Market Trends • Real Estate • August 16, 2022

Housing Bubble Fears?

by Suzanne Volkman

This spring, about 45% of home sellers said they believed the housing market was headed for a crash in 2022, according to a study from Clever Real Estate. To boot, Google Trends data shows a significant spike in searches for the term “housing bubble.” Doomsday fears are mounting as record-high home prices make more consumers and real estate professionals nervous that the market may be overheated.

But “we almost surely are not” in a housing bubble, says James McGrath, co-founder of the New York–based real estate brokerage Yoreevo. Still, he’s been fielding concerns from clients lately about how a slowing economy could impact real estate. Most leading housing economists agree that the market isn’t in bubble territory. While home prices have never been higher, the market today is considerably different than in 2008 during the last housing crash. So, arm yourself with some talking points to help answer your clients’ questions about the state of the market and calm their concerns.

For one, instead of a housing surplus, like there was in 2008, the nation is facing a severe inventory shortage. Homebuilders put more than 2 million housing units a year into the pipeline in the years leading up to the 2008 bubble and were overbuilding at the time, notes Lawrence Yun, chief economist for the National Association of REALTORS®. “Today, it is exactly the opposite,” he says. “The country is still facing historically low inventory levels and low rental vacancy rates that are the consequences of multiple years of underproduction.”

But how about those surging home prices? After all, the median price of an existing home was $407,600 in May—the first time ever that this figure exceeded $400,000, according to NAR data. Have some markets overheated? Possibly. But economists put it into perspective: A 5% price correction in, say, places like Phoenix could be possible—but that comes after about a 50% price gain in just the last two years. “Even if there were to be a localized price correction, it will not cause harm to the [overall] housing market or to the financial banking system,” Yun says. “Some buyers will simply view it as a second-chance opportunity to get into the market after being outbid by others over the past two years, and the balance sheets of the banking industry are quite strong. So maybe prices would adjust downward—or maybe not. Let it be because it doesn’t really matter this time.”

Housing dynamics remain strong, even as the double-digit price appreciation we’ve become accustomed to begins to slow. NAR predicts the pace of price appreciation to moderate to about 5% or 6% by the end of the year.

Let’s Talk About It

You may hear comments from clients like: “I’m worried about buying. This is a housing bubble.” Here are some tips and talking points to consider:

Don’t dismiss fears. Many homeowners remember the 2008 housing crash, when they may have seen their own home’s value plummet or lost their property to foreclosure. Many millennials, who are the strongest homebuying force today, watched their parents struggle to keep up with their mortgage payments, scaring them off their own homeownership path. Their concerns about a “housing bubble 2.0” may come from a deep place, so acknowledge their fear and let them know that their feelings are legitimate.
Mortgages are structured differently. The kind of subprime lending that was blamed for the 2008 crash is a much smaller and more regulated part of the market today. “The lenders and regulators do not want to make the same mistake of lending to people who cannot repay the mortgage,” Yun says. “Therefore, the credit scores of mortgage approvals have been high.” The typical credit score for a mortgage borrower was a near-record 776 in the first quarter of 2022. During the Great Recession, it dipped to 707. Plus, for adjustable-rate mortgages, which have fluctuating interest rates over a set period of years, borrowers nowadays must show they can afford the fully reset rate, says Glenn Brunker, president of mortgage servicer Ally Homes.
Housing inventories remain low. The nation is roughly 3 million homes short of meeting buyer demand, Freddie Mac estimates. NAR has called for a “once-in-a-generation response” to the supply crisis. About 1.2 million single-family housing starts are predicted for 2023—still far from the 2 million–plus in the early 2000s, according to Statista data. Yun says housing inventory likely will remain an issue for years to come.
Buyer demand remains high. Purchasing a house was the top accomplishment postgraduate students aspire to achieve—more than getting a successful job, getting married, having a baby, or traveling, according to a Grand Canyon University survey. “There is still too much real demand and too little inventory,” McGrath says about the state of the housing market. “Affordability has taken a hit with higher [mortgage] rates, but people still want to buy homes.”
Real estate can be a hedge against inflation. Locking in a fixed-rate mortgage now will protect homeowners against future increases in housing prices. Such an opportunity doesn’t exist when you’re renting, and rental prices have climbed drastically over the last year. Plus, renting doesn’t offer the ability to build equity.
A market correction is not the same as a crash. The housing market has showed recent signs of slowing. But “based on present evidence, there is no expectation that a fallout from a housing correction would be comparable to the 2007–09 global financial crisis in terms of magnitude or macroeconomic gravity,” a group of Dallas Fed economists wrote this spring.

Some markets may experience a slight decrease in home prices as the market readjusts. In June, more than 40% of home sellers dropped their asking price in places like Salt Lake City; Boise, Idaho; Sacramento, Calif.; and other Western hot spots, according to Redfin data.

Homebuying costs have increased $800 every month this year due to higher mortgage rates and home prices, according to Nadia Evangelou, NAR’s senior economist and director of forecasting. The 30-year fixed-rate mortgage, which averaged 2.9% just a year ago, was at 5.51% for the week ending July 14, according to Freddie Mac. “Rising interest rates and buyer fatigue from bidding wars have caused the market to stabilize and return closer to normal, but the market still favors home sellers,” says Scott Orich, a sales associate with Flyhomes in San Mateo, Calif.

Orich has been talking to his home sellers about the importance of pricing their home right for the changing market. “Be more realistic with your expectations, and be patient,” Orich says. “The mad rush of multiple buyers is over.”

