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Thursday, August 28, 2014

Do a Franklin chart on your home before you list it. (PART 1 OF 2 PARTS)

Whenever I get a call from someone who is thinking of listing their home, I ask to visit the home and then come back and do what I call “the pluses and minuses” review – listing the things that I saw that will likely add to (a +) or detract from (a -) the market value of the home. Many times I will put the list that I have compiled from my visit in the form of a Franklin chart, named for
Benjamin Franklin who is credited with inventing it.

A Franklin chart is one of the simplest forms of chart or data display and is very easy for most people to interpret. Things on the chart are either good or bad, either a plus or a minus, either an adder or a detractor from value. There may be disagreements about the weight or size of the plus or minus and maybe even about the categories or whether something that is “good enough for me” belongs on the plus or minus side (more on that later). The point of the chart is to show the homeowner some of the things that will determine what he/she might get for the place. It can also provide a good starting point for a “to do” list of fix-ups that are needed.

So, what are some of the things that I look for and how do I judge whether they are pluses or minuses? Let’s start outside:

Location is still a primary factor for any property, although in the current market the real estate mantra has shifted from “location, location, location” to one of “location, price, price.” A home located on a busy, main road would get a big minus. A busy side street might still get a minus, but not as big of one. A quiet side street or cul de sac location might get a plus. I say might, because it still matters where that street or cul de sac is located. Another location factor might be a waterfront location, with a big plus for lakefront, a lesser sized pluses for being on a canal and maybe a tiny plus for being in a sub with some form of lake access. Being involved with water almost always gets the property a plus of some size. Other locations that would likely draw pluses are being located on a golf course, backing up to a state park or state land, being within walking distance to a downtown area, or maybe even just being located within the boundaries of a particularly good school district.

In real estate, as in some other things in life, size matters. That criteria covers both the house and the property. Having some land is a big plus for most buyers. Having lots of living space is also great, but within the constraints of affordability. Having a big piece of land isn’t worth a big plus if most of the land is swamp or wetlands (which is common in this area), so that could end up as a minus. Ravened or rolling properties and properties with water features like a pond or stream running through are pluses, as opposed to the flat, featureless landscapes of old farm fields. Having sufficient land is particularly important to horse people who need pasture space and a place to build outbuildings. It may be important to people with lots of motorized toys, too. In both of those cases, being located next to state land is usually a big plus.

While we are still outside, I look at the landscaping and any outdoor entertaining or living areas. Nice, well-maintained landscaping is a plus; whereas, weedy or overgrown yards are a definite minus. A nice paver or stamped concrete patio or a nice wood or composite deck is a plus, especially if the owner has added things like a pergola and maybe a fire pit. “Outdoor rooms” are all the rage right now and are worth some pluses if done well. An old concrete slab with a rusty old barbeque pit on it will earn a big minus. Even small “city lots” can be turned into an oasis from the everyday world with the right landscaping and can be a plus when it is time to sell. 

Pools are a real mixed bag. A nice, well-maintained in-ground pool can be a big plus; however there is a sizable faction of the potential buyer-pool that will view that pool as a health threat, if they have younger children. The pool equipment must be clean looking, up-to-date and functioning correctly for the pool to get a big plus. It helps if the house has storage and other accommodations (such as a bathroom with shower right inside the door leading to the pool) in support of pool activities. Many well done pool settings will incorporate the outdoor room concept and have the entertaining/dining area integrated. Some may even have a pool house
or cabana. Above ground pools never have the cachet of in-ground pools and many times are really minuses. Most do not look very attractive, no matter how much decking is arrayed around it and many are not as well maintained as in-ground pools. Lots of those decks that were built around above ground pools also do not meet the safety requirements for an FHA loan. I seldom see an above ground pool that I would award a plus for and many times I advise the sellers to take them out. While we’re at it, most of the time hot tubs do not earn a plus. Most have not been maintained well and it shows. A newer hot tub in excellent condition will at best not detract from the value. 

While we’re still outside, things like play structures, swing sets, sand boxes, especially at homes owned by couple’s whose children have grown and left, usually end up being in some state of disrepair and would be minuses. Specially-built features that an owner might have put in to accommodate a hobby, such as an RV parking pad or an old tennis court or even a putting green may also be minuses if they have fallen into disrepair and the new owners believe that they will have to remove them. As for garage spaces; three car garages are expected these days and any less will be a minus (slight minus for a 2-car and major minus for a one car or no garage at all). For real car guys having 4-5 spaces would be a big plus and a huge plus if one of them has a lift built in (that lift might be viewed as a minus by non-car guy buyers).

