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Saturday, May 31, 2014

Fannie Mae Short Sale Announcement

A couple of days ago, Fannie Mae released to the press information about a new plan to become more involved and proactive in the short sale process for homes whose loan they hold. Below are the highlights of the release.

WASHINGTON, DC – Fannie Mae (FNMA/OTC) today announced the expansion of the HomePath® for Short Sales website, a communication tool created to help real estate professionals efficiently complete short sales and resolve challenges directly with Fannie Mae.  The new functionality will allow agents to contact Fannie Mae sooner in the short sale process and preempt potential challenges, decreasing the need to escalate concerns further down the road. The website is open to any real estate professional working on a short sale involving a Fannie Mae-owned loan.

Through the expanded HomePath Short Sale Portal, listing agents can work directly with Fannie Mae to:

Request list price guidance prior to listing a property

View the status of submitted cases

Negotiate and receive first lien approval on a short sale directly from Fannie Mae (This feature will be rolled out over the next few months through individual servicers.)

For more on the program go to

It remains to be seen if Fannie Mae will adequately staff this program or whether it will become just another frustrating bureaucracy in the already frustrating short sale process. None of the major banks ever got it right and still struggle today to make their convoluted processes work. Perhaps Fannie Mae can make a positive difference.

The short sale process has been so frustrating because of the lack of transparency in the process and the long bureaucratic chain that one has to navigate through to get a decision. Short sales involving major banks can and do take 3-4 months to get through, sometime longer. The process is further exacerbated by the total lack of any real concern about the people involved, the condition of the property or the local market conditions within the system.

Homes going through the short sale process are just entries on a spread sheet, assets to be manipulated and disposed of; there are no people involved from that perspective. People who may not ever see the property are called upon (for a fee) to render decisions (called Broker Price Opinions) about its market value. Some banks make minimal effort to ensure that the property is secure and maintained to some level during the process.

So, one can only hope that there is sincerity behind Fannie Mae’s assertion that they are concern about keeping neighborhoods viable by doing what they can to make the short sale process quicker and with less damage to the property value of the home being sold and those around it. Let’s hope that they staff up adequately to handle the volume and have a straightforward process in place to get quick decisions.

If you don't know whether Fannie Mae hold the mortgage to your home, go here -

Friday, May 30, 2014

First time buyer – What should I expect of my agent in the negotiations on a deal?

Answer- Your agent will be trying hard to protect your best interests and present a strong case for you as a potential buyer. Many buyers have expectations of their agent in the negotiation process that border on the unethical or illegal. The buyer who asks his agent to lie to the other side or expects that as a negotiating tactic is way off base and probably will lend up being fired by his agent. Yes, agents do fire clients some time and it’s usually over boorish behavior.

Your agent has a fiduciary responsibility to you, which includes carrying out your wishes to the extent that they are legal and ethical. He/she does not owe you a level of obedience to your wishes that extend across those borders of proper business conduct; so don’t even ask. 

Most agents will try to find a path during negotiations that allows both sides to feel a win. Win-win negotiations do not involve beating down the other side with threats or harsh criticism of the property. Your agent will likely present your case for a lower price or for seller concessions or for seller paid repairs in a logical way; hopefully armed with sufficient market data or cost estimates to justify the requests. Helping your agent by having a strong pre-approval will give him/her more to work with; so get that for them before they start.

You should expect that you agent will need to talk with you often during the process. You should not expect that your agent will go off on their own to negotiate everything and just bring back a done deal. Remember that this is your deal not theirs. You need to stay engaged in the process.  Agents act as facilitators and messengers and may strengthen your points a bit or provide proof of needed things, but at the end of the day it is always your decision. That is why you shouldn't play games with your own agent. They need to know exactly where you stand and how far you are willing to go on the issues. Don’t’ tell them to say no to something or to demand something and then get mad at them if the seller rejects that position. The agent doesn't want to hear from you later “Well I would have given in on that point; I was just testing to see what the seller would do.” That’s playing games.

So this isn't like a sports agent who might go off with just the instructions, “show me the money”;  there aregood article from MSN on price negotiation blunders – a good “don’t do this” guide.
lots of decisions that might need to be made in negotiating a home sale and only you can make the final decision. Things like possession after closing need an answer from you. Things like the appliances that the seller will leave need to be worked out and you need to decide what you can and cannot live with on that. There are potentially tests that you want done and the issue of who pays for them need to be negotiated. You agent will need to know where you stand on those issues. Finally there’s the price and that is usually the biggest sticking point. Your agent will know how to negotiate without ticking off the other side so much that they walk away; but, he/she needs to know where your bottom line is drawn. Here’s a

The negotiation process in real estate can be a somewhat drawn out affair, since there are four parties involved – the buyer, the buyer’s agent the seller’s agent and the seller and e very point must travel up and down that chain of people. That’s a big reason why clarity of intent is so important. It’s very easy for things to get muddled when things are repeated three times before they get to the other party. Many agents will use verbal negotiations, which does speed things up but also introduces an element of potential confusion over what was said by whom and to whom. Ask your agent to document every phone call with an email to both the other side and to you explaining what he/she believes was said during the verbal sessions. If you don’t have it documented it doesn't exist in a court of law.

