·:[ The Judy Niemeyer Team Blog ]:·
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Should you move or remodel?

Excerpted from Bankrate.com

Costs, children, neighborhood, emotions — deciding which home option makes the most sense is complicated. Here, experts explain how to sort it out.   It happens suddenly, over a cup of coffee and the morning newspaper, or perhaps as you make your way across the obstacle course of clutter that was once your living room. Your house doesn’t fit your needs, and you can’t deny it anymore.

It’s time to make a hard decision, one potentially worth thousands of dollars. Should you move, or should you remodel? The typical family faces this decision several times in life. The first milestone tends to be when children arrive. The standard American lifestyle is to buy a starter house, but when kids come along that starter house may not be big enough anymore.

Children become teens, and shared accommodations soon feel more like an invasion of privacy than a slumber party. Within a few years a third challenge hits: college. As children move away for school or into their own apartments, the large, teenager-friendly house suddenly feels too big. It may be time to downsize or perhaps convert Junior’s bedroom into that hobby utopia you’d always dreamed about.

Finally, families often face the prospect of becoming caretakers for an aging relative, or perhaps a spouse falls ill and the home needs to become more accessible. Time for yet another change.

Should I stay or go?

One of the best places for a family to start its evaluation is with the physical layout of its existing property. Many communities put limits on how big a house can be in relation to its plot of land.

A number of homes are already being built to the dimensions of what can be done. If your house is as large as it can be, planning an addition would be out of the question — you will need to work within your existing footprint or move. On the other hand, just because you are able to expand your home doesn’t mean it’s a good financial move.

First, get a cost estimate. Then figure how much that work would add to your home’s value. Finally, compare your new value with comparable home prices in your neighborhood. In some neighborhoods, you just won’t get your investment back.

Home values are falling in many areas across the country now, too, but not in others. But all homeowners should tread with extreme caution if they own one of the most expensive houses on the block. Almost without exception, if you have a viable neighborhood and if you are bringing your home up to or slightly above neighborhood standards, from the financial side, you almost can’t go wrong by renovating. On the other hand, if you already have the biggest, nicest house in the neighborhood, then to go in and change that house has some drawbacks. You won’t get it back on resale.

That’s because neighborhoods support only so much expense for a particular house. If homebuyers want to spend $500,000 on a house, they will spend it in a neighborhood filled with other $500,000 or even $1 million homes, rather than $250,000 homes.

The worst-case scenario would be doing a renovation and ending up with a home worth less than you put in plus an outstanding mortgage balance, and then being forced to move because of a job change or other life event. It really depends on where your market is. You might not get your investment back.

When to remodel

A remodeled home could appreciate by $100,000 or even $150,000, depending on what changes the owner makes, offsetting the expense of sprucing things up. The remodel could end up being financially neutral even after borrowing a huge sum to pay for renovations. Even if renovating makes sense, ask if you are financially ready to lay out the amount of cash required to do the work. A $100,000 addition might increase the value of your home dollar for dollar, but if you can’t afford that cash upfront, you will never get the job off the ground.

One way to ensure you keep your remodeling job in touch with reality is to consult the annual list published by Remodeling magazine and the National Association of Realtors. The list evaluates how much return you can expect from a given home improvement. Some jobs, such as regular maintenance, better siding and minor bathroom renovations, for instance, return more than 80 cents in value for every dollar spent. Others, such as adding a sunroom or a pool, return less than 60 cents on the dollar, or worse, depending on where you live. Anything beyond what you will get back through appreciation is a true expense.

The difference is a question of land value versus structure value. Land appreciates the most, the house not as much. So staying on your existing property and improving the home itself could mean a substantial tax savings compared with moving to a new home where the taxable value could increase.

A decision to remodel or move comes down partly to emotions and partly to finances. One of the first things you should ask yourself is if you really like the location your house is in right now. Consider your neighborhood, the schools and whether your home is average or below cost for your neighborhood.  If you like all of those aspects, then it is likely you can remodel and keep the things you like and improve on the things you might not like so much, size, amenities, etc.