Outbuildings are another mixed bag. A horse person will give you a big plus for having a barn with stalls already in place and a smaller plus for maybe at least having a pole barn that they can modify. You might also get a plus for a hay barn, if it is in good condition. Car guys will also be happy with a pole barn with room for storing their cars - pluses if they are in good shape and minuses of they need to be torn down or require immediate attention, such as a new roof. Other outbuilding, such as sheds are of little real consequence unless they are in sad shape (minus) or there is no basement or garage for storing (then a plus, if the shed is in good condition).

Finally outside, the existence and condition of trees can be a plus or minus. We have had a hard time in Michigan with several types of invasive diseases and bugs that have decimated a large number of our trees. Having several or many large, nature trees on the property would be a plus, IF they are healthy. Having several trees that will obviously need to be taking down is a minus. If the property is a fairly new build there is a very good chance that it has little in the way of trees. Builders some time back decided that the quickest and least expensive way for them to build was to knock everything down and start with bare land. Builders very seldom even attempted to save mature trees. The results are huge new subs with not a single mature tree in sight. Each “lot package” came with a few new, small trees stuck in place after everything else was done. There may have been a few “premium lots” with a few mature trees on them offered, but very few. So, most new-build subs, no matter how “upscale“ they are get few pluses for trees.


In my next installment I will move inside and continue the hunt for pluses and minuses. 

Tuesday, August 12, 2014

Locations that detract from value…

There are obvious locations that might have an impact on the value of a property, such as those located on a busy road or right next to railroad tracks or under an airport landing glide path; but what other locations might have an impact?

Well it turns out the airport has a wider footprint for potential value impact than just the take-off and landing
paths. That is why the Seller’s Disclosure (at least in Michigan) asks the question about whether the house is within 5 miles of an airport. All houses within that 5 mile radius are subject to the airport noise and to potential aircraft crashes that tends to happen most often just after take-off or when approaching for landings. The noise and safety concerns about properties located close to airports, especially larger airports where jets take-off and land, is what keeps the property value down in those locations.

Another 5 mile radius surrounds shooting clubs. It’s not that they fear stray bullets so much; although, I suppose that could happen; it’s really about the noise from the guns being fired. The concern is that the constant popping of the guns being shot will impact eh peaceful enjoyment of areas like a back patio or deck.  I’ve shown houses within a mile or two of
a gun club and can attest to the fact that you can hear every shot. I my case it didn’t help that the rear of the house had two obvious bullet to pellet holes in two of the windows (not from the range, I was assured; but try to tell that to an already nervous buyer).

Subdivisions that were built on old farm land (as was the case in almost every suburb in America) can also be a problem, especially if the farm operation was recent. The issues tend to revolve around the impact of farm waste and pesticides on the water table in the area and because of the less than careful practices of farmers a few years back in terms of discarding of things like oil tanks or even old rusty cars or barrels. Who hasn’t driven by an old farm that has a field of rusting 55-gallon drums and not wondered what was in them originally. Many farmers took the money when utility companies and others came around looking for a place to dump stuff. They dug big holes, dumped stuff in and then covered the hole up and went on about farming.

In this area in Michigan, where suburban subdivisions are most often served by wells and septic systems we always recommend having the well water tested and quite often we find elevated levels of Nitrites and Nitrates. Those two residual chemicals that were produced by the waste from livestock don’t pose a big danger to adults but can severely impact young children. Here’s a good site to go read more about them.

Old dump sites, even those run by governmental bodies, can also be dangerous, especially if they were officially closed years ago. Nobody was concerned about what was being dumped into those old sites in the mid-20th Century; so, very spotty records (if any) were kept. By the end of the Century everyone became aware of and concerned by what may have been dumped in those old “city dumps.” Now many municipalities face massive clean-sup efforts to deal with things that were hauled off to the dump by utilities and industrial companies. You don’t even want to know what they are finding and you don’t even want to live next to it either. The same concerns are generally there for old industrial sites. You just don’t know what and how much was dumped into the ground at those sites and it takes a complete environmental study to determine whether or not a remediation effort is required. You might not believe that there were “industrial” sites right in the middle of your town or your neighborhood; but that was how things were done in the late 19th and early 20th Centuries. A common practice back then to rid the plant of rejected work was to take it out and throw it in the pond or river or field next door; the one that you are thinking of living next to now.

