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Homebuyers: Should You Consider a Rental Property?

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | September 30th, 2020

COVID-19 has led to a surge in demand for suburban houses from those living in cramped urban apartments. Among the lures: extra work-at-home space and a backyard big enough for a barbecue. But many who own such suburban properties are reluctant to sell. The result? A monumental shortage of supply.

“Housing demand is robust, but supply is not, and this imbalance will inevitably harm affordability and hinder ownership opportunities,” says Lawrence Yun, chief economist for the National Association of Realtors (realtor.org).

The worsening shortage has meant ascending prices and more competition among rival buyers in many suburban areas. First-time buyers are especially frustrated in multiple bidding situations.

One potential solution for buyers is to consider a property that’s served as a rental unit.

“There’s a big stigma attached to any house renters have been occupying. That causes lots of folks to automatically reject such a place without good cause,” says Mark Nash, a real estate industry analyst.

Granted, some tenants can be rough on a place they’re leasing -- given they have less at stake in home upkeep than do owner-occupants. Yet some issues -- like soiled carpets or blemished walls -- can be merely cosmetic and easily remedied.

“A formerly rented house could be a true diamond in the rough you might obtain for a fair price despite the crush of demand,” says Nash, the author of “1001 Tips for Buying and Selling a Home.”

But Fred Meyer, a longtime real estate broker and appraiser, cautions those considering a once-rented property to thoroughly investigate the place to ensure it doesn’t have any severe structural problems, such as a sinking foundation or a leaky roof.

Most landlords wait until their tenants leave to put their property on the market. But if a place you’re considering is still occupied by tenants, Meyer suggests you ask them about any issues.

“The tenants may be disgruntled if they’re forced to move against their will. But they have no incentive to gloss over problems with the house,” Meyer says.

What typically prompts the sale of a rental unit? Sid Davis, the author of “A Survival Guide for Buying a Home,” says many landlords eventually tire of their tenants’ demands.

Of course, some landlords hire a management company to look after their rental unit. But that can be costly and doesn’t necessarily protect them from tenant abuses.

“With or without a manager, many owners eventually want to free themselves of their white elephant to simplify their lives,” says Davis, an independent real estate broker.

Here are a few pointers for buyers pondering a rental:

-- Make doubly sure to get an in-depth home inspection.

Though many rental properties are overseen by professional managers, they rarely receive the same level of attention as owner-occupied properties. That’s why it’s critical to make any offer contingent on a satisfactory home inspection.

To locate a highly qualified home inspector, Davis recommends you ask your agent for the names of at least 10 candidates. Then interview three by phone to determine the best one. Another source for referrals is the American Society of Home Inspectors (homeinspector.org).

Avoid choosing an inspector who’s also in the home improvement business.

“That represents a major conflict of interest, especially if the guy presses you to hire him for repairs,” Davis says.

-- Seek cost estimates for all the repairs you’ll need.

Davis once owned six rental houses. This taught him that tenants often fail to tell their landlord about problems unless they become serious.

“Perhaps the dishwasher has malfunctioned for many months. But the landlord never heard about the problem until a home inspector finds that the dishwasher leaks and must be replaced, along with the subflooring beneath,” he says.

Davis says the prospective buyers of a rental property should determine in advance how much needed repairs will cost. He recommends they get estimates for all the repairs on the inspector’s list before finalizing their bid. Then they should make sure these expenses are factored into the price they negotiate.

-- Don’t let a good deal blind you to a weak location.

In many popular neighborhoods, buyers now greatly outnumber sellers. Yet even now, few purchasers prowling the market are willing to consider a rental, says Ashley Richardson, an agent affiliated with the Residential Real Estate Council (crs.com).

“These days, most buyers only want a house in pristine condition -- one babied by its owners. Very few people will take a ‘fixer’ because of all the hassles that might bring. That means you’ll have fewer competitors in pursuit of a fair deal,” says Richardson, who sells homes through the Long & Foster real estate firm.

You could get a doubly favorable deal if you find an only superficially problematic house in an excellent neighborhood -- like one with manicured yards and well-rated neighborhood schools.

“As with all real estate, location should overtake every other priority when making your decision,” Richardson says.