But even if you are in love with an area and you would certainly get your money back, it might not make sense for some people to commit to a potentially life-changing remodel. You really need to be honest with yourself. Do you want to go through the mess and headache of a remodel? You have to realize, things will go wrong. It will cost more than you thought. It will be a nightmare. And then when it is done, it will may or may not be beautiful.

When to move

Even with the increase in home value that a renovation can deliver, there are some things you just can’t renovate away. Look at land size, location, schools, neighborhoods filled with ugly houses and no trees, those are things you can’t change readily. If those are the issues you want remedied, then a move might make the most sense. If you’ve always dreamed about living at the top of a hill, there is nothing you can do to change your flat street.

Hating your neighborhood might not be the only reason you would want to go house hunting. Say your house was built in the 1950s and they used lead paint. Does your state law require you to strip the paint? Do you have to move out while the work is ongoing? What if you have asbestos insulation? These are things you might not want to touch.

Moving isn’t all that much easier than remodeling, but it is quicker. You have to pack up. You have to unpack. Selling a home is also invasive. But we have all moved before, so we are more comfortable with that transaction. You just need to weigh what you would hate less.

In a study in 1998 commissioned by The Wall Street Journal, it was found that maintaining a typical home more than 30 years often costs more than four times the original purchase price. A daunting figure, but maintenance alone is no reason to move. The repair costs may be deferred in a new home, but you have to remember that a bigger house takes more upkeep, and you may not be getting the benefit you think you are by moving.

If you are moving to an existing home, rather than new construction, not only will it be bigger, it will also likely have the same maintenance issues your old house did but on a larger scale. It may even cost you even more.

The emotional bottom line

With some financial decisions it makes sense to remove yourself emotionally and just do a cost analysis. Yet a house is a different matter. A home, while an investment, is really about lifestyle first and an investment second. The decision of moving versus remodeling is: Does your current home, if remodeled, make you happy? If your home, even if remodeled, doesn’t meet your needs, and if you can afford something else, then move.

Many people decide that moving makes more sense, even at a cost.  This is particularly true for middle-aged people, because they are now in a position in their lives to pay a premium for happiness. In your 20’s or 30’s you can’t buy the home you want and are forced to buy something that might be smaller and less glamorous than you would like.  But most of us come home seven days a week. And if you come in and say, ‘I love this place,’ then there is a lot you can overlook. But if you walk in and say ‘I hate this place,’ then it is probably best to move.

A Letter To Our Clients:

Finally, we are at the end of the first quarter of 2008.  As most of you know, 2008 has been a very unusual year for real estate.  We are plagued with a horrible media that is focused on doomsday.  It is also a leap year, an election year and the holidays kill our momentum. 

However, the facts remain the same, now is the best time to buy real estate.  Our interest rates are fantastic.  The Baldwin Association of Realtors is spending money advertising to make buyers aware that now is the time to buy. 

For our sellers, our activity is picking up, but still off from last year.  People are slowly getting back into the market.  Most of the buyers today go to the Internet to make their search.  Once the search is made, the buyer identifies the neighborhoods.  Upon locating the property, buyers call an agent to set up appointments. 

As you know, our team focuses on all price ranges.  In fact, our listings range from the mid $100’s to just below $3,000,000.  All markets have been affected by the slowness in the market.  Please do not think it is just you.  But I think that in the next few months, buyers will wake up and take advantage of the great inventory we have. 

Let’s look at the statistics for our market since the first of January 2008:

Comparing the two years, the average list price in 2007 was $304,694, with a sold price of $293,111; while in 2008, the average list price was $310,345, with a sold price of $292,341.

THE SECOND QUARTER WILL BE BETTER.  As always, with any questions, please call us.