Power substations and pipeline easements are usually very visible and well-marked and have their own issue in terms of property value impact. Power substations usually look fairly ugly and always surrounded by high chain link fences, maybe with barbed-wire on top. In addition they seem to attract lightning strikes, at lease the people that I know who live next to them tell me. I don’t believe that they are all that dangerous in themselves; however, if one of those big transformers blows you will feel it and hear it if you live next door to the substation. Many of them also have a constant hum that is put off by the equipment. Pipeline easements
themselves are mostly invisible, unless you live next to a pumping station or a major junction location. Then things can get a little noisy and there are usually smells associated with burning off excess gases. Obviously any pipeline failure can cause a major spill and create quite a mess that may require a lengthy cleanup. Gas Pipeline explosions ion the big pipelines is extremely rare but not unheard of. That may keep some potential buyers awake at night.

Homes located next to, across from or sometime even near mobile home parks are also impacted in value. Modern mobile home parks are actually very nice facilities with good, affordable housing. The park management usually tries to be a good neighbor, too; however, there is still a left-over stigma from the old “trailer park” days. That’s why you will often see what is designated as a “transition area” between these parks and single family home neighborhoods. Those transition areas may consist of multifamily apartment or condo units or maybe commercial/retail areas. And speaking of retail/office/ restaurant areas; the concerns with living next to them tend to be about traffic, parking and sound and light pollution. Those stores or bars or offices often don’t close down and turn everything off just because you want to go to bed at 9 PM. Restaurants/bars in particular can have customers who are quite noisy and sometimes destructive by the end of the evening. Unless you plan to spend your time in that bar next door, think about that before you buy.

Sports venues often are created in areas after many homes are already in place. Think of school athletic fields or tennis courts. Many of these venues are used at night with huge lights to illuminate the field. In addition to the light pollution that is produced when those are lit up, the crowds are seldom quiet and reserved at the events that are going on, so buy good blinds or drapes and hope that your windows block
out the noise.  Sometimes venues are built out in the country, but progress eventually brings the suburbs to the venue. Many car race tracks were that way, especially the small dirt tracks that abound across the country. Horse tracks or dog tracks may have been built right in the heart of things. All of these venues bring concerns about traffic, parking, noise and light pollution into play.

So, that’s a pretty long list of places that can detract from the value of a property. The concerns that have been mentioned, whether real or imagined by a potential buyer, all serve to hold down property values. You need to be aware of whether any of these detractors is nearby. You might see some mentioned in a Seller’s Disclosure Statement; but many, if not most, of them are things that the seller might not even mention, sometimes because they have become so used to things that they forget and sometimes because they don’t want to call attention to the issues.  Hopefully you are working with a Realtor who knows the area and who can alert you to the issues that might exist. If not, find a local Realtor who can. You don’t want to find out in the spring that sometime in the middle of the winter you bought a beautiful house that no one told you is next door to a gun club; where every day will sound like the forth of July.

Finally there is the case of buying the most expensive house in the neighborhood. Realtors will almost always advise against buying a million dollar house in a $300-400,000 neighborhood. The owner/seller might be very proud of the fact they he spent more than anyone else in the area and built his McMansion amid much more modest homes, but all he really did was throw away money, since few wise buyers will overpay that much above the neighborhood property value average.


Location, location, location has been a real estate mantra forever; but, it also has great impact on value. Hopefully you netter understand what things to look for in a location that can have a negative impact. At least factor these things into your offer, if you still intend to buy in that location.

Monday, August 11, 2014

Functional Obsolescence, what is that?




If you hang around Realtors for very long you may hear them referring to a house with the terms functional obsolescence or housing obsolescence; but, what does that mean? A house doesn’t really become obsolete in the sense that we might use that terms for other objects, like buggy whips or maybe even hard-wired phones these days. You can still live in it, even if it has become functional obsolete.

 

From the web site Investopedia.com comes this definition of Functional Obsolescence –

 

A reduction in the usefulness or desirability of an object because of an outdated design feature, usually one that cannot be easily changed. The term is commonly used in real estate, but has a wide application. The site went on to use this example:

 

An original house in an older part of town that has two bedrooms and one bathroom could be considered functionally obsolete if all the other original homes in the area are torn down over the years and replaced with five bedroom, three bathroom houses. Because the old house does not have the features that most modern buyers want, it is said to be functionally obsolete, even if it is still in good condition and is perfectly livable.

 

So, if you watch a lot of those TV real estate shows, most of the homes that the potential buyers and/or remodelers are discussing doing major remodeling upon are functionally obsolete. In fact, most older homes that have not been remodeled or “updated” in a major way might fall into that classification. The “cannot be easily changed” part of the definition usually manifests itself as small spaces or the lack of bedroom, baths and family living space within the footprint.