Finally, when everything is agreed upon, there will likely be changes required to the original Purchase Offer documents – either cross outs with new words or maybe words added to Addendum's or completely new Addendum's. Make sure that you carefully read over everything again to see if it reflects what you think was just negotiated and make sure that the seller also initials and dates all of the changes and signs any new documents. Taking unsigned or documents that aren't initialed into court doesn't work either.

Negotiating with the seller doesn't have to be scary or acrimonious, but it does need to be serious; approach it as you would other serious things in life – do your homework, establish your own limits and must-have items, try to find a way to make it a win-win, stand your ground and be prepared with (and committed to) an alternate plan if the negotiations fail. Finally, let your agent do their job in the process.

Thursday, May 22, 2014

Remember our fallen heroes this weekend…

It’s Memorial Day Weekend; a time that younger people may see as a nice long weekend start to the summer season. It’s much more than that, of course; it is a time to pause, reflect and say thank you to the men and women who have served and are serving in our nation’s Armed Forces.

On Memorial Day there will be the traditional parade of veterans in Milford, Michigan, along with all of the hoopla that goes along with a modern parade – marching bands from the local schools, Military vehicles of all types, scout troops and more. And then there are the veterans – hundreds of men and women from wars stretching back to WWII and forward to the actions in Afghanistan and Iraq of today, and covering all of the time in between.
Thousands of people line the streets of Milford, standing and applauding continuously as the groups marches by 2-abreast. As a marcher for the last few years, I can tell you that it is a great feeling to experience this outpouring of appreciation; especially so for us who march in the View Nam Veterans contingent. We had no such welcoming parades back then. 

The Milford Memorial Day parade steps off from the VFW hall on W. Commerce St. at 11 AM and all veterans are welcome to join the march. For those who cannot walk the parade route there are volunteer Jeeps for transport along the parade route.
There is another experience that I encourage you to have, if you have the time over the weekend –
visit the Pet Cemetery in South Lyon/Lyon Township at Milford Rd and 11 mile Road and pause to see the War Dog Memorial.

This cemetery has been in existence since the 1930’s but only in the last few years has it been reclaimed from the terrible condition that it was in and a monument to the K-9 heroes of several wars was enhanced.

There are literally hundreds of pet buried in this location, both dogs and cats. There are also many

dogs that served overseas in our wars buried in the cemetery, including its newest hero Sgt. Mina, a veteran of 9 tours in Afghanistan and 2 in Bosnia.

You can read the backstory on this wonderful facility and the rescue effort that is still under way to reclaim this final pet resting ground from nature at their web site – Michigan War Dog Memorial. It had fallen on hard times and been forgotten for years when the current rescue group found it and started work in 2010. They have succeeded in cutting back enough of the overgrowth and cleaning up the area that you can now get an idea of the size of this place, which houses hundreds of pet graves. They have also added benches so that visitors can sit and contemplate the service that these faithful dogs provided.

It’s really a pretty awesome place and one that cannot help but bring back memories of some loved pet from
long ago, or maybe a service dog, police dog or military dog that you knew.

To watch a YouTube video about the cemetery and the reclamation effort, click here.

Go to their Web site if you’d like to help with a contribution or volunteer to help with the continuing reclamation work on this unique cemetery.

Tuesday, May 20, 2014

Real Estate Market Review of April 2014

April sales took a nice jump, gaining back some of the delayed sales from January through March. Although spring sales are moving up, the combination of fewer homes to purchase and reduced buying power will keep sales from making up all of the decline we saw in the first quarter (compared to last year). We still see 2014 as a strong real estate year across all markets and price ranges, however about 5-7% down from last year in terms of total homes sold.

One of the biggest logs in the dam holding back a flood of new listings is the seller’s “Move Up Spiral.” With many homes selling quickly, sellers are afraid to put their home on the market until they find a home to buy to avoid an intermediate move. Imagine if all sellers held back for that reason, there would be very few, if any, homes to purchase. On the other hand, if all of those sellers let us know of their intent to sell (even if they did not specifically put their home on the market), our matchmaking skills would take over, creating additional sales and breaking up the log jam. We do see this now, with about 10% or more of our sales “creative,” meaning transactions where the properties were not specifically on the market.

We have successfully used sales contracts with extended closing and occupancy dates to give sellers more time to look for a home and many sellers are arranging for an interim move. Although not convenient, it does give sellers certainty. Our most successful strategy has been simply reaching out to homeowners in targeted areas via mail, social media or even door to door with messages about the new home needs of our sellers (aka hesitant buyers) to find that other reluctant seller whose home fits our clients’ needs.

