How To Protect Your Home Investment

Housing prices are slowly becoming a bright spot in the economy with historically low interest rates continuing across the nation.  No one knows, however, where real estate prices will head in the future.  For many individuals, their homes will continue to be their largest asset and a major contributor to building net worth.  Like all investments, you should develop strategies to manage your home prudently.  Here are some “Do’s and Don’ts” to consider:

Don’t stretch to purchase the largest home you can.  The reason homes have contributed significantly to the net worth of many people is that owners retain any price appreciation on their entire properties, even though they only put down ten or twenty per cent of the purchase price.  This fact has caused many people to strain their budgets and purchase the largest home they can afford, hoping the increase in the value will more than offset the sacrifices made along the way.

Before embarking on such a strategy, be aware of all the risks.  If home prices start to fall, you could end up owing more than the house is worth.  If your budget is strained to the limit, you might not have money left over to contribute to a retirement account or college savings plan.  It may be better to purchase a home you can comfortably afford.

Do take into account all of your monthly home payments, not just the mortgage.  Include homeowner’s insurance, flood insurance, mortgage insurance, utilities, garbage collection, cable television, unexpected repairs, taxes and any other obligations.

Don’t take equity out of your home in the form of a home-equity loan or a higher mortgage balance without careful consideration.  While lower interest rates have allowed many homeowners to reduce their monthly mortgage payments, many have also opted to take equity out of their homes and stretch mortgage payments over longer periods.  One of the main advantages of home ownership is that it is a forced savings plan, with part of every mortgage payment going toward equity.  Resist the urge to take the equity and spend it on something else.

Do investigate refinancing when interest rates go down.  If the rate on your mortgage is more than one per cent higher than current interest rates, the cost of refinancing may be worth it.

Do make sure you have adequate insurance.  Your homeowners insurance policy should be sufficient to completely rebuild and refurnish your home in the event of a disaster.  Check with local contractors for the cost-per-square-foot to rebuild in your area.  Check the limits of your policy every year and increase them if needed.  You will probably want a guaranteed replacement clause, which pays for the entire cost of rebuilding your home.

Do inventory everything in your home.  Include everything in your home, systematically working your way around each room  Keep receipts for larger items with the inventory.  This will help substantiate a claim if your home and its contents are every destroyed.

Bottom line: On a long-term basis, a home is a good investment.  By properly managing it, you can make it even better.

Easy Steps for Removing That Musty Smell from Your Home

Because many of our Palos Verdes homes are on a hillside, lower stories are often below the grade and often there is mold growing in the rooms of the lower level.  This musty smell is repugnant to prospective buyers.  A few years ago, I learned from a home inspector that mold prefers natural materials on which to grow.  First, check inside the downstairs closets to see if there is mold on old leather jackets, boots, purses, shoes and remove them from the premises.  Next, visit your local Home Depot or Lowes and purchase bags containing a desiccant and hang them in the closets.  You will see shortly the amount of moisture there is in those spaces.  These bags will need to be replaced every month or so.  Open windows to get fresh air circulating throughout the lower level.  To add a very pleasant and not overwhelming scent, I recommend infusers that can be purchased at most department stores.  The plug-in varieties of deodorizers are obnoxiously strong and I would not recommend your using them.

Boost Your Home’s Value: 4 Projects with the Greatest “Bang for Your Buck”

No matter if the housing market is up or down, you always want to ensure home remodeling projects are wise investments.  According to Remodeling Magazine’s Cost vs. Value Report 2011-2012, there are several home improvement projects that will provide significant enjoyment to you now and could recoup a majority of your dollars whenever you decide to sell.

Beautiful bathrooms:  According to the report, a mid-range bathroom remodel ($16,000) can recoup up to 62% of the investment when it is time to sell…and in the meantime, add significant enjoyment with a new, relaxing retreat.  To start determine which updates matter most and how much assistance you will need for each.

Complex projects, such as structural, electrical or plumbing changes or installing countertops or flooring, may be best left to the professionals.  However, there are many updates you can tackle yourself.  Painting is an easy and ideal do-it-yourself task that can make a large impact with minimal cost.  Similarly, installing new faucets, accessories and showerheads can be simple, even for a novice. 

Classy kitchen:  Once you have updated your bathrooms, the kitchen is a rewarding home renovation that when done moderately can recoup up to 72% of your investment.  Based on your budget, you will need to determine whether to update with a lower-cost laminate or a higher-priced option, such as granite or marble, that can offer an upscale look, added durability and functionality.

Lighting, while functional, also adds a significant style element to a kitchen.  Replacing fluorescent fixtures with recessed cans or pendants will add ambiance and luxury to your room.  Update your old appliances.  Add a splash of paint to the walls and trim for a polished look.  Finish off the counter area with a new high-end kitchen faucet.