Even though the rise in mortgage rates is certainly bracing for house hunters, a large group of buyers is “more focused on buying a home—and hopefully at a slightly more reasonable price than they’d pay three or six months ago,” McGrath says. Also, “they want to be confident they’re not buying into a repeat of 2008.” And you can help them understand that they are not.

Originally posted by the National Association of REALTORS.

Other • August 2, 2022

Study: Roseville ranked among the top cities to live in America

by Suzanne Volkman

According to this Fox 40 article, Roseville has been named the best city to live in California, according to a study from Livability.com.

Out of a list of 100 cities, Roseville is ranked as the country’s number 21 best place to live and is the only city in California that was featured in the study.

“Its bustling downtown houses unique shops (selling everything from coffee to acoustic musical instruments and upcycled art), a growing arts scene, and sublime food and drink options,” Livability.com wrote. “Plus, the area’s strong industries, like public administration, health care, construction and education, make it easy for people to launch or grow a career, making Roseville one of the best places to live in the U.S.”

Livability also mentioned residents’ access to Sutter Health and Kaiser Permanente for health care, which are also two of the city’s major employers, according to the website. Adventist Health and PRIDE Industries are other major employers in the city, Livability said.

The study mentions Roseville as a “remote-ready” city and a “perfect place” to plant roots for those who are looking to work from home.

“Although living in California can be expensive, the city of Roseville is reasonable, and the city has a prime location near Silicon Valley,” Livability wrote.

In the study, Livability said it examined more than 2,300 cities and based on 50 data points grouped into different categories: Amenities, economy, demographics, housing, social and civic capital, education, health care and transportation and infrastructure, and remote readiness.

Cities that were examined were mid-sized, which Livability considers to be a city with a population of 500,000 or smaller.

As part of its methodology, Livability said it pulled data from several public-sector providers including the U.S. Census Bureau, U.S. Department of Housing and Urban Affairs and the Environmental Protection Agency.

As for the top cities on the list, Madison, Wisconsin took the top spot, while Ann Arbor, Michigan is second. Rochester, Minnesota (No. 3), Naperville, Illinois (No. 4), and Overland Park, Kansas (No. 5) round out the study’s top five cities.

Market Trends • Real Estate • August 2, 2022

Adjustable-rate mortgage vs. fixed-rate mortgage: ‘It’s amazing what people don’t know about mortgages’

by Suzanne Volkman

More people are considering adjustable-rate mortgages as a way to (temporarily) lower their monthly housing costs, especially in expensive cities. Should you?

The face-off

It’s tough out there for homebuyers. The median U.S. home price just broke the $400,000 mark for the first time ever (it’s at $407,600 to be exact, up 14.8% from a year ago, according to the latest figures). On top of that, the cost of a 30-year fixed rate mortgage has gotten much pricier too, with rates soaring to 5.51%, up from 2.88% a year ago.

Though there are signs the real estate market is cooling, in competitive housing markets all-cash offers and bidding wars were common until recently. Buyers are under pressure and they’re making all kinds of concessions to get into houses, including skipping home inspections and waiving other contingencies.

Taking out an adjustable-rate mortgage is one strategy buyers have been turning to in an attempt to (temporarily) lower their monthly housing payment. It’s becoming more common especially in expensive housing markets such as San Francisco and San Jose, Calif, and Bridgeport, Conn., according to CoreLogic.

Adjustable-rate mortgages typically start out with a lower-than-average interest rate, and then “adjust” to a higher or lower rate (depending on where fluctuating, market-determined interest rates stand when the adjustment happens, and other factors) after a set period of time. A 5/1 adjustable-rate mortgage (ARM), for example, changes its interest rate once a year after five years. Borrowers sometimes take out an adjustable-rate mortgage if they think they’ll be selling the house before the rate adjusts.

ARMs can be attractive because borrowers will initially have a lower monthly mortgage payment than they would with a traditional 30-year fixed-rate mortgage. Right now the introductory rate on a 5/1 ARM is 4.35% vs. 5.51% for the 30-year fixed.

So which one makes better sense, an adjustable-rate mortgage or a fixed-rate mortgage?

Why it matters

“It’s amazing what people don’t know about mortgages,” says Ken Waltzer, principal and co-founder of KCS Wealth Advisory in Los Angeles. He said he’ll ask clients considering ARMs about two key numbers related to their loan — the index and the margin — and he’ll get blank stares in response.

In addition to understanding those figures, borrowers thinking about an ARM should first find out how soon their payment could go up, and — perhaps most importantly — whether they “will still be able to afford the monthly payment if the rate and payment go up to the maximums allowed under the loan contract,” according to the Consumer Financial Protection Bureau, a federal consumer watchdog. (And remember that the mortgage payment is just one piece of your total housing costs; there’s also homeowner’s insurance and property taxes, and sometimes mortgage insurance and HOA fees. Homeownership typically requires repair and upkeep costs, too.)

“You just need to be careful because there might be periods where rates go super high and you’re paying 10% for a year or two,” Waltzer said. “You need to know if that’s possible.”

You may remember adjustable-rate mortgages from the subprime foreclosure crisis that preceded the 2008 housing crash and Great Recession. ARMs were popular with buyers looking to get a piece of the housing boom (which turned out to be a bubble). Lending standards were looser in those days, leading to situations where lenders approved mortgages for borrowers even if they couldn’t actually afford to pay it off, experts told MarketWatch. “Back in 2006, if you were able to fog your mirror, you could get a loan,” Waltzer said. “Now you actually have to qualify.”