One area to watch is some creeping overconfidence on the part of some sellers as a result of media and our own discussion of double-digit appreciation and bidding over asking price. Values are rising quickly and 68% of all home listings are selling in 90 days or less. However, homes are still selling on average at 96% of list price, so buyers are aggressive, but within a relatively narrow value range. Buyer activity is always the best gauge of whether a home is at the right price point. Under the current market conditions if the property is priced correctly, showing activity should be immediate and there should be at least one offer in the first 30 days (markets over $500,000 will have a slower activity pace).

Our monthly charts break down the markets by under and over $100,000 segments. If we move upstream a bit in price the differences in markets become even stronger. Here is a snapshot of the market change from April of 2013 using a $200,000 price point. Both are moving in the same general direction but at different paces: the inventory levels under $200,000 show dramatic declines, while the over $200,000 is more modest. A buyer looking in either segment will experience some inventory frustration.

All-in-all April heralded a nice comeback for the market after a couple of months of down statistics. We still have the inventory issue to overcome in order toe achieve a more balanced market; but things are looking up. 

Tuesday, May 13, 2014

First-time Buyers – Should I buy a historic home (Part 2)

Question – We've been looking for our first home and my fiancĂ© loves the idea of living in a historic home. What do I need to know about that?

Answer  (Part 2 of 2 posts) – We covered some of the bigger, scarier and costlier issues in part on, so
Now let’s focus on things that you might want to be concerned about or need to do that weren't on that list, some are things that you might not get to until after you've bought the historic home. 

Many historic homes were built in an era when property taxes on your home were determined by how many bedrooms the house had. Sounds innocuous, right? Well hold on. They way that some home builders got around that and lowered their property taxes was to build rooms on the second floor without closets. If it didn't have a closet it wasn't considered to be a bedroom. People were trying to game the system even back then. What they ended up doing was gaming you. They got around this issue by using huge wardrobes in those rooms. Those were mostly large wooden things that could hold all the clothes that were needed back in those days. They could never have imagined someone owning some many clothes that they needed a walk-in closet. So here you are with your Imelda Marcos shoe collection and no closet. Building a closet not only makes the room smaller, but there is a cost involved, albeit less than many of the other issues that we’ve discussed.

Most people also think that the old “wavy glass” in the windows is great, but those old, leaky wavy glass windows will cost you a fortune in heating and cooling bills, so that is something that needs to be looked at for replacement. You can get authentic looking modern insulated windows, but those are costly, too. If the windows aren't critical to maintaining the architectural look of the place consider replacing them. Most old homes had storm windows put on at some point. It is possible to replace the windows from the inside without disturbing the storm windows. That way the house will still look much the same as  it has for quite some time, albeit not original as built.

That brings up another point. You may have all sorts of plans or things that you’d like to do to the old house when you buy it, but you should check to see what you’ll be allowed to do. Some cities, towns and villages have historic districts in place and may have historic preservation ordinances in place as well. Those ordinances, put in place by well-meaning people to try to preserve the historic authenticity of structures within historic districts, can be very limiting in what they allow. Those historic preservation ordinances may dictate such things as what exterior colors can be used and whether any additions or alterations (including windows) may be made that can be seen from the street. They might even prevent you from tearing down and old useless garage that was originally built as a carriage house and building a new garage. Find out, before you buy, what restrictions you might be under. You will find it very hard, if not impossible to fight about it later. Fortunately most of these restrictive ordinances focus upon the exterior and what the house looks like from the street. They usually don’t dictate what you can update in the interior.

The floors are another area that might need attention. The historic homes in my area were generally all built with good oak floors at least on the entry level. Many continued that on the upper level(s), but many did not, choosing to put broad board flooring (usually pine or sometimes maple)  in where they would not normally be seen by visitors. Over the years many owners have done bad things to the floors in these old houses. In my area someone started a trend of putting linoleum over the hardwood and many houses had that done to them. What a ness to take that off! Most historic houses fell victim to the wall-to-wall carpet trends in the mid-Twentieth Century. That causes another problem that caused harm, since doors had to be trimmed on
the bottom to accommodate the carpet and padding height, many very nice solid oak doors were butchered by homeowners trying to create clearance, so they would open. If you can, before you buy, see if you can look under whatever carpeting is in place to see what kind of flooring is under there and what kind of shape it is in. You can pretty much count on having to refinish any hardwood floors that you find. In worst-case scenarios you’ll have to replace it. Cha-Ching, there goes the cash register again!

