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Thursday, February 26, 2015

Is walkability important to you?


How walkable is the area that you live in? Is walkability important to you in your choice of a new home? How do you find out how walkable a location is? I can’t answer the middle question, but I can help you find the answer to the first and last questions. There is a great site called walkscore.com that rates neighborhoods all across the country. If you go there you can put in an address – either where you live now or where you are thinking about moving to – and find out its Walkscore.

The Walkscore web site gives grades on a scale of 1 to 100 for the walkability of the area
surrounding the address that you provide. The site looks at a lot of different factors, but it all boils down to evaluating what you can walk to within a reasonable distance. Things that the site looks for are stores, restaurants, libraries or other cultural venues within walking distance and what that walk might involve. The Walkscore will be higher is there are sidewalks and a good layout, such as the grid structure that is found in most large cities vs. the lack of sidewalks and  winding streets with lots of cul de sacs that are found in  most modern subdivisions. You can go to the Walkscore site for a more complete explanation of the factors that they evaluate to come up with a Walkscore for any given area.

In the past (through the 1950’s at east) most cities and towns were laid out in grid patterns and had sidewalks. The advent of the suburban subdivision in the 1950’s changed all of that.  Many of the early subs still had sidewalks, but those eventually went away, too. People moved further out and became much more dependent upon getting into their cars and riving to get to anything. Subdivisions quickly evolved from any sibilance of a grid structure into free flowing curves and cul de sacs. The term “bedroom communities” was coined to refer to these developments where the only thing that one could do there was sleep; anything else meant getting into the car.

There are still great walkable cities like New York, Boston or Chicago available; where living
quarters are interspersed with businesses, stores and amenities and where one can still walk to a great many things. Newer cities tended to be built mainly for business and seem to empty out at night, leaving little to walk to for those who might live there. It’s actually kind of eerie at night or on weekend in many of those cities – like being in a ghost town.

So, why is all of this of any importance? I suppose one could start by pointing out the obvious health benefits of getting out and walking to things; but there is also an environmental benefit – you’re not driving and creating pollution or using up fuel. There is also usually a social a side benefit. When you are out walking you will likely encounter others in the neighborhood doing the same and, because you are walking, it is easier to stop and say “hi” to them and maybe even have a conversation. Try that while driving your car.  

You may be much more likely to make use of local libraries, museums or other cultural amenities if it’s a short walk, rather than a drive, to get to them. Walkable areas usually also have lots of neat little restaurants and locally owned shops. You may find that you don’t have to jump in the car and drive to the mall to get what you need. A side benefit is mostly psychological -  you don’t feel trapped in walkable areas, because you know that, even if you’re without a car, you can just walk to most things if you want to.

I moved from one of those “bedroom communities” in the suburbs that had a Walkscore of 15 into
Milford, Michigan, a small village where I’m just 2 blocks from downtown; and I see a Walkscore of 62 when I check it. I can literally walk to most that I need, with a few exceptions where I would have to get in the car and go to a mall or superstore. It’s great and we love it. Plugging in downtown addresses in neighborhoods in Boston, New York or Chicago might turn up Walkscores that are much higher than that. Try it and see what the Walkscore is for your current home’s location.


So, if you’re in the market for a new home, how important is the walkability of an area to you? If you have 3-4 areas that you are considering for a new home location, plug them in to the Walkscore.com site and see what their Walkscores come out to be. You don’t necessarily have to move back into an urban setting to get into a walkable, but it is more likely that small towns offer more walkable environments than most suburban subdivisions. If you happen to be looking in Southeastern Michigan, call me and I’ll help you find a great walkable area to live in. 

Thursday, February 19, 2015

Southeast Michigan Market Update February 2015

Each month Dan Elsea, President of Brokerage Operations for Real Estate One, reflects on the local market fro the month prior. This is Dan's report for January, 2015.