ARMs today are less risky, thanks in part to borrower protections established by the Dodd-Frank Act, according to Ricard Pochkhanawala, senior policy counsel at the Center for Responsible Lending. Dodd-Frank required lenders to fully document a borrower’s income and assets and their ability to repay an ARM before the loan was made, and it said that borrowers must qualify for the loan based on the fully-indexed rate, not the introductory or “teaser” interest rate.

Dodd-Frank was enacted more than a decade ago, but I mention it because its protections are a valuable reminder that when it comes to taking out a mortgage, it’s up to you, the borrower, to decide whether the loan is right for you.

Before taking out an ARM, borrowers should make sure they fully understand specific details including any interest-rate caps or floors. This information is in the loan’s promissory note, which, unfortunately, most people don’t read, said Sarah B. Mancini, a staff attorney at the National Consumer Law Center. If you’re a first-time buyer, consider talking to a HUD-certified housing counselor while you navigate this decision, Mancini suggested.

“It’s a crazy market and I think people are feeling pressure to do things that are really at the outside of what they can afford and what they feel comfortable with, and that’s not a good recipe for success in homeownership,” Mancini told MarketWatch.

“A lot of people who are involved in this process have an incentive to push for the deal to go through, and so consumers have to protect their own interests. The realtors and loan officers all get paid a percentage of the price you pay for a home, so their incentive is not financially-aligned with saying, ‘Go in with a lower asking price.”

The verdict

If we’ve learned anything from the pandemic, it’s that life is unpredictable, so is the economy and so are interest rates. My vote is to go with a fixed-rate mortgage.

My reasons

A fixed-rate mortgage allows you to build your overall financial plan around a relatively predictable monthly housing payment, while ARMs introduce fluctuation.

“It’s easy to be enticed with the lower rate of the ARM and many people probably say, ‘What are the chances that we are still in this house 10 years from now when the rate turns to variable?’ But this leaves the buyer exposed to interest-rate risk that they might regret down the road,” said Ron Guay, a certified financial planner at Rivermark Wealth Management in Sunnyvale, Calif.

“The fixed rate saves the hassle of monitoring the rate environment and makes your largest line item expense a constant number in a world where everything else is more expensive next year (i.e. inflation). You’re protected from rate increases and if rates drop (enough), you can refinance,” Guay said.

He added, “Any argument for the ARM relies on some nonsense that people can foresee higher rates coming and move to a fixed rate before they do, which is just another form of market timing (i.e. a loser’s game).”

Is my verdict best for you?

On the other hand, an ARM can make sense if you’re planning to sell your house before the rate adjusts and if you think interest rates are headed down (meaning that your loan will adjust down). Some people are comfortable making those kinds of bets, others aren’t.

“If you feel there is even a slight possibility you will stay in a home longer than seven years or so, we usually do not recommend an adjustable-rate mortgage to clients,” said Christopher Lyman, a certified financial planner with Allied Financial Advisors, LLC in Newtown, Penn.

“We have had a few clients in recent months who are adamant they will be moving out of this home in the next few years so they take the ARM knowing this will be the cheaper option if all goes to plan, but the worry we have for them is that life throws curveballs when we least expect it and if they are stuck with this ARM and unable to refinance later than they signed up for paying significantly more in interest over the life of the loan.”

Here’s an example of how this could play out with a $440,000 loan, according to Lyman:

A fixed-rate 30-year mortgage at 5.5% would mean a $2,500 monthly payment and $460,000 of interest paid over life of loan.

A 30-year ARM would be 4.75% now and then adjust to 6.75% in five years. Moving forward, the rate can go up by a maximum of 1% a year for the life of the loan with a maximum interest rate of 7.7%. This means an initial payment of $2,300 per month and then $2,800 in five years. In year six, if it goes to the maximum rate of 7.7% the monthly payment would be $3,000 per month. If we assume the above scenario and in year six the interest rate stays at 7.7% for the rest of the loan, then the total interest paid over the life of the loan is $600,000.

Originally posted HERE

Buying • July 20, 2022

Freddie Mac to include on-time rent in underwriting

by Suzanne Volkman

On-time rental payments to be included in Freddie Mac’s system starting July 10.

Freddie Mac announced Wednesday that on-time rental payments will be included in its underwriting system. The government-sponsored enterprise said that it hopes to incentivize “responsible” renters to make a leap into homeownership.

According to Freddie, this option will be available starting July 10 and will allow mortgage lenders to submit a borrower’s bank account data that shows a 12-month streak of on-time rent payments to its automated underwriting system.

Michael DeVito, CEO of Freddie Mac, said in a statement that millions of potential borrowers have been blocked off from homeownership because they lack a credit score, or have a limited credit history.

“By factoring in a borrower’s responsible rent payment history into our automated underwriting system, we can help make home possible for qualified renters, particularly in underserved communities,” DeVito said.

Freddie said in its announcement that a borrower’s bank account data – with a borrower’s permission—can be plucked from apps such as Zelle, Venmo or PayPal. The government- sponsored enterprise added that additional requirements for submitting rent payment data to its underwriting system will be announced sometime in July.

Freddie Mac has been eyeing different ways of incorporating on-time rental payments to help borrowers qualify for a mortgage.

In November 2021, Freddie Mac announced that it wanted to encourage multifamily landlords to report positive rental payments to the credit bureaus to give renters a better shot at qualifying for a mortgage.