You can usually do what remodeling you desire inside the house; but, I will caution you not to take the interior too modern – that destroys the whole reason for buying one of these places in the first place – the woodwork ad quirky nooks and crannies that give it character. I’ve seen cases where owners gutted out a wonderful historic house and ended up with a modern white elephant on their hands when it came time to sell. You can’t make a modern house out of one of these old beauties, but you can destroy its value while trying . It’s OK to update the kitchen and baths, but do it tastefully and with an eye to the finishes and fixtures that will fit into a historic house. Dark mahogany and cherry cabinets work much better that modern Ikea blond finishes in the kitchen and baths.  Granite countertops are OK, but add a wide country sink in hammered bronze or porcelain to keep the historic touch. You get the idea.

The whole issue of bathrooms may be a challenge. If you can find a way to add a bath or even a half bath on the first floor, that’s great. They just didn’t build them that way back in the day. Many historic homes may have tubs in the bath that look cute but are really impractical to use. The old pedestal or claw-foot tubs are great soaker tubs, but lousy for showers and that’s what most people want these day – a quick shower. The shower curtain ring around the top of the tub is quaint looking but a pain to use. I got rid of mine and put in a modern Jacuzzi tub and shower. Mea culpa history buffs, but I can get a quick shower now.  It’s not cheap to remodel bathrooms, but is will be worth it.

The kitchen is another area that is expensive to remodel, but one that is often in need of attention. Victorian
era kitchens were small by today’s standards. Many of them did have lots of cabinets – usually floor to ceiling ion at least one wall, but there was usually no separate pantry. Really nice, upscale homes may have had a butler’s pantry between the kitchen and dining room. Most historic home kitchens were not really design to eat in either, unless it was one of the smaller homes. You’ll have to think long and hard about tearing out and replacing the built-in cabinetry that you may find. Perhaps putting on new doors and hardware would be better and preserve the ambiance of the original kitchen.

ll historic homes were originally built with plaster walls and ceilings. Many have had drywall installed right over the plaster and many ceilings had acoustic tiles glued in place right over the plaster. People did that because they got tired of repairing the plaster. Some just put that funny looking popcorn paint on the ceilings to cover cracks. If they did it right (who’s to say what is “right” and what is a sacrilege) any floor or door and window moldings would have been removed and then put back over eh dry wall. Many did not do that and now have homes with moldings that are half buried in the drywall. I've got one room where that happened in my old house – what a shame. The grander old homes may have had relatively elaborate plaster work crown moldings (which were always done in plaster back in the day) or decorative medallions surrounding the ceiling light or chandelier drops. Preserve those if you can. Those are irreplaceable works of art and craftsmanship.

Another area to test and see what you are getting is the woodwork. As I mentioned elsewhere earlier, almost all of these grand old historic homes had elaborate woodwork, mostly quarter-sawn oak in my area. You would find that as shoe molding (usually 10-12 inches high) perhaps chair molding in the dining room and certainly window and door molding. Many had rooms with coffered ceilings in hardwood and many had rooms with extensive and expensive wainscoting in hardwoods. Unfortunately, somewhere along the line someone who had no appreciation for what they had may have painted over that great old woodwork. It’s tedious work, but worth it to strip that paint and expose the great old oak woodwork again. Then again, some houses never had anything more than painted softwood moldings. Try to determine that before you buy, since painted hardwood molding can be stripped and returned to their glory, but common painted softwood moldings will never be anything but just that. Many of these old houses had built-ins either as originally built or added later. These can include closets with build in drawers or maybe a built-in china hutch in the corner of a dining room. Don’t tear them out! Those are part of the charm (and value), too.

I know that I've given you a lot to think about and consider in these two posts, but it is important that you be able to get beyond the romantic notion of owning a Victorian home and have a clear understanding about the potential challenges of owning an old house. If you are lucky, you might find a great old historic home that someone before you has made the necessary investments in to make it livable in the present. Hopefully they did that well and without destroying the character that attracted you in the first place. Historic home scan be wonderful places to live. My wife and I certainly wouldn't give up ours. But, as I said at the outset; owning one of these great old homes is like having a home and hobby all in one; there’s always something that you could be working on updating or improving.

Sunday, May 11, 2014

First time buyers – Should I buy a historic home? (Part 1)

Question – We've been looking for our first home and my fiancĂ© loves the idea of living in a historic home. What do I need to know about that?

Answer  (Part 1 of 2 posts) – Well, if you are looking for a home and hobby all in one, go for it. I’m a
historic home owner. My house in Milford, Michigan was built in 1885, which is actually fairly recent compared to some really historic homes out in the New England area. I also have a friend from college who moved to England and now lives in a building that was once a tavern and was built in the 1600’s. Now that’s historic!

In all seriousness, there are many things that you’ll need to consider before buying a historic house. I’ll try to cover as many as I can think of here. This topic is so large that I've split it into two posts, so stay tuned for part 2. The two parts generally fall into two categories – things to look for before buying and things to know or consider doing as an owner. The reason that most people give for wanting to buy a historic home is that they have “character”. That is a kind word for saying that they have quirks that you don’t find in modern homes. Some of those quirks are endearing and some are just maddening and can be expensive.