Judy

Judy Niemeyer
The Judy Niemeyer Team

Buyers: Should You Wait For The Market Bottom? In Most Cases, NO!
Excerpted/edited from MSN Real Estate

The housing market will probably continue its downward spiral through sometime in mid to late 2008 according to most forecasts and that means opportunities for buyers. But waiting for the market bottom may not be the smartest strategy. Here are 5 reasons to buy now — and 5 reasons you may want to wait. 

Nationally, the latest housing headlines are far from encouraging: Foreclosures are up, home prices are down and new-home sales are at record lows. All this dismal news has many buyers sitting on the sidelines, afraid to make a move. But, economists say, waiting for the bottom may not be the smartest strategy.  Realtors agree.

Calling the market low is a difficult task, and its most often spotted in the rear-view mirror. For one thing, there’s no agreement on when the U.S. real-estate market will officially touch bottom. If you believe the National Association of Realtors, it will happen later this year. Some Wall Street analysts and investment banks are much more pessimistic, but for many buyers, there’s no real need to wait for the market as a whole to officially bottom out. Real estate is local and therefore what constitutes the bottom for the country is meaningless for those looking to buy and sell homes in their own neighborhoods.

There’s risk if you buy now and there’s risk if you don’t. If you postpone your purchase and prices rise along with interest rates, you will pay more than you would today. In a flat market, you could also pay more by waiting if interest rates rise thereby decreasing your purchasing power. However, if you buy now and prices fall, you could lose money if you have to sell before the market cycles upwards again.

Prices in many markets have not yet hit their lowest point, but they aren’t that far off. And in other areas, only the pace of sales has been affected; prices have held firm or gone up. Waiting for the absolute bottom to hit before buying puts you at risk of missing it and getting caught up in a market on the upswing. Plus, for some first-time home buyers, owning simply makes better economic sense than renting.

Downturn, what downturn?

Of course, in some parts of the country, there’s no real reason to get cold feet about buying. Prices have ticked up slowly and are expected to continue that slow march for the foreseeable future. We have not seen a big downturn in our local market in the Baldwin County and Mobile County areas, thanks to a local economy that is relatively booming compared to many others. Some people read what’s going on around the country and say maybe this is not the best time to buy, but we’ve got a pretty strong market. Those headlines are coming out of Miami and Las Vegas.

“Just like the weather, there are large local variations in home prices," says Lawrence Yun, NAR chief economist. In the NAR’s annual report on metro home prices, almost half of the markets posted price increases.  There are plenty of markets, including our local market, that are now starting to pick up. In these areas, this is a great time to buy, with interest rates historically low, a fairly large inventory of properties to choose from and less chance of getting caught up in a bidding war, analysts say.

Houses and neighborhoods that hold their value

There will always be some people who need to move because of job relocations, expanding families or a need for better schools. In desirable neighborhoods, there’s a price to pay for waiting. You have to ask yourself, "How greedy do I need to be? If the price goes down much more, you’ve got other people trying to buy it, even if it’s not the absolute bottom. Then, you might end up in a bidding war, erasing the savings you thought you had achieved by waiting.  Even in a down market, the best houses are at least holding their value. And, the buyers are getting a fair deal too, given the much higher prices in other areas.

For some people, the value of the local public schools will play a large part in their buying decision. A well-designed house in an established area with a good public-school district will hold its value and save you money in the long run. These places don’t get hurt as much as the whole market, and they recover faster.

A sound financial move

Often, analysts say, people get so fixated on getting the lowest possible price that they forget just how little difference an extra $10,000 in the home price can mean to their monthly mortgage payment. Assuming a buyer pays $300,000 rather than $310,000 on a 5.7%, 30-year loan with $30,000 down, he’d be paying $1,575 a month rather than $1,634. Of course, the costs of the initial $10,000 add up the longer you own the home without paying off the mortgage. But, that additional $10,000 in value might be just the psychological boost some sellers need to part with their homes.

And for many home buyers in several markets, there’s extra incentive in the form of rapidly rising rents. In many areas, rents are getting close to or surpassing a mortgage payment. And the mortgage-interest deduction on your taxes is a huge help for those who need a write-off.  Moreover, if you’ve lived in your house for many years and built up some equity, you can weather selling in this kind of market and finding another home. That’s especially true if you are moving from a boom market that is only now beginning to bust, to another area where prices are lower.