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

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Selling Tips for Trying Times

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | September 23rd, 2020

The COVID crisis continues to plague the planet. There’s unrest in U.S. streets. Wildfires rage in the West. And all over the nation, the presidential election has nerves frayed.

Yet homebuyers seem as eager as ever to move forward with a purchase, making it a nearly golden season for those who wish to sell.

“Strangely, politics and bad climate events never seem to have much impact on housing markets, unless these elements are present in your immediate area,” says Tom Early, a longtime real estate broker.

More powerful motivators for home buying include demographic trends -- such as new household formations among the millennial population cohort -- and mortgage rates.

“Herds of young buyers are trying to grab the unbelievably low mortgage rates now available,” says Early, a past president of the National Association of Exclusive Buyer Agents (naeba.org).

Despite economic turmoil and relatively high rates of joblessness, sellers are currently in an excellent position, says Danielle Hale, the chief economist for Realtor.com, the national home listing service.

“Buyer demand is putting sellers in the driver’s seat,” says Hale, noting that available properties remain in short supply and prices are strong.

Yet for all the positives facing sellers, many who intend to move this year feel stressed at the idea of selling during the pandemic.

“People who’ve been socially isolated for months are hunkered down in their homes, often with young kids and grown children under the same roof. That greatly complicates their selling plans and gives people panic attacks,” Early says.

Kathy Zimmermann, a broker-owner with the Re/Max realty chain, says anxiety levels are highest among sellers who face tight time limits because they’re moving for a job transfer or have already committed to buying another property. Also, those facing divorce can become particularly frazzled if a house they expected to sell quickly sits unsold longer than anticipated.

“If it’s a divorce involving a court-ordered sale, there’s usually a strict deadline,” says Zimmermann, who’s affiliated with the Residential Real Estate Council (crs.com).

Anxious home sellers often lose sleep due to their worries and sometimes bother their listing agent early in the morning after a restless night, says Zimmermann, who’s received calls and texts from worried clients as early as 5:30 a.m.

But Dorcas Helfant, a former president of the National Association of Realtors (realtor.org), says the fault for a slow-moving house often rests not with the listing agent but the owners themselves if they insist on an above-market price.

“Ask too much and potential buyers will be repelled by what they perceive as your greed,” Helfant says.

Here are a few pointers for sellers:

-- Realize that avaricious sellers often net less than they deserve.

Accurate pricing is tricky, especially in neighborhoods undergoing pricing gains, perhaps due to tight inventory. In such areas, a review of recent sales --known as “comparables” -- may not yield obvious answers.

Still, cautious pricing is all the more important at the current time, given that numerous buyers are well aware of pricing trends due to extensive internet sleuthing.

“Many people won’t waste their time trying to negotiate with someone asking too much,” Zimmermann says.

-- Face the fact that hassling your listing agent can backfire.

Zimmermann says anxious sellers can hurt themselves if they make unreasonable demands on their agent. For example, she tells how one of her clients emailed or called her at least two to three times per day, requesting a detailed update on everyone who’d expressed interest in his house and their reactions.

“He became a very high-maintenance client,” she says.

Putting a lot of pressure on your agent might seem like a helpful strategy. But it can easily hurt your sale if the agent resents your persistent inquiries. Some agents even drop clients who try to cope with their anxieties through excessive demands.

“It’s not unusual to hear about agents terminating listing agreements if the homeowners fail to cooperate,” Zimmermann says.

-- Direct your nervous energy into a cleaning blitz.

Sid Davis, a longtime broker and the author of "A Survival Guide for Buying a Home," says he’s noticed a steep decline in the cleanliness of properties offered for sale. All too often, he says, owners with busy schedules lack the time to keep a home as clean as did past generations. But the reality is that nowadays buyers are more eager than ever to acquire a spotless property to gain a “fresh start” in their lives.

Showing a home in immaculate condition can give you a competitive edge over less tidy people trying to sell in the same area.

“During the pandemic, it’s doubly hard for families with lots of people stuck at home to keep their homes exquisitely clean. But remember that most serious buyers still insist on an in-person tour before committing to a house, and slobs are punished,” Davis says.