The government-sponsored enterprise said at the time that it would provide closing cost credits on multifamily loans for rental landlords who agree to report on-time rental payments through Esusu Financial.

As a result of this initiative, 70,000 households across 816 multifamily properties are enrolled in the program and more than 15,000 credit scores have been established, Freddie said.

Freddie Mac is following in the footsteps of Fannie Mae, which announced in August 2021 that on-time rental payments would factor into its underwriting calculations.

Fannie said that for first-time homebuyers’ a history of consistent rent payments makes a “significant difference” in helping an applicant qualify for a mortgage.

Per its research conducted last year, in a sample of mortgage applicants who were denied a mortgage, 17% could have received an approval if their rental payment history had been considered.

Originally Posted Here

Real Estate • July 14, 2022

Most Americans Know More About Kim Kardashian, Jennifer Lopez’s Love Lives Than Buying a Home

by Suzanne Volkman

According to a new Zillow survey, most Americans know more about celebrity love lives, the Kardashians and the NFL than they know about the basics of buying a home. In the nationwide survey, the typical adult failed Zillow’s basic real estate knowledge quiz, answering only two of five questions correctly.

Financing is a crucial first step in the home-buying process, but it’s also one of the most confusing. Two-thirds of survey respondents don’t understand the benefits of getting pre-approved for a mortgage. Advantages of having pre-approval can include closing on a home faster, getting clear budget constraints and making an offer that’s more attractive to a seller. A lower interest rate is not a benefit of pre-approval, as the majority of respondents believed.

Determining a down payment amount and when private mortgage insurance (PMI) is required is an important financial decision to make when purchasing a home, as it can have a big impact on the monthly payment. Many survey respondents assumed PMI is required no matter what, but the only instance when it’s not required is on a conventional loan with a down payment of 20% or more.

Most U.S. adults correctly answered that a person’s payment history impacts their credit score, and that the purpose of an appraisal is to determine if the home is worth its purchase price.

But when it comes to celebrity love lives, the Kardashians and the NFL, Americans are more in the know, even though their lives and finances aren’t directly impacted. The typical survey respondent answered three of five questions correctly in each of these categories.

Kim Kardashian and Kanye West

Nearly 85% of respondents knew that Kim Kardashian has four children with Kanye West, and 70% correctly answered whom Jennifer Lopez is now engaged to after first breaking up in 2004 (answer: Ben Affleck). And on the topic of football, the typical American knows a lot about Tom Brady; 71% of respondents knew that the popular quarterback left the New England Patriots to play for the Tampa Bay Buccaneers.

The typical American is as baffled by real estate as they are by the complex world of cryptocurrency, answering just two of five questions correctly.

“The real estate process can be complicated and confusing, but it doesn’t have to be,” said Amanda Pendleton, Zillow home trends expert. “By educating themselves on basic real estate fundamentals and hiring experts to help guide them through the process, buyers can avoid costly pitfalls and put themselves in a stronger competitive position. When it comes to picking the right home, real estate technology like interactive floor plans puts information closer to the average buyer’s fingertips than ever before, helping them move quickly and with confidence.”

Here are five tips to help buyers through their home-shopping journey:

1. Understand what you can afford. Buyers should start with a mortgage calculator to understand what goes into a mortgage payment and what they can realistically afford on a monthly basis.

2. See if you qualify for down payment assistance. Coming up with enough money for a down payment is a common barrier to homeownership. Aspiring buyers can see which down payment assistance programs may be available on every home listing on Zillow.

3. Find an agent you trust. Give me a call to see if I would be a good fit for your needs!

4. Get pre-approved for a mortgage – not just prequalified. It’s a more extensive financial check, but pre-approval will give the buyer – and the seller – more confidence in the buyer’s ability to finance the home. A new Zillow survey finds 86% of sellers prefer a buyer who has been pre-approved, as opposed to pre-qualified, for a mortgage. Buyers can start the pre-approval process online.

5. Shop around for a lender. Some home buyers can save tens of thousands of dollars over the length of their loan by shopping around for the best mortgage rate.

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Buying • June 29, 2022

Can Changing Jobs Prevent You From Getting a Mortgage?

by Suzanne Volkman

Taking on a new job can be exciting. But if getting a new gig happens to coincide with your plans to buy a home, it can affect your ability to get a mortgage—even if you make more money in your new job.

When you apply for a home loan, lenders take a deep dive into your financial history, including your current employment, to see if you can handle monthly mortgage payments.

“Any change to your income and employment may impact your ability to obtain a mortgage loan,” says Esther Phillips, senior vice president at Chicago-based Key Mortgage Services.

The ramifications can vary from having to provide additional documents to causing the loan to not be approved, Phillips says.

“Do not assume just because you were approved while at a previous position that the underwriting guidelines will treat your new position the same way—even if you’re making more money,” says Phillips.

Changing jobs while applying for a mortgage is not a deal breaker, but it can introduce a level of uncertainty that could make lenders tread more cautiously. Below are some factors to think about when considering taking on new employment while shopping for a home.

Timing is everything

When applying for a mortgage, the time at which you switched jobs is critical.

Changing jobs before applying for a mortgage loan could have little to no impact on a person’s ability to get a loan. But moving to a new position during the application process “comes with many more complications and timing implications,” Phillips says.

Plus, if a homebuyer happens to be changing professions altogether, a lender might view the employment history as more shaky.