 

Times and tastes have changed since most of the older homes were built. I pretty much know what to expect just by seeing the year that home was built. There are features (or lack thereof) that are representative of the economic state of the country and the home buyer of each era. No one in the 1940’s or earlier (some built well into the 50’s and 60’s) could foresee the need to house more than one car in a garage, so homes built then and earlier had at most single car garages. Many historic houses actually had carriage barns, some of which were converted to garages.

 

Typical houses for the workers of those early eras were usually 1,000 Square Feet in size or smaller. It is not unusual to find whole neighborhoods with 2 and 3 bedroom homes that only had 800-900 Sq Ft of living space when built. Almost all have had some sort of additions put on, but few could really be considered equivalent to modern built homes. Most still have what we would consider to be tiny bedroom with even tinier closets (how did those people get by with only 1-2 pairs of shoes and so few clothes?). Of course there was only one tiny bathroom, with the tub, sink and toilet arrayed down a narrow room that was often less than 6 feet across. Kitchens were small and often had an eat-in area. The “family space” was a small living room. There often wasn’t a dining room. If there was a “family area” it was often in a finished portion of the basement, which also houses the laundry area and all of the mechanicals.

 

When you visit those older homes one comes away wondering how they could have lived like that. You hear stories of families with 3-4 kids being raised in those tiny houses and you just have to shake your head in wonder; yet, if you talk to the people who grew up in those homes, they thought it was natural and wonderful to be so close to everyone else in the family. Of course most of them would never go back to that lifestyle now and that is the basis of the obsolescence of the property.

 

Functional obsolescence is restricted to really old homes. The styles and tastes in America can change dramatically over as little time as a decade. Homes built in the 1980’s and 1990’s have now become functionally obsolete in many buyers eyes, because they may not have been updated to keep up with changing styles and tastes. Some architectural styles have also become less desirable, due to changing tastes. Raised ranches and split levels that were all the rage in the 60’s and 70’s (some built well into the 80’s) are less desirable in the market than more traditional layouts like ranches or colonials of the same era.

 

The style that really caught on in the 90’s and beyond is the Cape Cod or story and a half layout. Builders starting putting everything for the owners on the main level and threw in a couple of bedrooms and a bath for kids or guests on the ½ story upper level. If it is a 4 bedroom layout the 4th bedroom normally is an upper-level guest suite with I t’s own bath. Other modern must have features – a master suite with “on-suite” master bath and walk-in closets, a huge gourmet kitchen with upscale appliances and upscale countertops and a big family room/entertaining area – all housed in an “open floor plan” layout.

 

There are some more modern features that have already run their course and may be on the way to functional obsolescence, such as “volume rooms” – those big two-story high family rooms or great rooms, which many have discovered is a costly to heat waste of space. Dining rooms have been eliminated from many designs, replaced by eat-in areas in the large kitchens or dining areas in the great rooms.

 

At the upscale end of homes features like theater rooms, workout rooms, wine cellars and game rooms are still in demand. Areas may also be set aside and design to meet the needs of specific members of the family, such as crafts room for mom or a toy and play room for the kids. Dad may even have his “man cave” room, although many of them are still in the garage. And speaking of the garage, one must have at least a three car garage these days, preferably one with a workshop area, too. Many upscale homes go well beyond just space for just three cars, since there may be lots of toys to be stored, too.

 

So what is to happen to all of the older houses that may now be viewed as functionally obsolete? It turns out that they are back to serving the purpose that they were originally built for – first homes for younger buyer who can’t afford to buy a modern McMansion in the suburbs. These homes are usually located more closely to the urban areas that are again becoming popular and they are affordable. For young couples just getting started in life a little redecorating and painting and a few trips to Crate and Barrel are all that is needed to create a cozy little starter nest.

 

Cute and cozy are the terms most often used when you happen into one of these older and smaller homes that has been lovingly updated or restored. You may then begin to wonder why anyone needs all of the excess space of a more modern home. Many of the new homeowners in those cute older homes have also adopted a more simple lifestyle (remember that there is still limited closet and storage space) and they seem happier for that, too.

 

In other cases, people will buy a functionally obsolete house and turn it into something much more modern and functional – blowing out walls to open up the cut-up smaller spaces that they started with and re-purposing spaces with the footprint. I usually advise against sacrificing a bedroom to enlarge the master suite, especially if there are only three bedrooms to begin with; however, some 4-bedroom layouts might have enhanced value with only three bedrooms, if the stolen space is used wisely. Of course, add-ons, push-outs or repurposing rooms might also add to the functionality of the house. Functional obsolescence does not have to be permanent.

 

Here are some more readings on this topic (and on a counterpart called Economic Obsolescence), if you care to learn more –