Given the severe shortage of available housing in popular areas, many buyers are pulling out all the stops to outdo other prospects. But buyer advocates fear some overly accommodating purchasers could get stuck with lemons.

“Without due diligence up front, you could come down with a terrible case of buyers’ remorse later. Once the stager’s glitzy stuff is gone, you might discover that the roof is rotten, the foundation is cracked and the appliances don’t function,” says Tom Early, a real estate broker and past president of the National Association of Exclusive Buyer Agents (naeba.org).

Early says that as home staging becomes more prevalent, more buyers are overly influenced by the love-at-first-sight effect that can make a flawed home seem irresistible on the surface. But buyers should probe deeper to ensure that all the home’s fundamentals are in order, lest they are lured into an ill-advised purchase, says Sid Davis, author of “A Survival Guide for Buying a Home.”

Reid Guthrie, an inspector affiliated with the American Society of Home Inspectors (ashi.org), says first-time buyers are especially likely to fall for a property that “shows well.” But disenchantment can soon follow.

“Homebuyers are alternately excited, nervous, terrified and hopeful. Those who’ve become emotionally involved with a place must be especially wary,” Guthrie says.

Here are a few pointers for buyers:

-- Take full advantage of your first tour of a property.

Obviously, a buyer can learn much more from visiting a home than by simply seeing it on the internet. And a resourceful purchaser will take full advantage of a visit.

Guthrie, a veteran of the home inspection field, urges buyers to investigate when they see furniture or carpets positioned in unusual ways.

“Sometimes the seller will use throw rugs or pieces of furniture to try to conceal problems or defects,” Guthrie says.

In an older home, a peek under wall-to-wall carpeting will sometimes reveal the happy surprise that the carpet is masking hardwood floors in pristine condition. But in other instances, area rugs are used to conceal problems -- like wood flooring scarred by pets or the over-watering of houseplants.

-- Attempt to measure room sizes yourself.

To make homes look spacious, stagers sometimes clear away all but a few key pieces of furniture per room. And when creating a model home for a builder, they may even bring in scaled-down furniture to give the illusion of enhanced size. To guard against such practices, Davis urges buyers to bring along measuring devices when touring properties.

“For a fairly nominal price, you can now buy laser-distance measuring devices,” he says.

He also suggests you bring to your house tour the measurements of your largest pieces of furniture. This will provide you with a further sense of the scale of a home relative to your belongings.

-- Remember that flowering plants are ephemeral.

During the warmer seasons of the year, home sellers have an easy time showing off colorful flowers outside. All year long, they can position flowers artfully throughout a home’s interior.

Color is a natural magnet for buyer interest, and many are swayed by blooming plants. Even so, Davis says would-be buyers should recognize that many of the plants displayed by home sellers will be short-lived.

“Focus on the bones of the house, not its fleeting embellishments,” he says.

-- Find an inspector who is an eager detective.

Guthrie acknowledges that some in his field are more interested in packing multiple inspections into a day than doing in-depth checks.

“You’ve got to wonder about any inspector who doesn’t want his clients there when he’s going through the house because it will slow him down,” Guthrie says.

As Davis says, a quality inspector is enthusiastic about discovering the inner workings of a home and can prove invaluable to sharp buyers.

Granted, buyers in tight-inventory markets often need to act hurriedly to compete with other contenders. In such cases, it can be realistically important to submit a “clean” offer that’s free of a post-bid home inspection. Still, buyers may have time to arrange for a pre-bid inspection at your own expense.

“Hiring a top-notch home inspector isn’t a waste of money. It’s a very prudent expenditure,” Davis says.

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

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Home Sellers: Can You Afford Complacency?

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | June 20th, 2018

With the onset of summer, housing inventories are tight as a drum in many popular neighborhoods. Indeed, it now takes a typical home seller less than a month to capture a deal, according to a new report from the National Association of Realtors (www.realtor.org).

"Houses continue to fly off the market," says George Ratiu, a top economist and the association's director of housing and commercial research.

But he says current home sellers should "absolutely avoid complacency" because there are a few darkening clouds starting to form over the market. The new report shows that due in large part to rising mortgage rates, home sales fell back for the second straight month in May. What's more, some properties in poor condition are languishing unsold for a lengthy period.

As real estate agents can attest, a home that first goes on the market at a list price substantially over its legitimate value can take an unusually long time to sell. But even well-priced homes can linger unsold for a lengthy period if presented to the public in poor condition.

"Some people just don't have the money to spend for necessary remodeling, or they have to make a quick move for a job transfer and don't have time to make improvements," Ratiu says.

Ashley Richardson, a veteran real estate agent, says a minority of sellers are stubbornly indifferent to the advice of their agents on necessary fix-ups, and these sellers must ultimately accept a sacrificial price.

"In the end, a house in poor condition will probably sell to an investor, who will insist on a discount of between 25 and 50 percent off its potential market value. Investors usually do the necessary improvements themselves and then quickly flip the property," says Richardson, who's affiliated with the Residential Real Estate Council (www.crs.com).

Here are a few pointers for sellers:

-- Seek an agent willing to offer some oversight of your issues.

Homeowners facing financial hardship -- such as a potential foreclosure -- often lack the time and money for needed property fixes. But those with the resources to make the needed changes should do so and often benefit from the help of a listing agent willing to captain their project team.

"The agent can screen contractors, secure proposals and help ensure the work is done right. They can also make sure that the house is kept locked up and secure in your absence," says Eric Tyson, a personal finance expert and co-author of "House Selling for Dummies."

Of course, not every listing agent is willing to coordinate pre-sale improvements. But others will enthusiastically assist, realizing that they, too, would benefit from a successful sale.

However, Tyson cautions that some agents -- including very accomplished ones -- lack the know-how to provide expert guidance on infrastructure repairs, such as major plumbing or electrical work.

"Don't assume every agent is up to the task. Good bets are house aficionados, or people in the business who fix up houses and then sell them for a profit," Tyson says.

-- Recruit energetic assistance for your decluttering campaign.

It's no secret that prospective buyers are turned off at the sight of a cluttered home. Most can't envision the size and scope of a property with overflowing bookshelves, bathroom vanities crammed with toiletries, or kitchen countertops ridden with gadgets.

Still, Mark Nash, author of "1001 Tips for Buying and Selling a Home," says most sellers find the pre-sale process of culling through their belongings both taxing and emotionally overwhelming.

"Well over half the people who've lived in a house for 10 years or longer have accumulated way too much junk. And they have a terrible time going through all those belongings in a methodical way," Nash says.

Nash encourages sellers to post an ad offering to pay for help culling through their possessions -- keeping those they value and casting off or giving away those they don't want.

Chances are your ad will attract neighbors, including students, who are seeking part-time work for extra spending money. The person you hire should help you plow quickly through your accumulations and also help with the physically demanding side of the work.

-- Realize that looking back is a waste of your time.

Some homeowners have for years allowed their properties to deteriorate while they've focused on other issues, such as career challenges, child-rearing or health problems. Others have no explanation for neglecting their homes, except inertia and procrastination.

Also, Nash says, many sellers resist the idea of putting money into a property they'll soon be leaving. This is especially true of cosmetic improvements, such as the sanding and polishing hardwood floors, or kitchen upgrades.

"People ... kick themselves that they didn't make the changes sooner so they could enjoy them, too," Nash says.

But there's no advantage to postponing needed improvements. Resistance to change can be an especially costly error if your place is already vacant and you'll have to carry two mortgage payments until it gets sold.

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

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