Lenders will look at the details

The details of your work situation are what count, including whether you receive a salary, hourly wage, or bonuses/commission.

Dj Olhausen, a Realtor® with Realty ONE Group Pacific, says switching to a lower salary position can decrease a homebuyer’s eligibility to secure a loan. Another example is when an employee moves from a salary or hourly job to a sales position that is commission-based.

“These kinds of moves can seem risky in the eyes of a lender,” says Olhausen.

Another reason loan applicants might lose eligibility is if they start their own business and are now considered self-employed.

“This kind of move from a W-2 to a self-employed position can also be viewed as an increased risk,” says Olhausen.

Different underwriting guidelines are associated with different types of employment, Phillips says. For example, a self-employed homebuyer will typically have to provide a two-year history of receipt of income.

For an individual who goes from salaried job to salaried job with no variability in their income, “the impact is usually minimal and may require little more than documenting past and new employment,” says Phillips.

Make sure to be transparent

The first step is to contact your lender and explain your employment situation.

(Getty Images)

Whenever prospective homebuyers are planning on making any job changes, it’s important that they be transparent with their lender.

“The first step is to contact your lender and explain your employment situation,” says Olhausen. “Many times if the new position is in a similar industry, or it is considered to be similar to your former work, the mortgage process may not be affected.”

When you contact your lender, you should be prepared to explain why you plan to change jobs.

It’s important to be transparent and detailed with your lender about your job and income because “your loan officer can lay out all your options and provide guidance on if and when you should change jobs during the home financing process,” Phillips says.

“If there are any issues, it makes sense to discuss them beforehand rather than catching your lender by surprise,” says Olhausen. “Just make sure you are upfront with the lender so they can help you navigate this situation.”

As originally posted at https://www.realtor.com/advice/finance/can-changing-jobs-prevent-you-from-getting-a-mortgage/

Other • Real Estate • June 29, 2022

Married – Name Not on Title: The Cause and Effect

by Suzanne Volkman

Does a person have ownership rights to a piece of property if they are married, but their name is not on title?

For a community property in California, it depends upon when and how their spouse acquired the property. The law asserts that all property purchased during the marriage, with income that was earned during the marriage, is community property. Both spouses own it equally—regardless of whose name is on the title deed—and while married buyers can purchase property on their own, using only their credit, income and assets to qualify for a loan, that property is deemed to be owned by both spouses jointly.

If the intention is that the property be owned only by the spouse who purchased it, then the other spouse would have to relinquish their rights to it by executing and recording both a quit claim deed and a Preliminary Change of Ownership form.

Any real estate that was owned by one spouse prior to marriage remains separate property – as is property that is inherited or gifted to one spouse. If the other spouse’s name is not on title for either of these reasons, then they neither have ownership rights nor would they be responsible for loan repayment or other liens placed on that property – even if it resulted in foreclosure.

Spouses may comingle their separate property into community property at any time, simply by transferring that property into both names jointly. Then both spouses are on title and both have equal rights and equal responsibility for it, just as they would if they had purchased it, taken on a mortgage loan for it together, and listed both of their names on title.

Let’s talk for a moment about responsibility. When a married couple acquires a home loan, both names are typically on title – and in California, when financing is used, a trust deed is recorded. The lender releases the trust deed lien, giving the borrowers free and clear ownership rights, when the loan is fully repaid.

But if the spouses acquired the home together, and one of them, for whatever reason, relinquished their ownership rights at any time after closing (with a quit claim deed and Change of Ownership form as noted above) that spouse is still considered responsible for the loan – and any default or foreclosure would affect their credit even if their name is no longer on title. As your title partner, we’re here to help you and your clients navigate the nuances of these transactions.

By Barbara Pronin

Barbara Pronin is an award-winning writer based in Orange County, Calif. A former news editor with more than 30 years of experience in journalism and corporate communications, she has specialized in real estate topics for over a decade.

This material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice. You are encouraged to consult your legal, tax or investment professional for specific advice. The material is meant for general illustration and/or informational purposes only. Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy.

Selling • June 29, 2022

How Do I Price My Home Correctly Right off the Bat?

by Suzanne Volkman

The market is constantly changing and pricing a home continues to be one of the biggest challenges real estate professionals face on a daily basis. It’s not uncommon for sellers to want to price their homes higher than recommended, but that may not be the correct solution to get the home sold.

Here are 3 ways to price your home right from the beginning.

1. Don’t wait for “later” and don’t leave “negotiation” room

You’re thinking—if it doesn’t sell for this price now, I can always reduce the price at a later date. In fact, this still leaves a sour taste in the buyer’s mouth. They immediately think that something must be “wrong” with the house. Then, if they decide to make an offer, it will be a low-ball price since they believe the seller is “highly-motivated” to sell.

Don’t limit the number of potential buyers by decreasing the visibility of your listing. For example, if you’re looking to sell your home at $300,000, but increase the listing price to $325,000 to allow room for negotiation, potential buyers searching for homes at a price range of $250,000 to $300,000 won’t even know that your house is available.

Pricing a home correctly from the start helps to eliminate these types of misconceptions.

2. Do some research

Take time to do some research on your local real estate market by studying past sales and statistics for homes in your area or neighborhood. Remember that these homes should be similar to your own. Additionally, take a look at current active listings. Remember that active listings should not be confused with past sales. Active listings should be seen as your competition and it’s a good idea to be aware of what your competition is doing. This will help you better understand a true market value so you can price your home accordingly.

