Real Estate Investing

I come from a generation and a location where buying a home for $50,000 was a big deal.  If you purchased a home for $86,000, you had more money than sense.  And a house for over $100,000?  You must be insane!  This has always made me question the true value of a house anytime my husband and I are in a position to buy.  We’ve made mistakes that haunt us today and yet we’ve not been completely insane in our decisions.

This post was a very refreshing story in someone’s home-buying experience.  Posted on The Housing Bubble Blog, a lender who calls himself “An Englishman in NJ” wrote about his decision to delay his home purchase.

Even although I work for one of the largest mortgage lenders in the world, I decided to contact a couple of “mortgage brokers” referred to me by my in-laws. One said that given my credit and income I could get a loan for “over $2 Million” with nothing down. My income was approximately $300K per annum at that time. I went home and told my wife we were not buying for a while because something incredibly insane is going on. Later that week at a family function, a BIL tells me that I should “buy something for $700K or $800K because there is no chance you will lose anything at that price”, implying that is a “low-end” purchase.

He did eventually buy a home at a reasonable price (for his area).  Indeed I applaud his decision to hold off not just until he and his wife were ready, but when the market was ready.

If you’re thinking about buying now, here are some quick money-wise tips:

• Save a down payment (again required by FHA and most conventional loans).  No more 0% downs!
• Make sure your agent runs a comparable market analysis before you buy to make sure the home is priced correctly according to the neighborhood.
• Ask the seller to pitch in for closing costs.  This is something that’s negotiable so it doesn’t hurt to ask.
• ALWAYS get a home inspection to be sure there are no major hidden defects in the home.
• Be prepared to negotiate again if the appraisal comes back short.  You have the ability - if you wrote an appraisal contingency in the contract - to walk away, but the seller may be willing to drop the price which will actually improve your monthly mortgage payment.

Happy house hunting - and remember … only 53 days left to close to get the $8000 first-time homebuyer tax credit.  Move fast if you want it and you’re eligible!

When I bought my first and second homes, I wanted to know what the square footage was.  Is it 1400 square feet or 2400?  Do you measure the outside of the house and add, or measure rooms and add them up to get the square footage?  According to an attorney who visited our office today, none of the above.

His advice to agents?  YOU should never measure a house yourself.  While it seems straightforward, figuring out the square footage of a dwelling can be tricky business.  There is no standard methodology for measuring - in fact three different appraisers, a professional measurer (is that a word?), an appraiser, and an agent could quite possibly ALL come up with a different number.

His next bit of advice?   If you publish the square footage of a home, always attribute where you got the number.  If it’s from the tax records, say that’s where you found it.  Additionally, agents would be wise to state in the MLS listing, “Information here not warranted or guaranteed” and add, “If square footage is important to you, you need to measure it yourself.”

Interestingly, in Texas - and perhaps other states - state law prohibits real estate agents from revealing the square footage according to the attorney today.  While I was unable to find evidence of that via my friend Google, I did see that square footage has not been listed for years in California.

Here’s an interesting discussion about the subject with points of views from many states.

Photo by Aussie Gall via Flickr Creative Commons.

I used to think appraisers were like the Free Masons in the DaVinci Code … a secret society that guarded their secrets closely.  I thought they had a magic document that equated the worth of every home feature — an extra bedroom is worth $10,000, garage $7,000, full basement $20,000, granite counters $5,000.  But after listening to Danny Wiley earlier this week describe the appraisal process, I think you’d have to shake a big stick at me and threaten to convince me to go into the business!

A bad appraiser can knock something out quickly - drive by a house, pull a number out of a hat.  But a good appraiser work his or her tail off! In addition, to going to the home, appraiser put in a lot of hours manually going over figures.  They - of course - look at specific products.  If they appraise a townhome, they compare it to townhome sales from the last six months to year.  If it’s a new construction, it’s comped to other new construction homes.  Appraisers try to stay close to home … they want to use the neighborhood a home is in first, but they will go out less than a mile in an urban area and less than five miles in suburbia and rural areas.

In addition, a good appraiser digs deep.  They look at comparable homes using a variety of sources:  school districts, zip codes, number of stories, size … everywhere a buyer would look when purchasing a home.

Finally, in EVERY appraisal the absorption rate is examined.  That is, how many homes sell over a specific period of time.  Physical depreciation (age of home) is important, as is external depreciation (is it worth less than what it costs to build).

Appraisers do welcome conversations with real estate agents, but Mr. Wiley assures us that calling to yell at them will not further your cause.  A coherent, logical conversation will more likely lead to appraisers taking a second look at the data you provide.

But remember… it’s apples to apples, baby.  Not apples to oranges!