First, let me say that many old houses are just that – old, tired and run down. They may not have been well cared for or they may have been converted to rental units and sometimes cut up into apartments. Those
probably won’t make great home for first time buyers. They are likely to turn into money pits.

Realize also that not all historic homes are grand examples of Victorian living. Most towns had a few really nice houses that were built by the wealthier merchants and business owners in town and the rest were just run-of-the-mill homes for working class people. It’s sort of like the difference today between a custom designed and built house and a tract home.  Some of the historic houses in many towns around the country were actually ordered out of the Sears & Roebucks catalog or the Montgomery Ward’s catalog and shipped via rail to the town in pieces, where they were assembled on site. You can read more  about that from the Sears archives by clicking here.

Basically, all vintage homes were stick-built on site, usually from plans that had been drawn up for the owners or modified to meet their needs and desires.  The grand old homes of the day had great woodwork (mostly quarter-sawn oak), wonderful staircases (some like mine had front and rear staircases, magnificent fireplaces, nice porches (many times more than one) and other features that separated them from average working class homes. If you buy a home that was not built by one of the wealthy owners of the day it will never be a grand historic home. With enough investment, you can turn it into a really nice historic home, but not a grand historic home. It just doesn’t have the “bones” to build upon. I was lucky enough to find a fairly nice, 3,000 Sq Ft historic home in the Village of Milford, Michigan that had been built by a local merchant with enough money to do it right. My home probably started out at about 2,000 Sq Ft and had additions put on later. I’ll talk more about it in the next post.

So, what are some of the things to look for before you buy, beyond just the pedigree of the house?  Look to see if the major systems have been updated. Some of the nastiest looking electrical, plumbing and heating systems that you’ll ever see are in some of these old homes and every one of them is very expensive to update.

The foundation is also an area to pay close attention to with older houses. Most of the really old houses  were built on stone foundations, which are essentially piles of rocks. These old homes were built well before concrete blocks were available and certainly before poured concrete basement walls. The grand old homes may have had cut stone walls for the basement, which meant that stone masons had cut and chiseled the large stones used into more or less rectangular blocks that fit nicely together. That was expensive even back then, so it is somewhat rare. Most other houses just used large stones fit together as well as they could be, with some mortar to hold them in place. Many old homes had a layer of concrete or mortar added to the outside at some point.

I don’t want this to sound like these homes were just built on piles of rocks; these stone foundations were 3 to 4 feet thick and fairly deep, plus are shored up with mortar. However, many times these foundations would shift and settle causing the house to settle or shift around, too. If things have shifted too much and large cracks have appeared or they have allowed large sections of the house structure to develop problems, you may have to have the foundation replaced. That means jacking up the house and basically building a new foundation underneath. That is very, very expensive. So do a thorough foundation inspection with your home inspector.  Click here if you’d like to read more than you’ll ever want to know about foundations and repairs from a structural engineer.

Another aspect of the home’s foundation is what is right under the floor on the ground story. If you go into what is called the basement (we call them Michigan Basements here), it would not be unusual to find a dirt floor in at least part of the basement area. The Michigan Basements were essentially crawl spaces that were dug out enough so one could walk around upright. Many people later added concrete floors. The other thing that was common was to use tree trunks as both vertical and horizontal floor supports under the house. Since these supports were never meant to be seen, the tree trunks were not even sawed to make them look like lumber and many still have the tree bark on them. They were and are sturdy support for the house; however, they are also attractive to several types of wood destroying insects, including carpenter ants, termites and powder post beetles, so have them thoroughly looked at during the inspection. The inspector may only find evidence of an infestation, so you’ll need to call in an expert exterminator to assess how bad things are what it might cost to get rid of them (yep, more money).

Most of the homes built in the mid- to late-19th century had what is called knob and tube electrical systems and fuse boxes instead of electrical panels. The old knob and tube wiring literally had a central spines -the tubes (which may have been a copper tube or just a larger diameter copper wire) running through the center of the attic and the basement off of which circuits were wired. The tube was held away from everything on glass or ceramic insulators (the knobs) and in many cases the tube was bare.  These were two wire systems, so there is no ground wire. Sometimes circuits were taken off by wrapping one end of the circuit wires around the two tubes. What insulation that was on the circuit wires was often a woven material that mice and other critters loved to chew on. The main tubes ran back to fuse boxes where you had the old glass-encased screw-in fuses. If the house that you are considering still  has this set-up think twice about buying it! It is not only dangerous and a fire hazard, but extremely expensive to replace. 

Look for homes with updated electrical systems with grounded circuits and modern circuit breaker boxes. Play close attention to the circuits in the kitchen and baths to make sure that they have been updated to modern GFCI standards. Click here for a good article on electrical wiring (including knob and tube) in older homes and what you might want to do.