3. Work with an Agent

Working with an experienced agent with knowledge of the local real estate market is one of the best tools you can have. Not only will they know how to price your home, but they will also be able to provide a comparative market analysis with homes that have recently sold in your area. A good real estate agent can tell you about buyer trends and what they feel is important when trying to price and sell a home.

Pricing your home correctly right from the start comes down to understanding your local real estate market and your neighborhood. Contact me today for assistance. I would love to be your neighborhood expert.

Real Estate • June 29, 2022

Do Granny Flats or Additional Dwelling Units add much value?

by Suzanne Volkman

Whether you call them granny flats, in-law suites, or garage apartments– accessory dwelling units (“ADUs”) are on the rise. There are an estimated 1.4 million of them in the United States, with around 110,000 constructed in the last year alone.

In 2020, ADUs were often heralded as one answer to the growing housing affordability crisis. Their proponents argue that ADUs offer an opportunity for homeowners to make extra income, for young people to rent affordably, and for communities to grow slowly and sustainably.

But then the pandemic came and changed everything, and hardly for the better. So where did that leave ADUs in 2021?

What Is an ADU, Exactly?

In specific terms, an ADU is a secondary, generally smaller, livable unit on a property that can either be attached to the main unit, like a loft conversion or a garage apartment, or detached from it, like a granny flat or a guest cottage.

ADUs have been gaining notoriety in light of the various states and cities passing legislation impacting their legality, as well as from the rise of private companies specializing in ADU installation and design.

Likely due to the pandemic, the number of ADU permits is somewhat slowing down in cities like Portland or Los Angeles, but more Americans are still searching for ADUs online than ever before, according to Google Trends.

How Much Do ADUs Cost?

The cost of an ADU remains an elusive figure. Specialist ADU sites and advocacy groups tend to state the range at between $150,000 and $400,000, depending on the size, quality of materials, complexity of the project, the local contractor rates, and more.

“…locations with ADUs in big cities are priced 35% higher than units without one.”

Maxable, a service that helps property owners plan, hire, and manage their ADU project throughout California, claims that in the southern part of the state, an ADU costs between $95,000 and $330,000. In the San Francisco Bay Area, ADU prices range from $149,000 to $400,000.

That seems like a lot of money (and it is!), but it is worth bearing in mind that single-family homes in these highly desirable areas can cost between two to four times greater.

While these estimates appear somewhat high, you should definitely be skeptical towards any advice suggesting you can build your own ADU for $20,000 to $50,000. Maxable has a handy explainer on why such low estimates of ADU cost are likely too good to be true.

How Big Do ADUs Tend to Be?

Apart from the constraint of having enough space on the property to build a second unit, there are often legal limits for how large ADUs may be built. Still, between garage apartments, basement conversions, and completely standalone units, sizes of ADUs tend to vary.

California’s leading granny flat educators, detached units tend to run between 550 and 1200 square feet.

What’s Driving the ADU Movement?

What are some of the forces propelling ADUs into the real estate market ?

First of all, there’s housing affordability, or rather, lack thereof.

Rents continue to rise nationwide, growing 7.5% year-over-year in June 2021, according to CoreLogic. The Financial Times highlights that home prices in the 20 biggest U.S. cities are growing at twice that rate, at 15% year-over-year.

At the same time, the Washington Post reports the decline in entry-level homes, especially in the urban areas of states on the West Coast. ADUs appear to be a direct result of these trends.

The second force is the rise of multi-generational living. A recent New York Times article suggests that the trend of multiple generations of families living together has become increasingly common due to the pandemic (though this trend has been in the works for years).

But it’s not just families choosing to buy bigger homes for their parents, children, and grandparents to live under the same roof. The final driver of ADUs is the recent economic downturn brought upon by the pandemic. A recent Pew Research study finds that the majority (52%) of young American adults aged 18-29 are living with their parents.

Older Americans are also now more likely to live with their grown children instead of on their own, or in a care facility. The costs associated with having a place of their own or being in residential care are increasingly insurmountable for the older generation.

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How Popular Really Are ADUs?

Based on the estimates from a study by the mortgage lender Freddie Mac, there are 1.4 million homes with an ADU in the United States in 2019. This number includes both attached and detached units, and takes into account ADUs built both with permission and illegally.

Despite these numbers, they’re still rare. Compared to American housing stock figures from the most recent American Housing Survey, this makes up only 2% of all single-family homes in the country.

This number is consistent with our own analysis of sales listings in America’s 500 biggest cities. Of the 348,099 homes for sale, 4,307 or about 1.2% had an ADU, roughly one in every 81 homes.

The total number of ADUs in America may be small, but according to Freddie Mac, ADUs have been growing at a rate of 8.6% per year between 2009 and 2019, which means an average of 78,000 new ADUs have been added each year.

Projecting this rate onto 2020 would mean that 120,000 new ADUs were built in the last year alone, putting the total at over 1.5 million units.

Worth bearing in mind that the ADU figures quoted above are taken from home sales listings, which is to say the real number of ADUs in the United States is likely significantly higher.

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Does an ADU Add Value to Your Home?

The short answer is yes– they definitely do.

Our analysis of ADU listings in the biggest cities in the U.S. shows that locations in big cities with ADUs are priced 35% higher than units without one.

Can ADUs Solve the Housing Affordability Problem?

Being generally smaller and therefore cheaper to build, ADUs can provide an affordable alternative to young people looking to buy or rent their first home. Equally, it’s an opportunity for families to live close to each other without crowding a singular housing unit.