The month of January in the Detroit metropolitan area followed the pattern we had expected with written contracts up 18% over January 2014. Much of the jump was weather-related. Last January written contracts were off 18%, so the better weather this winter (relatively speaking) brought sales back to a normal level. Compared to January 2013, written contracts were off by 3% (2013 was the peak release of buyer demand). The rise of written contacts indicates that the market is still strong, but not as wild as the stats show (this will be true for February and March, too). New listings entering the market continue to rise, but with sales rising even faster, the Months Supply of Inventory (MSI) continues to fall. Most of that MSI decline is in the under $250,000 markets, meaning buyers in those markets will continue to have inventory shortages going into the spring season. The over $250,000 markets are more balanced with greater competition for sellers and less pricing pressure for buyers. Both the price per square foot and the median sale price keep increasing with January hitting over 8%, a surprisingly strong gain.

Slow wage growth is holding back buyer demand, particularly in the first time home buying category. While household net worth has recovered to pre-recession levels (see Chart 1) and economic optimism and activity in Michigan remains strong (see Chart 2), home values are still off by an average of 20% from their peak in 2005. Overall, we have stable economic growth. Household net worth as well as low interest rates are being offset by home equities that are still falling about 20% short of peak 2005 levels and slow wage growth. The net result is still a surprisingly strong real estate market with the good economic forces outweighing the challenging ones. As home values/equities rise back to 2005 peak levels and beyond over the next 3-5 years, the remaining pent-up housing activity will be released, giving the real estate markets some extra "juice" to keep the sales pace healthier through the end of the decade.


Wednesday, February 18, 2015

Show me the money – where does the commission go?

Many would be home sellers like to challenge the commissions being paid for the sale of their house. They usually start off by saying something like, “that’s a lot of money that you get for selling my house.” As a Realtor®, I’m used to having to explain all of the things that I will be doing to facilitate the process of the sale, many of which take place “behind the scenes” and out of sight of the buyers and the sellers. There are just a ton of little details that must be handled with the other agent involved, the mortgage companies involved and the title companies. It spills over to the home inspectors, the insurance company and sometimes the local governmental bodies and home owners association. If good real estate agents are handling these things the buyers and sellers will perhaps never be involved with them, or will only be asked to supply some information to allow the process to proceed.

Another thing that I often have to clarify for the seller is where the commission money goes. Most sellers start out thinking that I get it all, if I’m the listing agent. I’m not sure if they believe that the buyer is somehow compensating their agent or what. In any event, that is not the case and I usually take the time to show them where the money goes.

For simplicity sake, let’s assume a sale value of $200,000 for the house that I've listed. When I wrote that listing contract, let’s assume that  I may have asked for a commission of 6%, which is fairly common in this area, but which is a negotiated agreement with the seller. So the seller assumes that, at closing, I’m walking away with 6% or $12,000 in my pocket. How I wish that this was true. The reality is quite different. Here’s where that money goes:

Most (about 85-90%) sales involve two different real estate agent – one who lists the house and another agent  who represents a buyer, brings them to see  it and who then writes up and presents the offer. The listing agent makes the listing attractive to those buyer agents by offering them what is called a cooperative split of the commission, usually ½ of it. So, right off the bat, ½ of the $12,000 is given to the buyer’s broker (agent).

OK, so that leaves $6,000 for me, right?  Wrong. Almost all real estate agents actually work for a real estate broker (the person or company who owns the brokerage and brand under which the agent does business). Most of the big names in the real estate business are actually franchise operations and the franchiser takes a cut off the top of every deal to pay for the brand advertising and support. That is usually somewhere around 8.5% of the agents portion of the deal. Even small, non-franchise brokerages have figured out ways to scrape about 8.5% off the top for what they might call “marketing fees.” So, now I have $5,490 left. That’s still pretty good, right?

Hold on a minute! All agents are required to pay for the privilege of doing business by either paying their broker a flat fee or splitting a certain percentage of each sale with the broker. Typical splits range from 20% up to 50% going to broker, usually a sliding scale that changes, depending  upon how much business the agent has done in a year. The broker uses that money to run his brokerage business and pay for things like the brokerage building space and administrative staff.  For this example, it's early in the year; so, let’s use a fairly typical 40% figure. So now, I've paid the broker his split and I get the remaining $3,294 to put in my pocket.