Envious entry:  It is the first thing your guests and future home buyers see when they approach your home, so if your front door is not appealing or does not have significant features, it is time for an upgrade.  A new entry door adds instant curb appeal for a minimal price and can recoup up to 60% of your investment.

When choosing a new door, fiberglass options are an ideal choice.  The material resists denting and scratching, is easy to maintain and can make your home more energy efficient.

Wonderful windows:  Similar to the front door, replacing your existing windows with new vinyl windows will give your whole home a new look and feel, both inside and out, and payback of up to 68% of your investment.  As a larger-scale project, this is likely a project left for the professionals.

Look to your local window distributor to refer you to a reputable contractor to ensure your new windows are installed properly.  When it comes to selecting windows, vinyl is an all-around excellent choice.  Unlike wood, vinyl windows resist rotting and do not require repainting.  Unlike aluminum, vinyl windows will never pit or flake.  Plus, you can enjoy a pay off immediately with increased comfort and lower utility bills, while potentially adding significant resale value to your home in the future.

 

Make cost-effective home improvements

Imagine walking into an important job interview looking like you just dragged yourself out of bed. You’d be unlikely to make a good impression and diminish your chance of securing the job.

The same goes for selling a home. First impressions are lasting. Some buyers won’t even look at the inside of a listing that doesn’t have good curb appeal.

Today’s buyers are picky. There is no sense of urgency in the market, so buyers are holding out for the best home they can find that will work for them for years to come. In some areas, there are a lot of homes for sale. It’s important to make sure that buyers will be attracted to your home before they even walk through the front door.

Fortunately, exterior improvements needn’t be expensive. The recent Remodeling Cost vs. Value Report 2010-2011 found that the improvements that yielded the highest return on the investment when sold were a new steel front door and a new garage door.

The average cost nationally for a new front door was $1,218; the return was 102 percent. The average cost for a new garage door was $1,191; the return was 83.9 percent. The top nine of 10 most cost-effective improvements nationally were for exterior projects. Curb appeal is as important as ever, and may be more so in this market.

The Remodeling Cost vs. Value Report is a collaborative report done annually by Remodeling Magazine and the NATIONAL ASSOCIATION OF REALTORS®. It compares construction costs with resale values, which are based on estimates from more than 3,000 REALTORS® and appraisers.

Sprucing up the front yard for sale needn’t be costly. Clean out weeds and dead plants. Add flowering plants for color and mulch to tidy up areas that aren’t heavily planted. Replace a lawn that has seen better days with less lawn and a border bed of flowering shrubs.

Do in-ground planting well in advance, if possible, so that plants have a chance to get established before your home goes on the market. If you have no choice and must plant at last minute, be sure to remove the ID tags from the nursery.

A deteriorated fence should be removed, repaired or replaced. Any peeling paint on the front walk and steps and house exterior and trim should be refreshed. The side of the house that gets the most exposure needs the most maintenance. If you’ve let it go, you’ll be docked dollars by the buyers unless you repaint where needed before you sell.

HOUSE HUNTING TIP: The amount returned on home improvement investments varies from one location to the next. It’s important to consult with your local real estate agent before you embark on an upgrade to make sure that you don’t overpay on an improvement that won’t generate the desired result. Most homeowners assume they’ll get their money back and more when they sell. In fact, most upgrade investments often don’t return 100 percent of the amount invested, particularly in a down market.

A minor mid-range kitchen remodel returns 72.8 percent nationally, according to the 2010-11 Remodeling Cost vs. Value Index. In the Pacific region of the U.S., you’re likely to recoup 84.1 percent.

However, a major upscale kitchen remodel pays back only 59.7 percent nationally and 66 percent in the Pacific region. It makes sense to take on a major remodel project only if you’re staying in your home and can enjoy the use of the improvements before selling. A deck addition ranked high on the list of popular exterior improvements. Although, nationally the cost recouped is only 72.8 percent, it may be an essential enhancement if your home has no outdoor living space and all the homes for sale in your neighborhood do.

THE CLOSING: Supply and demand in your local area will also impact how much you’ll recoup from your fix-up investments.

Real Estate Information for Sellers

Negotiation is back in style. It’s not uncommon for buyers and sellers to have many rounds of counteroffering back and forth before they arrive at a contract that is completely agreeable to all involved. When this is accomplished, the contract is ratified.

However, there is another important element involved in ratifying a contract. Until a residential purchase contract is completely signed, and the final signed documents are delivered back to the other party or that party’s agent, the listing is not sold.

Let’s say you decide to offer the sellers less than their asking price. They don’t accept your offer, but issue a counteroffer. Before you respond to the seller’s counteroffer, another buyer makes an offer. If you haven’t signed the sellers’ final counteroffer and delivered it back to them, they can withdraw their counter and sell the house to someone else.