ADUs are also a way for homeowners to rent out parts of their homes to get some supplemental income. Empty-nesters, for example, can use an ADU as a place to live while renting out the larger home.

Another benefit of ADUs is having more space for family members, be it for aging grandparents wishing to stay close with their family, or young adults who, for broader socio-economic reasons aren’t able to move out on their own.

Yet while it’s a move in the right direction, without centralized investment or a push for construction of ADUs, mere granny flats and in-law suites are unlikely to cover the economic gap stemming from the high demand and low supply of affordable housing.

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Should I Consider Building an ADU?

If you’re considering adding an ADU to your home, please consider the legality of adding such a structure in the city and state where you live. There isn’t a single comprehensive resource on local legislation, but this guide by Accessory Dwellings is a good place to start Chances are, you’re going to need a permit, so check with the relevant authorities responsible for zoning and planning.

If you’re already planning your ADU, we at Porch would be happy to help you find skilled and reliable contractors in your area to help with your building addition project.

Find the original article here

Home Improvement • June 29, 2022

20 Renovations That Will Hurt Your Home’s Value

by Suzanne Volkman

Your home isn’t just a source of pride or a place where you can relax after a long day — it’s also an investment in your family’s future.

And while it’s natural to want to make improvements to increase your home’s resale value, some renovations will actually cost you money in the long run. Just because you see something as an improvement doesn’t mean a potential buyer will feel the same way. Find out which renovations are ones to avoid.

Lavish Lighting Fixtures

One common home improvement mistake is falling in love with unique or lavish light fixtures, said Alon Barzilay, founder of real estate development company Urban Conversions.

“Whether it be ceiling-mounted lights in a dining room or a hanging pendant, there is a psychological phenomenon that happens when you go to a lighting store … you’re going to pick something exciting and new instead of picking a new addition that suddenly matches the big picture,” Barzilay said.

Further, the passage of trends works against homeowners. “Whatever is in vogue today will look dated 10 years down the road when you are ready to sell,” he said. “Simple is best. Fortunately, lighting can easily be switched out at a low cost.”

Too Much Wallpaper

With its patterns and texture, wallpaper can be an overwhelming design choice for your home. Plus, it’s notoriously difficult to remove. Homebuyers might view wallpaper removal as a potential headache, and it could be the tipping point for someone who wants a more move-in ready home.

Fresh paint and neutral colors are always a good idea to help stage your home when it’s on the market. If you do have wallpaper, think about whether it’s beneficial to remove it and repaint the walls before any showings or open houses, so your potential buyers never have to think about your wallpaper mistakes.

Texture on the Walls and Ceilings

Just like wallpaper, texture on walls and ceilings is difficult to remove. Simply knowing that a time-consuming project lies ahead might cause homebuyers to decrease their offer. Think twice before deciding on a fancy textured painting technique, and play around with textured wall décor instead.

Quirky Tiling

Any over-personalized renovation can hurt the value of a home, especially something like tiling, which requires more effort and money to replace, said Bob Gordon, realtor and blogger at Boulder Real Estate News.

“Many buyers like to upgrade the floors in their homes,” he said. “Adding tile or wood can make an improvement in value — unless you get that person who wants the 1950s diner look and installs black-and-white tile. For their vision, this is the pinnacle of cool. But for a resale value, most homebuyers will see it as a distraction and something they will need to rip out.”

Instead of falling victim to tiling mistakes, consider going with a traditional white tile floor, and buy a rug with the style you’re going for, he recommends. If you don’t want to spend a fortune on a professional to replace the flooring, consider doing this home renovation yourself.

Too Much Carpeting

In an interview with Realtor.com, home remodeling expert Alex Biyevetskiy said that new hardwood floors can increase the sale price of a home by up to 2.5%. Compared to hardwood and laminate floors, carpet can quickly show signs of damage. Plus, colors and textures are highly based on personal preference, and any overly personal touches can decrease a home’s value.

Bright and Bold Paint Colors

Bright and bold paint colors can turn off any potential buyer who might lack a bit of vision. Fortunately, repainting a room before putting your home on the market is an easy fix, albeit an important one. Choose neutral colors to present buyers with a blank canvas, which can help them envision the home in their own style, HGTV recommends.

An Extremely High-End Kitchen

The kitchen is often seen as the heart of a home, and it’s a project many homeowners save up for. The resale value of a major, high-end kitchen remodel is actually less than what you’ll invest in it, however. In 2020, the national average for a major kitchen remodel was $68,490, but the resale value was only $40,127, according to the site Remodeling.

To avoid kitchen renovation mistakes that won’t give you a return on investment, try to focus on which aspects of the kitchen are most outdated or worn. And as tempting as it might be, consider selecting mid-range appliances rather than the expensive high-end options.

A Luxury Bathroom

An upgraded bathroom can certainly add value to a home, but it’s easy to get carried away and take the idea of luxury a little too far. Potential buyers could be scared off by bathroom remodel mistakes like over-personalized finishes and over-the-top whirlpool tubs that are hard to clean and hard for some people to climb into. Instead, consider a walk-in shower, which typically uses less floor space.

A Home Office Conversion

Thanks to improved technology, more professionals have the opportunity to work from home, and some might consider creating a dedicated home office space to get the job done. If the new office was formerly a bedroom, this could be a costly mistake.

Along with removing bedroom furniture, you will likely need to add wall outlets and phone jacks (up to $425) and install new hardware, which could bring the total cost up to $3,000, according to HomeAdvisor. If a prospective buyer would rather have the bedroom space, you spent a lot of money for nothing.