Well, not quite. Most brokers have other fees and expenses that they take, in addition to the franchise fee and  their commission split, brokers may take more money out of each deal to cover things like Errors and Omissions insurance, office supplies and other administration charges. Let’s be generous and say that this only subtracts another $194 off the money coming to me, so I still get $3,100, or so it would seem.  

Real estate agents work as independent contractors for the brokers who take nothing out of their checks for taxes, so Uncle Sam and the state tax man are waiting by the pay window to get his share, too. Figure about 25% of what was my net pay will go to pay federal taxes and perhaps another 4.5% will need to be withheld for state taxes. What I end up with in my pocket to spend is about $2,170. That works out to be 18% of the original $12,000 that you thought was too much for me when we started out. Also remember that I have to pay for my own advertising costs, web site costs, the costs of my signs and the flyers that I create for your house and for the memberships to the local Multi-List Service (MLS) and to the various real estate associations that I am required to join (between $1,000 - $1,500 per year, in my case, perhaps more in other areas) and that I must pay for such services as accounting and tax preparation. I have to figure on $2,500 – $3,500 a year for all of those things. It’s just the cost of doing business as a Realtor.

If I've got ongoing business is the pipeline and sell one of those $200,000 houses a month ($144,000 in raw commission), I will end up with about $26,000 in a year to house and feed and clothe my family, which is at least still above the Federal poverty level  of $24,250 for a family of four. Yikes! I will need to work harder and sell more houses. 

So, now you know where the commission money goes. I share this with you, not so that you’ll feel sorry for me, but rather than you will not feel that you are overpaying me.  There’s a lot that goes on that you don’t see, but that person who you do see right in front of you most of time is not putting most of your money into their own pockets. They work hard for what they end up earning from each sale. 

Wednesday, February 11, 2015

Homeowners ask - Handyman or contractor, which should I use?


Many homeowners getting ready to try to sell their homes find that they need to catch up on lots of deferred (a polite way to say that you’ve been ignoring it) maintenance or, in some jurisdictions, to bring their homes up to current code, before they can sell. The question then becomes who will do this work. Many homeowners don’t have the skills, the tools or the time to take on many of those little projects. So, who do they get to do them – a handyman or a contractor?

Most states don’t require or have any provision for licensing so-called handymen. Michigan has some requirements (click here to read an article on that or check the requirements in your state) under the Handyman’s Association, which is a voluntary group that professes to have established some standards for handymen. You can also go to sites like Angie’s List and other services that claim to vet and track the performance of various service providers. The Better Business Bureau in your area might also have some information on handymen or have complaints on some, if nothing else.  Looking on sites like Craig’s List might be a mistake, since they do not appear to check their advertisers. Sites like homeadvisor.com and handymanservice.com claim to have ratings of local handymen.
general heading of Maintenance and Alterations, but they are far less strenuous than those required for skilled professionals or contractors. There is also a national

There are many small jobs that may need to be done around the house for which minimal skills and few tools are required – cleaning out your gutters comes to mind or raking leaves. Other small jobs, such as changing light bulbs or perhaps even replacing a fixture, come to mind; however, any job that requires that you pull a permit, especially if the finished job must be inspected by the building inspector for your local government, requires a licensed professional. Electrical and plumbing jobs in particular may require that the professional sign the work and put down their license number. Any work requiring any structural changes ot the house will require a licensed builder and will need to be inspected and approved by the building department. Tell them that you’re using a handyman for that job and see where that gets you.

A general rule of thumb, other than the need for a permit, should probably be that, if the job requires any tools more specialized than a hammer or screw driver, consider getting a professional to do it and not a handyman. Botched tile work jobs in the baths or poorly repaired and painted walls do not add to the value of your house.  Many times the handyman that you may have in mind looks back at you in the shaving mirror every morning. Take some more time to consider that. I have written other posts on DIY and why you maybe shouldn’t do it yourself. 