Most homes built before the turnoff the century did not have forced air systems. They used boilers and either steam or hot water radiators. Most of the original boilers were coal fired but may have been replaced at some point by oil burning units and maybe eventually by gas-fired boilers.  Check out the age and condition of the boiler, if there is one. You can also just about bet that some of those steam or hot water pipes running
from the boiler are wrapped in asbestos insulation, so be careful not to disturb any of that.

Both steam and hot water heat are very good heating sources and are good for people with allergies because you are not blowing dust around every time the heater or air-conditioner kicks on.  Speaking of air conditioning, homes with boilers do not have duct work in place that would be needed to support modern forced air systems and central air conditioning. Many historic home owners just use window air conditioning units in the summer. That’s what I do. I've found that a couple large window units serve the first floor very well and smaller units in each bedroom upstairs allows me to only cool the rooms that are actually being used.

Somewhere along the line a previous owner may have had ducts put into the house by stealing space from closets or from the rooms themselves. In many cases they used what is call gravity feed systems which are essentially large openings between floors covered by grills that allow hot air to rise and the cooler air to drop down to the basement due to gravity. Some historic homeowners have installed forced air systems in both the basement and the attic, with ducts in the second story ceiling and the first story floor.  Click here to read an article from the This Old House Web site on some modern techniques for retrofitting a historic house for air conditioning. This is another opportunity to spend major money.

The plumbing in historic homes is another area to be concerned about. Most of these old homes were built before cast iron pipes were outlawed due to the health hazard. Plumbing seems to be one area that you can count on having been upgraded at some point in the life of the house – perhaps when the toilet was brought inside from the outhouse. I find that most historic houses now have copper and PVC plumbing in place, but
that is something to look for. On the supply side, most of these old houses may have started with a well or a cistern system for capturing rain water (my old house still has the original cistern in the basement). 

When public water systems were introduced or electric well pumps were installed the plumbing was usually upgraded. What may not have changed is the fact that most old houses were built with only a single bathroom and it was usually on the second floor. If you’re lucky someone along the way may have added a bath or a bath and a half. Even if the plumbing has been updated, there is a good chance that the water pipes leading to the house and the sewer connection leading away from it have been i n the ground for decades and may be well outside their useful life span. Guess who pays to dig up and replace those when they go bad – yep, get out your checkbook. Check out the plumbing thoroughly because guess what – it’s yet another money pit to update or add plumbing.  

I’ll cover other items that will present you with opportunities to spend money on your old house in my next post. These posts are not meant to scare you off just to equip you with enough knowledge to make an intelligent decision. Obviously, with the number of major areas to check on it is even more important with a historic home to have a good home inspector do a thorough inspection.

Friday, May 9, 2014

First time buyers - What is a home warranty and do I need one?

As you look through listings on-line you might notice that some advertise that the home comes with a Home Warranty; and you might wonder, “What is that all about and do I need a warranty on my new home? “

The easiest way to understand this product is to think in terms of other things that you buy in life. Probably the biggest single purchase that most people make, other than a house is their car. If you buy a new car, it comes with a warranty and you expect that. The best warranties say that they cover everything on the car; they are often advertised as bumper-to-bumper warranties. Of course, when you read the fine print you will see that the car makers are careful to exclude all of the items that wear out in normal use – wiper blades, tires, and such. That’s understandable and you are still covered for the larger items – engine, drivetrain and major systems and components. If your car’s air conditioner compressor give out in the first year or two that is usually covered for a repair or replacement.

The same kind of thing applies to home warranties. They all cover the major systems and items in the home, but there’s also fine print that you must understand. The devil, as they say, is in the details. Below is an explanation of home warranties provided to me by Chris Papinaeu. Chris is the account executive for the Real Estate One Home Warranty program that we provide for our customers. The REO Home Warranty is a private branded offering from HMS National Home Warranty, a leading home warranty company.

"Home warranty" is a marketing term held over from the early history of the industry. In fact, a home warranty is not actually a warranty but a service contract. Generally, a home service contract provides service, repair or replacement on a home’s major systems and appliances, usually for a term of one year.

Basic and optional coverage varies from company to company with some regional variances. Home service contracts are specific and do not include everything in your house, and most do not cover home foundations, walls, structure or finish.

Typical systems that are covered include: interior plumbing, heating system, electrical system, water heater, ductwork, dishwasher, oven, range/cooktop, garbage disposal and garage door opener. Heating and air conditioning systems, refrigerators and washer/dryers may be part of a basic contract or may be options. Spa and pool equipment may also be part of optional coverage.

A home service contract should not be considered a replacement for homeowner's insurance. Where homeowner’s insurance protects the consumer from external forces like storms and fire and theft, home service contracts protect consumers from the unanticipated, and sometimes very expensive
cost of normal wear and tear on systems and appliances in the home. In short, the industry’s services "were born out of the need for household repair that was not in the scope of homeowner insurance."