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

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Weighing the Pros and Cons of Outlying Living

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | September 16th, 2020

Remember when many homebuyers were going urban in a major way? To squeeze themselves into trendy city communities, they were willing to accept small condos so long as they could walk to restaurants, clubs and coffeeshops.

But suddenly much of that fondness for city life has diminished -- thanks in large measure to COVID-19. Countless young buyers, along with many elders, now hanker for the calm, safety and maximum elbow room afforded by suburbia. Indeed, some are even searching for supersized property in semi-rural exurbia.

Of course, those experiencing financial reversals due to the pandemic are in no position for home shopping. Yet many buyers lucky enough to hold jobs suited to remote work are thrilled they can now reasonably consider a large home in an outlying area, says Sid Davis, the author of “A Survival Guide for Buying a Home.”

“Demand well beyond core cities is exploding. That’s because the farther out buyers go, the more their money stretches, enabling them to fulfill their wish for an exceptionally large property,” says Davis, who’s worked as an independent real estate broker in the business for more than 30 years.

The excitement about buying opportunities in non-urban areas is reflected in soaring confidence on the part of homebuilders, many of whom focus on the construction of large properties in outlying areas, where buildable land is less pricey than near cities.

“The suburban shift for homebuilding is keeping builders busy, supported on the demand side by low interest rates,” says Robert Dietz, the chief economist for the National Association of Home Builders (nahb.org).

Dietz says builders throughout the country are now inundated with calls from those living in high-density markets who want to relocate to a spacious new home well outside their metro center.

Some housing analysts say the quest for a very spacious home -- in excess of 3,000 square feet -- represents a return to the traditional view that a large property enhances quality of life.

“There’s something beguiling about big houses. Bigger is always better in America, assuming you can afford it,” says James W. Hughes, a housing expert and dean emeritus at Rutgers University.

But Hughes and other real estate analysts caution buyers against rushing into the purchase of a huge home without considering the implications going forward --especially if you must go quasi-rural to afford an oversized place.

“Review your realistic needs. For example, if you and your spouse work from home a lot, you might truly need spare bedrooms for dedicated home-based offices. But a formal dining room could be superfluous,” he says.

Here are a couple of other pointers for buyers:

-- Don’t rule out the need for a reasonable commute.

In recent years, many people bullish on large houses were nevertheless unwilling to accept a lengthy commute in exchange for more living space and a sizable yard. It was obvious they could get more house for the money in outer suburbs, but they refused to accept such tough trade-offs.

Still, the surge in remote working arrangements brought by COVID-19 has convinced many buyers that they’ll be entitled to work from home into the indefinite future --even after the pandemic has lifted.

“The outlook for remote work has generally become quite positive on the part of employers,” Davis says.

But he urges buyers to think beyond the pandemic to a time when companies might reevaluate their remote-work policies away from what they currently allow.

“What if your boss decides he wants you in the office two or more days of the week for team-building meetings and you’ve moved to a rural area a three-hour drive away? Or what if you must change to a company that doesn’t like telework? All these are realistic possibilities post-COVID,” Davis says.

To hedge their bets on remote work going into the future, he recommends buyers consider no property that’s more than a 60-minute commute from their current office or an employment hub where they might likely work.

“After the pandemic, you don’t want to get stuck with a punishing commute that steals your personal time,” he says.

-- Realize your floor plan will matter along with square footage.

Fred Meyer, a longtime real estate broker and appraiser, says many parents of school-age children want a house with a large master suite that’s segregated from the cluster of bedrooms where their kids reside. This is especially likely if their offspring are teenagers who thrive on loud music and games.

“It’s common nowadays for homebuyers to ask for ‘his and hers’ home offices. They want these home offices separated from the main living areas of the property. This requires lots of space,” Meyer says.

In addition, many buyers continue to yearn for exceptionally large kitchens with professional-grade appliances that flow into a great room where everyone can gather. Plus, they’re more eager than ever for a large yard.

But as Meyer notes, many buyers of very large houses make minimal use of some of their spaces. For example, he questions whether home fitness rooms will be as appreciated after public gyms fully reopen.

“Especially in areas where property taxes are high and rising, you don’t want to own a house with extra rooms you’ll never use,” he says.

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

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