The bottom line is that many DIY’ers don’t have the tools or the skills to take on some of the jobs that they tackle. They end up with a mess that costs more to get fixed than it would have cost to have it done by a professional in the first place. If it’s just replacing the outlet cover on an electrical wall outlet, go ahead and do it yourself; however, if it involves running any new wiring or opening your electrical panel in the basement think about getting a professional.

Handymen provide valuable services and general are less costly than hiring licensed professionals, especially for small jobs that the licensed pros may not even want to take on. There are also many jobs that may need to be done around the house for which one doesn’t need to be all that handy, just available to do the work. Go for the handyman for those jobs.  But, if it involves your plumbing, electrical or HVAC systems, you’re better off with a licensed professional. For many, who are all that handy, almost any job is better done by someone else than giving it to the guy in the mirror. You just have to be handy with your checkbook in those cases. 

Thursday, February 5, 2015

First-time buyer - What do I need to know about floodplains?

The vast majority of buyers, first-time or not, will never need to be concerned about floodplains. However, if you are buying property on a river, stream, lake or ocean in an area that has flooded in the past, you will probably need to get a Floodplain Certificate and be required by your mortgage company to carry flood insurance.

So, what’s a floodplain? It’s a low lying flat area (usually located between two higher ground areas) beside or alongside a body of water like a stream, river, lake or ocean that may have been subject to flooding in the past, but which is likely to flood if a record rainfall or tide or ocean storm raises the level of that body of water. Sometimes those storms are referred to as 100-year storms; meaning that they rarely occur (once in a hundred years), but when they do, watch out, the area is going to flood. If you live in one of those areas you may be forced to get flood insurance in order to finance your home. The government runs a program to make such insurance available, but it is expensive.

What if I don’t have flood insurance? Well then you may be out of luck if your home is flooded and you lose everything. You may think that there would be some form of aid available from the government, but you’d be wrong. You’re just screwed and you did it to yourself. What does the flood insurance cover? I’m not an expert on that, so call an insurance guy, but generally it covers the damages and loss of property from water that comes into the house from outside due to general flooding of the area.

What’s not covered by floodplain insurance?  As many in the Detroit and surrounding areas found
out this year, it does not cover sewer backups into your basement nor does it cover water leakage from your own plumbing, such as a failed hot water tank. Your homeowner’s policy may cover that last instance, but many do not and none cover the sewer backup issue. You may be able to get a special rider to your homeowners policy to cover the plumbing issue and perhaps even the sewer issue (more likely the insurance company will tell you to have a back-flow check valve installed instead).

f you want to buy on the Ocean you may have to have all sorts of extra coverage for wind and water damage caused by hurricanes. Both of our Ocean coasts and the Gulf area are prone to those huge storms and many people just accept the fact that they might get wiped out as part of the price to pay to live on the ocean. People on the Great Lakes have to be concerned about large storms causing a wind surge that could breach seawalls and flood lakefront properties. There has also been cases of large chunks of ice being wind blown into lakefront properties and causing damage. The flooding along major rivers, like the Mississippi River and further west and north along the Red River in the Dakotas and Minnesota are epic and can affect huge areas.  Millions of people live in the floodplains of those rivers alone.


How can you tell if the house that you are considering buying is in a floodplain? Well, that is the sort of things that should be disclosed in the Seller’s Disclosure; but, you can also go to the FEMA Web site and look at their floodplain maps. You may be pleasantly surprised that many areas that you may have been concerned about are not considered to be flood risks and are thus not shown as floodplains. However, if your location shows up within one of those FEMA designated floodplains make sure that you understand the cost and availability of flood insurance for that property. 

Editors correction - After I published this post I received an message from a reader with a corrected explanation of the term 100-years storm, which is below.

Please note that the so-called 100-year flood is not a flood that happens once every 100 years. It is actually a flood that has a one percent chance of happening (or being exceeded) every year. That is a 26% probability over 30 years. The probability of a fire resulting in an insurance claim over the same 30 year period is less than 5%. If you are \"deeper\" into the floodplain, those probabilities go up. Referring to the 100-year flood makes people complacent by making them think that it is an extremely rare event. - William Nechamen