You have to know when to hold ‘em

Of course, there are some people who are better off waiting in this market: people who bought their current home in the past couple of years. In this short period of time, the value of the home hasn’t gone up enough to compensate for the agent’s commission and other selling costs.  These days five is considered by many to be the magic number when it comes to buying and selling: If you’ve been in your house five years and plan to move to a place where you will stay at least another five, you’re probably OK.

However, there are a few notable exceptions. There are some markets around the country where prices are still sliding, jobs are being lost and foreclosures are making it hard for people to sell their homes, such as economically depressed Detroit.  There is still too much uncertainty in boom-and-bust markets such as Phoenix; Las Vegas; San Diego; and Miami and Tampa, Fla., making it harder for people to sell their homes without taking a price cut. The people buying right now are really the people who have an urgent need to move.  And it probably goes without saying that you shouldn’t buy if your job security looks a little uncertain in the near future.

How to get the best deal

If you’re ready to buy, try to make the best deal you can in a neighborhood that is holding its own, analysts say. Call your local realtor first—they are the most knowledgeable about the local market.  Or you can check real-estate Web sites such as Realtor.com and Trulia.com or go through the real-estate sales data published in your local newspaper to see what houses are going for in your area.

When you have zeroed in on a neighborhood, work with an experienced realtor to go over the fundamentals: How much inventory is out there? How have prices in that neighborhood fared historically and over the past year or two? This will give you a feel for the overall direction of the neighborhood.   

Once you’ve bought, don’t get discouraged if prices don’t begin to jump back up immediately. Many are predicting this down market to remain until sometime later in 2008.  But ultimately, the market will come back up, even those markets that are taking a beating.

Over the long term, home prices in this country have tended to rise. But, they do fluctuate over time. It’s impossible to time the market. Still, you won’t realize any appreciation unless you’re a property owner. We’re coming out of a period of extreme appreciation. In many areas of the country, homeowners who bought two to three years ago and then sold did very well. But, this is not the norm. Your home purchase decision should not be based on the anticipation of continued appreciation at the recent rate. And, in most cases, it’s not a good idea to buy for the short-term.

5 REASONS TO BUY NOW
 

1. Prices in the neighborhood you are interested in are relatively stable. Either they are holding their own or increasing, or the pace of decline is slowing significantly. If you have to move and don’t like apartments, the small penalty you pay for missing the bottom may not mean much.

2. You plan to stay in the home for more than five years. If you can stick it out that long before selling, economists say you’ll probably ride out any downturn and come out ahead on price.

3. Your rent rivals a mortgage payment. If you can afford to buy, it can give you one bonus that renting can’t: the mortgage-interest deduction on your taxes.

4. You’ve found the right house in the right area for you. The schools are great. You love the area and know it would be hard to find another house like the one you have your eye on. In a better market, you would most likely have much more competition for that home.

5. You’ve built equity in your house and are moving to a place where homes are cheaper. In your new market, your money will go a lot further.

5 REASONS TO BUY LATER

1. You’ve lived in your house less than two years. Chances are you haven’t had enough time to accumulate equity in your home. Indeed, you may have negative equity, if you live in many areas such as California, Florida, Arizona or Nevada.

2. Your job security is uncertain. If your company or business is in distress, it’s probably better to stay put until the smoke clears.

3. You don’t plan to stay in your next house at least five years. While it’s not important to buy at the exact bottom of the market, it is important to stay long enough to ride it out completely.

4. You don’t have good credit or a decent down payment. Do you have a job and income you can document? As a result of the subprime lending crisis, lenders are much more careful about whom they’re giving their money to.

5. You have an existing home to sell in a neighborhood where prices are dropping precipitously or where the number of foreclosures is spiking. In this climate, you’re probably better off waiting out the storm.