Repair needs for home appliances and service systems are actually quite predictable. According to the National Association of Realtors®, within the next 12 months, there is a 60 percent chance that a key system in your home, such as the furnace, air conditioner or major appliance will fail, and the cost of the repair will average $900. Sometimes, it can be considerably more than that. For example, according to analysts, HVAC systems "are often some of the most expensive to repair and replace for homeowners and make up one of the primary draws for homeowners purchasing home warranty coverage."

Tuesday, May 6, 2014

FHA poised to release new rules impacting HOA's

New FHA rules may cause problems for buyers and sellers. An article by Ken Harney  in a recent issue of Inman News overviews the potential negative impact of a looking FHA rules change. The change concerns the transfer fees that many private developers and Condo Associations and Homeowners Associations now charge when condos or homes sell. Those fees are most often added into the association’s capital fund and used by the associations for the common good of all of the homeowners in the association.

Fannie Mae and Freddie Mac have already announced rules that continue to allow those fees when charged by legitimate HOA’s but outlaw the same practice by private developers. The proposed FHA rules changes don’t discriminate between the various parties that have been collecting those fees and just outlaw them across the board. You can read Ken’s article by clicking here.

So, why all the fuss about these new rules? Lowering fees is always a good thing, right? Well, not always. Those fees often make the difference between the HOA having he funds needed for critical upkeep in the complex or not. Taking that money away from the HOA’s may end up causing maintenance or improvement project delays that decreases the value of the properties. Many HOA’s may not be able or willing to give up these fees. That would also mean that those complexes would not be eligible for FHA-back mortgages, the most common mortgage type. They would also not qualify for the FHA-back reverse-mortgage programs that many seniors are taking advantage of these days.

The FHA rules are not published or implemented yet, so there is still time for change. If they go ahead as planned, than will create a confusing mortgage landscape where Fannie Mae and Freddie Mac mortgages will still be available for complexes with those transfer fees, but not FHA-backed mortgages. Chaos will not reign, but confusion may be the order of the day. Fighting this move since it’s inception back in 2010/2011 is a group called the Community Associations Institute (CAI), a group created to represent the thousands of condo HOA organizations. CAI sent a letter to FHA outlining the objections that its members have to the rules (click here to read that letter) and continues to lobby against the new rules.

These rules changes could potentially have bigger impact in Michigan than elsewhere, since most subdivisions built since the mid-1980’s were built as “site-condos” under Michigan’s condo development laws and rules. Local site-condo HOAs may have transfer fees built into their bylaws and budgets. Check with you r local HOA to see if that applies to your site-condo sub.

There are additional changes in the FHA rules that concern the CAI and you read their current position on them by clicking here. The bottom line is that the CAI believes that many of the new rules proposed by FHA don’t differentiate enough between actual homeowner associations and investor-led group who often charge the same fees. In addition CAI believe that FHA doesn't understand how the money collected by these fees is being used by real homeowner associations for the general good of all of the owners. The CAI certainly doesn't see much good coming out of these new rules and is afraid of the confusion and negative impacts that they will have.

The expectation is that FHA will release these new rules shortly, so stay tuned and pay attention, they could affect you as a unit owner in one of these complexes or they might impact what choices you have as a potential buyer.

Monday, May 5, 2014

Rent-to-Own - What’s that all about?

First-time buyer - I saw a listing that said "rent to own option", what's that all about?

Answer - One way to get into home buying without having the necessary down payment or a good enough credit score right now is to find a seller willing to rent the place to you (normally a lease for some specific time period) who will agree to set aside and accumulate a small portion of your rent payment towards the down payment. That will allow you time to repair your credit and get the down payment together.

This is often called “rent-to-own” or “lease with an option”. It is somewhat similar to a “Land Contract” in that the owner retains title to the property, but the contract to buy the property is in the future, normally at the end of a two-three year rent/lease period. At that time, if you decide not to exercise your option to buy the property, all of the monies that have been collected and set aside by the owner usually revert to him/her, just as if they were always a part of the normal rent payments.

Should you decide to go ahead with the purchase, the monies that have been set aside are contributed by the owner at closing, just as if you had been putting that money in a bank all along (albeit a bank that was paying you no interest for that time). Depending upon the agreement that you negotiated up front, that could amount to hundreds or even thousands of dollars towards the purchase price of the house.

Some rent-to-own deals require that the purchase agreement be signed at the time that the rental agreement is signed. Those agreements lock in the price for the buyer, which is a good thing for them if prices are on the rise. That Purchase Agreement is then put away until the anniversary date and either executed as a sale or rendered invalid by the renters decision not to proceed. If nothing else, the rent-to-own purchase agreement usually gives the renter the first right of refusal on the house upon the anniversary date.  Every rent-to-own contract is a custom agreement between the owner(s) and the renter(s). You should seek good real estate advice and perhaps even legal advice before signing any agreement.