Combining Bedrooms To Create a Bigger Room

Combining two small bedrooms to create a bigger room might seem like a good idea to a young couple with no children or to empty nesters whose children have left the house. But this is a bad move if you don’t plan on staying in that home forever, said Brian Davis, real estate investor and director of education of renting resource SparkRental.

“Even small bedrooms add value to homes, as most families want children to have their own rooms but don’t mind if they’re on the small side,” he said. “In my experience, each bedroom can add about 15% to the value of a home.”

Instead of knocking down walls, try simple tricks to make your bedroom space look bigger, like lighter colors and modern, slim furniture.

Removing Closets

Michele Silverman Bedell, owner of residential agency Silversons, told MarketWatch that she’s seen firsthand how removing a closet to make room for another upgrade, such as a larger bathroom or bedroom, can hurt a home’s resale value.

“People need closets,” Bedell said. “They’ll walk in and count the number of closets per room.”

A Sunroom Addition

A sunroom can be a great space to enjoy the outdoors away from the elements, but according to Remodeling, a sunroom addition is one of the worst home renovations when it comes to return on investment, with a cost of an addition exceeding approximately $75,000 while only adding just over $35,000 to the value of the house.

Think carefully about how often you’ll use a sunroom before committing to this costly renovation, especially if your home might be on the market soon. Plan ahead to avoid the sneaky expenses that come with renovating your home.

A Built-In Aquarium

A built-in home aquarium can make a home feel fancy and upscale, but it requires constant maintenance and can be costly to remove. Not all potential buyers will want to care for a large tank full of fish or pay for the maintenance that comes along with it. Instead, opt for a standard fish tank to avoid any issues down the line.

Built-In High-End Electronics

An in-house theater is perfect for any movie buff, but built-in or customized electronics that take up space in an otherwise usable room could be off-putting to potential buyers, according to famed home improvement expert Bob Vila. As with all home renovations, personalization can lead to a decrease in home value, and built-in technology that can quickly become outdated is no exception.

A Swimming Pool

Contrary to popular belief, a swimming pool renovation or addition is not the best way to add value to your home. In fact, according to HouseLogic, a swimming pool could increase a home’s value by 7% at most — and that’s only in certain circumstances.

“Unless you live somewhere that’s hot at least six months out of the year, pools are generally more trouble than they’re worth,” Davis said. “The only people who really want them are families with a certain age range of children, so it limits the potential buyers.”

Because of the cost to build a pool, maintenance expenses and a very minor potential value increase, a swimming pool addition simply isn’t worth it for most homeowners.

A Hot Tub

Like swimming pools, hot tubs are a gamble — they take up space and require constant maintenance. Plus, homebuyers with children might consider a hot tub a safety hazard.

If a hot tub is on your list of must-haves for your home, consider a portable hot tub versus a built-in hot tub. You could potentially take it with you when you move, or your home’s new owners can easily remove it if they prefer.

A Garage-to-Gym or Living Space Conversion

For a fitness lover, a garage-to-gym conversion might seem like a wonderful idea. To parents of a millennial who just moved back home, a garage-to-apartment conversion probably seems like a money saver. But future homebuyers might not agree.

Many people search for houses with a garage, and what they’re looking for isn’t a gym or an extra living space — they’re looking for a garage to serve its primary purpose of housing cars and storage items.

If you must use your garage space as a gym or as extra living space, be sure future homeowners can easily and inexpensively remove the renovations.

The Wrong Landscaping Investment

Homeowners are prone to certain devaluing landscaping mistakes in the name of “curb appeal,” said Theodore Beasley of Landscaping London. “Costly landscaping decoration will not increase the value of your home, but rather increase the maintenance required for it. A potential buyer sees this, and it might turn into a concern. Fancy decorative additions that you find attractive are pretty much subjective, as well — including your personal DIY projects.”

Keep your gardens beautiful but simple and easy to maintain, and be sure any decorative additions can be easily removed.

Beautiful but Messy Trees

Trees are an important part of any landscape, but it’s important to do your research before planting anything. Beasley recommends that homeowners particularly look out for any trees with leaves or flowers that might create a mess in the yard.

“Some trees just tend to be messier than others,” he said. “Constant leaf rain is not something that will positively attract a potential homebuyer. When fall comes, they will just know it will give them a hard time.”

Trees to stay away from include oak, female Ginkgo biloba, sweet gum, locust tree and Eastern white pine. These messy trees can decrease your curb appeal, and removal can set you back a hefty sum, depending on the tree’s size, Beasley said. Instead, choose an alternative tree, like an Eastern red cedar, crepe myrtle or Colorado blue spruce.

DIY Repairs

Always think twice before getting into the do-it-yourself home improvement game. Gordon said he’s seen several examples of DIY jobs that have decreased a home’s value.

“I’ve seen plenty of houses where you can tell the owner did the work,” he said. “The owner probably feels she made all the right improvements, but buyers quickly see the shoddy workmanship and unusual finished product.”

There are ways you can increase your home’s value with DIY projects, but you need to be strategic. Gordon went on to recommend hiring a pro the first time out.

“Then ask to be a part of the process and learn from the professional as they do the job,” he said.

The bottom line is that any over-personalization of your home can lead to a decrease in value. Yes, you want to live in a space you love, but think twice before investing in any major or costly renovations. And always make sure your home improvements are completed with the proper permits by licensed professionals.