8 Ways To Sweeten The Deal On Your Home

Excerpted/edited from Bankrate.com

Your house has been on the market for months. Is the age-old marketing ploy – the incentive – a home seller’s sure-fire solution in this buyer’s market? The answer is yes … and no. Offering freebies with your house is almost expected by some in today’s market. Buyers want you to help reduce the initial hit to their wallet should they buy your house. Incentives help. But it has to be an incentive that will help the buyer’s bottom line.  To understand what works and why, first consider what’s happening in the housing market now.

1. Nationally, there are more homes for sale than there are people buying—but interest rates are fantastic and smart buyers are buying now. However, they can afford to be more picky.  While home sales declined nationally 23.4% from January 2007 to January 2008, according to the National Association of Realtors, sales slowed most in the Western region, with a decline of 28.5%.  The slide has continued month-over-month this year, even as prices continue to fall somewhat, and The National Association of Home Builders reports a 10-month supply nationally of new homes on the market, compared with a 4.5 month supply in 2005. 

However, since all real estate is local, some markets are holding their own, or even thriving.  The Baldwin County/Mobile County area market is holding its own, with much better statistics than in other regions, and activity is picking up, but still off from last year.

2. Some sellers are turning to incentives. In February, 55% of builders surveyed by the NAHB said they were adding optional items at no charge, compared with 37% in 2002. And 43% said in February that they were paying all or some of the buyers’ closing costs.  Most bank foreclosure homes and corporate relocation houses are also offering financial incentives.

3. Buyers need to put cash down. Lenders have reined in those fully financed loans that helped trigger the mortgage collapse. Banks now demand not only better evidence that buyers can make the monthly payments but also that they have a financial stake in the property from the outset through bigger down payments.  In 1989, the median down payment was 20%, says the NAR, and mortgage brokers have reported that institutions are inching back toward such heftier requirements.  Even buyers who qualify for a low 3% down payment with an FHA loan still need to come up with closing costs, which add another 3% to 6% of the home’s price.

4. Many home buyers are first-time buyers. Without home equity to tap into, first-time buyers often have difficulty securing a large amount of cash. First-time buyers can handle the monthly payments; it’s coming up with the down payment and closing costs that’s hard for them.  First-time buyers comprise nearly 40% of the market. Of those, 22% receive a gift from a friend or relative to cover some or all of those costs, and 7% use a personal loan.

4. Smart buyers are buying now because interest rates are fantastic—but they can afford to be more picky than before. Smart buyers are buying now.  However, they can afford to be more picky than before since it is essentially a buyer’s market.  Offering incentives can help attract them to your home versus another house. 

Strong case for offering incentives

Add these four factors, say the experts, and you get a strong case for offering prospective buyers financial incentives. Help soften the financial blow associated with a new home, a time when buyers have the least amount of money in their pockets.  They’re buying. They’re going to closing. They might have moving costs. They’re going to have to buy furniture. Anything that helps their cash flow is going to look great to them.  It’s more true now than in recent years, say brokers.  Today’s buyers are savvy. They’re analyzing price data and aren’t distracted by things that seem like gimmicks.  Buyers react to those incentives or encouragements that impact their bottom line.

Here are some ways to offer financial incentives:

Pay closing costs

Closing costs include title, application and attorneys fees, and points paid toward the loan’s interest rate. They typically range from 3% to 5% of a home’s cost. The median price of a home sold in the United States in January was $201,100, according to the NAR. That means typical closing costs start at $6,000.  On a conforming loan, sellers can pay up to that 3%, and up to 6% if the buyer is using FHA financing. It is one of the most popular incentives today.  There’s definitely a trend for sellers to pay all or most of the closing costs for the buyers—it has a much bigger impact than dropping the price.

Why? Because the home price will be spread out over the life of the loan. Closing costs are due now.  It’s much easier to pay $30 dollars a month than it is to save $6,000. (If you save $30 a month it would take 16.6 years, excluding interest, to amass $6,000.)  Home builders rate closing-cost assistance as more effective than adding optional items or reducing the sales price, says the NAHB.