From the Sellers’ perspective this is a lease with a better than average chance for a sale at the end. The seller
may look at this deal as one that discounts the sale price by the amount that has been set aside during the lease period (and perhaps any appreciation that takes place over the period of the rental). After all that was the Seller’s money (a part of the lease payments) that he is now taking off the sale price. Some sellers actually set that amount of money aside out of the lease payment each month and some just wait to see what the buyer is going to do and then discount the price by that amount at the time of the sale. In either case, the buyer never really gets that money back from the seller.

The buyer should also check with his/her Mortgage Company about how they will treat this “down payment money.” Many will just see it as a Seller Concession on the price and still require the buyers to come up with down payment money of their own, albeit on a lower purchase price. Underwriters have different views of things.

Risks involved

There are risks involved for both parties in a rent-to-own scenario. Obviously the Seller is taking the property off the active market and letting a renter in, so the risks are the same for him as it would be in any rental scenario – what if the renter trashes the place or what if they get in and stop paying? Sellers should do the same level of due-diligence vetting of renter in the rent-to-own case as they would for a regular lease. 
For the buyer the risks revolve around the money that is supposedly being accumulated by the owner and the owners’ behavior. Should the renter decide that they really don’t want to buy the place after all, it will be next to impossible to get any of the money back that was supposedly being held for the purchase. Most rent-to-own contracts will contain wording that states that the money was just part of the normal rent, if the purchase is not made.

The other risk for the buyer/renter is that you've moved in and been faithfully paying the rent only to come
home one day and find a Foreclosure Notice posted on the front door. That happened a lot during the recent downturn. The owner moved on to a new home and probably used your  rent payments to make his payments on that house and just let the one that you've living in go into foreclosure. What recourse do you have? Very little it turns out.

You can, of course, try to sue the owner to get your rent payments or at least your down payment money back, but that is difficult. Maybe you can get him charged with fraud, but that may not get your money back either. You are stuck between a rock and hard place. Your “down payment money” is gone and you’ll soon have no place to live. Don’t expect any sympathy from the bank that is foreclosing on the place. Your plight is not even on their radar. This is just an SOL case of a risk that you took that didn't work out.

To protect yourself as much as you can, be sure to vet the owner as much as he vets you. Ask to see payment statements from his mortgage company at least quarterly during the rental period and try to write a provision in the lease agreement that at least says that he will return your down payment money if he allows the house to be foreclosed (although actually getting it will still be an issue if he is in that bad of financial shape). The best scenario up front is to have the owner set up a separate escrow account for the money that’s being accumulated. The owner will still usually be in control of that account and may drain it, but you’ll have a better case to work with in the courts as you try to recover it.

So, is this a good way to try to get into home ownership? The best answer is – maybe. If you find a good, honest owner/landlord who is going to keep up his payments on the mortgage and is going to actually set aside the funds that you think are there for your down payment later; then it is a good way for you to buy the time needed to repair damaged credit and/or put aside enough for a down payment. Like any other real estate transaction, it is up to you to do what you can to protect yourself from the risks.

Saturday, May 3, 2014

HVCA Art Yard Sale and Highland Founders Day


Huron Valley Council for the Arts is seeking both donations and shoppers for the HVCA Art
Yard Sale from 9 a.m. to 4 p.m. on Saturday May 17 in the council's parking lot, 205 W. Livingston Road, Highland.

Shoppers will find fantastic deals May 17 on all things art: artist seconds, past season artwork, supplies, retired fine art and more. The Huron Valley Council for the Arts community of friends is doing spring cleaning and generously donating fantastic art items to be sold at deep discounts. All proceeds benefit HVCA Art Center and its free and low cost community programming.  

Before the sale, HVCA will seek donations of artwork, art supplies, craft supplies and items that can be turned into art. If you have larger items that need help with transport we can work with you on that too!

Call the HVCA Art Center at 248-889-8660 to schedule a drop off.
The event is part of the Highland community's Founders' Day, which features a number of activities (that unless otherwise stated, take place from 9 a.m. to 2 p.m.), including:
  • "The Great Rake," a cleanup beginning at 9 a.m.; volunteers meet at the Highland Township Auditorium, 205 N. John St.
  • Highland Community Parade, which starts at 10 a.m. from the Church of the Nazarene,
    1211 W. Livingston Road
  • The Highland Adult Activity Center craft fair and flea market, which also features food vendors, located at 209 N. John St.
  • Highland Township Beautification Committee's annual plant sale
  • Huron Valley Farmers Market (adjacent to the HAAC).
  • Highland Community Picnic at 2 p.m. on the site of the former Highland Middle School, 305 N. John St.