Or they could decide to withdraw the counteroffer to you and issue a new one. This time it could be a multiple counteroffer if the sellers also decide to counter the other buyer’s offer. You end up in a multiple-offer competition, which often means paying more or not getting the house at all.

You can’t rely on verbal negotiations when you’re buying or selling real estate. To be binding on the parties involved, real estate contracts and the addenda to them must be written.

HOUSE HUNTING TIP: Timing is critical. If the seller issues you a counteroffer you can live with and you want the house, sign the document as soon as possible, even if the seller gives you several days to think about it. During that time, another buyer could make an offer and your counteroffer could be withdrawn.

After you sign the counteroffer, make sure that your agent delivers it to the sellers or their agent immediately. Whoever receives the document should sign to acknowledge receipt of the document so that there’s no question that the contract is ratified.

Then if another buyer wants to make an offer, you won’t have to compete or risk losing the house altogether. Once you have a ratified contract in place, the sellers can negotiate with other buyers, but only for backup position subject to the collapse of your contract.

Don’t let yourself be lulled into thinking that because the housing market is generally slow there’s no chance you’ll end up in competition. The best listings — ones in good condition and priced right for the market — can sell quickly, particularly in areas where the inventory is low.

Many buyers have busy work or travel schedules. Often you find the right house to buy at the least opportune time in terms of what else might be going on in your life. Make sure that your home purchase contract states that faxed signatures are binding. This could save you hours of driving in traffic to sign a critical document in time.

Sometimes faxes aren’t the answer. If you’ll be available only by phone or e-mail, consider giving power of attorney — one specific to buying a house in a certain area — to someone whom you trust completely. This person should not be your real estate agent. It should be someone who will be available on short notice.

Electronic signatures are becoming more popular. But, they haven’t become standard in the home-sale business. If a seller who has had no experience with electronic signatures is considering a couple of offers — one with electronic signatures and one that was signed in person — he would probably feel more comfortable accepting the latter.

THE CLOSING: That is, unless the price on the electronically signed offer is a lot higher!

Six Paths to Success for Buyers in Tight Markets

In low-inventory markets, some buyers are having a hard time finding a home to buy. There are steps you can take to improve your odds of finding a home at a time when interest rates are at record lows and affordability is high.

One approach is to broaden your search. You should be clear about what it is you want to buy. But, homebuying involves making compromises. Just make sure you don’t give in on the essentials. You need a home that will last you for the long term. Avoid listings with major defects that will be expensive or impossible to fix.

The sorts of features you should be willing to give up, if necessary, are house style, or a large yard, which can be a maintenance drain. If you’re having no luck buying in your first-choice neighborhood, check out the adjacent areas. These could be the next turn-around neighborhoods when the overall housing market improves.

You could also do an about-face and consider condos rather than single-family homes. This might have the advantage of shortening your commute to work.

Ask your agent to cull the inventory of expired, withdrawn, and canceled listings that didn’t sell in the last year or two. These may not have sold because they were priced too high. If the sellers are still interested in selling, and aren’t locked into a lease, you might be able to work out a mutually acceptable price.

Be open to making improvements rather than holding out for a home that’s in move-in condition. Major fixers will probably be snapped up by investors to rehab and resell at a profit. This is a competitive market and not one for novice homebuyers.

However, if a listing isn’t receiving attention because of its dated décor, this could work if you intend to live in the property and not try to flip it for a profit. Be sure to work with an agent who has experience with cosmetic renovations, or consult with a decorator.

You’d be surprised what updated plumbing and light fixtures, new paint, floor finishes, appliances and improving the outdoor living can do to turn a dowdy listing into a comfortable abode. Just make sure you don’t tackle too much. You don’t want to over-improve for the neighborhood, and structural issues are taboo.

Don’t exhaust yourself by bidding on a house you can’t get. A home was recently listed for $985,000. Seventeen buyers made offers. It sold for $1.2 million. Underpriced listings are often bid up in a low-inventory market. Wait to make an offer until you find a listing that’s priced within your affordability range.

Don’t be afraid of accepting a backup offer if your bid isn’t accepted. The transaction fallout rate is pretty high in this market. Keep looking for another listing while you’re waiting to see if the first deal goes through.

All-cash offers tend to win in multiple-offer competitions. To be competitive, try to put yourself in a position to pay all cash. If you have savings you can tap and you can secure a private temporary loan from parents or borrow from a 401(k), you might be able to make a cash offer.

If your parents are providing some of the financing, ask them to write a letter that you can provide to the sellers that confirms your source of funds. This should be accompanied with documentation of the parents’ funds. You can refinance into a conventional mortgage later.

THE CLOSING: If the market where you’re looking is too hot, you can take the watch-and-wait approach. The market is always changing. When inventories increase, there will be more opportunities for buyers.