Buy down the mortgage interest rate

Instead of knocking down the price, a seller can give money to the lender to go toward the buyer’s interest payments for a certain amount of time, usually one to three years.  Here is a rough example:

Rather than taking $5,000 off the price, the seller gave it to the buyer’s bank, where the buyer had a $200,000 loan. The bank used the $5,000 to buy 2 percentage points of the interest payments for the first 12 months and 1 percentage point the second 12 months.  This reduced the buyer’s monthly mortgage payments from about $1,400 to $1,100 the first year and to $1,300 the second year. Given that the buyer had been paying $1,200 in rent previously, it eased the transition into the higher mortgage payments. 

Pay toward the down payment

Lenders won’t allow sellers to fund a down payment directly, but they do allow you to help via special down-payment assistance programs as long as those entities do not have a direct interest in the sale of the property. These include government programs, employers or unions, friends or nonprofit groups such as the Nehemiah Corporation of America, the Housing Action Resource Trust  and Partners in Charity. (The U.S. Department of Housing and Urban Development maintains a list of down payment programs whose nonprofit status has been revoked.)

Nehemiah, the largest of the charitable groups, has provided down-payment assistance to more than 250,000 home buyers nationally in the past decade. This is how it works: Nehemiah contributes up to 6% of a home’s price for a qualified buyer’s down payment. The seller later reimburses Nehemiah to replenish its account for other buyers. The buyer can get help from Nehemiah only if the seller agrees to repay the program, so the seller wins, the buyer wins and Nehemiah gains funds to help future home buyers.  For FHA loans, which require only a 3% down payment, a seller could essentially offer 100% financing by working with a program such as Nehemiah.

Buy a warranty

This is a great incentive, say real-estate agents. It typically costs the seller just $400 to $500 and gives the buyer peace of mind that any mechanical or electrical repairs will be covered, minus a small deductible, in the first year. Sellers can add riders for other items, such as wells, spas or washer-dryers.  Particularly for first-time home buyers, it really is a way for them to control or limit any unforeseen repairs.  Ask your real-estate agent what companies they like to work with. Also, the home warranties don’t go into effect until after the sale, so you can prepare. A list of home-warranty companies by state is available here.

Prepay some first-year expenses

Buyers who might have exhausted their savings and entered into steep monthly payments may feel great relief knowing other costs have been prepaid for six months or a year. These could include:

• Homeowners association dues
• Taxes
• Utility payments
• Lawn maintenance costs
• Housekeeping payments.
  

Non-financial incentives

There’s no cap to what you can offer. Just make sure you are upfront and disclose transactions to your lender. Incentives can work as a psychological draw, say experts. But keep them fun and related to the house. Advertise that the incentive will be offered for a limited time, and if it doesn’t work, try something else. Steer clear of politically incorrect items that might offend prospective buyers, such as fur coats or energy-hogging cars.

Be wary of paying for inspections or repairs

It’s possible to pay for these if need be, but it’s not necessarily a good idea.  A home inspector should represent the buyer. If a buyer pays for the inspection, there’s less chance someone could cry foul later. You don’t want to be accused of being in cahoots with the inspector simply because you signed the check for his work.  Also, if the seller offers to pay for repairs as a condition of sale, the buyer’s lender could require that the work be completed prior to funding, potentially stalling the sale.  It creates a hiccup in the transaction. Instead, what lenders will suggest is that the seller apply that money toward the closing costs. You can proceed and no work needs to be completed before the close.

Stay aboveboard

No matter what kind of incentive you ultimately offer, keep in mind that you’ll need to be upfront about the details with all interested parties. Both parties must disclose any transactions made as part of the process.  Spell out the value of incentives clearly.  With those caveats in mind, offer incentives. They can send a strong message to buyers that you are willing to negotiate.  In some cases, buyers prefer incentives over lower price. Just calculate the exact value and make it clear.