Cyberhomes Good Reading

Value-priced real estate markets

Thu, 19 Nov 2009 12:00:00 GMT

Unless you’ve been on a Martian sojourn, you know that real estate sales prices have dropped dramatically in most U.S. markets in the past 12 months. In some markets, declines approaching 50 percent aren’t beyond the pale.

The conventional wisdom holds that in markets where the average sales price is considerably lower now than a year ago, buyers can expect good value if they choose to purchase. This assumes that prices eventually will rise to levels similar to the market peak.

Cyberhomes examined markets that might be appealing now to a second-home buyer or investor, based on this conventional wisdom. The five counties we selected are among the 30 U.S. counties with the largest 12-month declines in average sales price, according to Cyberhomes data from June 2009, the most recent month for which reliable sales data are available. All five are attractive destinations in Florida, Arizona, Nevada, California and Rhode Island.

Even if you’re not in the market to buy a property, feel free to do a little window shopping.

Right wood makes a better fire

Fri, 13 Nov 2009 12:00:00 GMT

Many new homeowners are eager to enjoy a cozy fire in their new fireplace. But the reality doesn’t always live up to their expectations, oftentimes because they’ve chosen the wrong wood. Here’s how to remedy such woes.

Wood should be well-seasoned

To create a pleasant fire, firewood should be seasoned for at least six and preferably 12 months, according to Jay Walker, president of Jay Walker Enterprises, a chimney sweep and repair company in Havana, Fla. “Seasoned” means the wood has been cut from the tree and allowed to dry. The best firewood for burning has a moisture content of no more than 20 percent of the wood’s volume.

“The best thing to do, although it’s hard for the new homeowner, is to buy wood a year in advance and stack it,” Walker explains. “Then the next year, hopefully you will just burn about half of it, and then, you’ll fill up the void [in the stack] and keep rotating the wood, so you’ll always burn the stuff that is a year seasoned.”

Unseasoned wood burns inefficiently, produces a lot of smoke and causes a greater build-up of creosote in the fireplace and chimney, which necessitates more frequent professional sweepings. Watch out for wood that’s been wrapped in plastic as it may be too damp to burn well.

Wood fires can be detrimental to indoor and outdoor air quality and cause sensitive people to experience discomfort. The Hearth, Patio & Barbecue Association encourages so-called “responsible” wood-burning practices that can reduce emissions from wood fires. Burning seasoned firewood is among the association’s recommended practices.

Hardwoods burn longer, hotter

Look for hardwoods, which burn longer and produce more heat as measured in British Thermal Units, or BTUs. Examples of hardwoods include hickory, oak, maple, elm and cherry. Pine, poplar and aspen are examples of softwoods.

“The pine log would be really lightweight, and the oak wood would be really heavy, and you’d get a lot more BTUs and warmth out of the oak wood. It would take probably four or five pine logs to equal one oak log,” Walker says.

Woodpile should be elevated, open-sided

Serious wood-fire aficionados and people who burn a lot of wood for home heating purposes may purchase a full cord of cut wood, which totals 128 cubic feet. Homeowners who purchase a cord should be home when it’s delivered, have it stacked by the dealer and then measure the stack to ensure they’ve received the full amount, according to the Connecticut Department of Consumer Protection.

A woodpile should be elevated off the ground, covered on the top and open on the sides, so the wood can breathe and become properly seasoned, Walker says. Never stack firewood against the side of your house since that can allow termites and other pests to invade your home.

Manufactured fire logs made of compressed sawdust and other materials are a good option for homeowners who want to enjoy an occasional fire. Follow the instructions on the label because, as Walker warns, misuse of manufactured logs can cause a fire to become quite dangerous. The Chimney Safety Institute of America offers more information about fireplace safety on its website.

Avoid tax pitfalls when selling a rental property

Wed, 11 Nov 2009 12:00:00 GMT

Whether you’re a long-time landlord or new to the business of managing rental properties, there are lots of issues to consider when it comes time to place your rental property up for sale.

“Know the potential tax impact before you sell the property,” advises Karla K. Dennis, an enrolled agent and CEO of Cohesive, a tax advisory firm in Cypress, Calif. “Many people are looking to sell their property to secure additional cash. However, not understanding the full tax implications of the sale and how much you are going to have to fork over to Uncle Sam can be devastating come tax time.”

Here are the three most common questions — answered by industry experts — that landlords looking to sell their property may have about deciding to sell and the relevant tax consequences.

1. Will I have to pay capital gains taxes on my gains?

Yes, you have to pay federal capital gains taxes and you may have to pay state or local taxes, depending on where you live. For your federal taxes, the amount of tax depends on whether you lived in the property for two of the past five years and how much depreciation you took.

If you lived in the property for at least two of the past five years, you can exclude part of the gain based on the homeowner’s capital gain exclusion, says Abe Schneier, senior technical manager of taxation at the American Institute of Certified Public Accountants in Washington, D.C. If the property has been solely a rental for the past five years, you do not qualify.

Regardless of whether you lived in the house or not, you’ll be on the hook for depreciation recapture, because the tax benefit you received from depreciating your property on your taxes each year lowers your basis in the house and increases the amount of tax you’ll have to pay when you sell. “If you depreciated the property in prior years, the gain associated with depreciation will be taxed at a 25 percent rate,” says Dennis.

2. What expenses related to selling can I deduct?

“Whatever is on the closing statement would be deductible as part of the process of selling the house,” says Phil Liberatore, CPA, of IRS Problem Solvers in La Mirada, Calif. This includes any state or local transfer or selling taxes, legal fees, advertising expenses, Realtor’s commission and appraisal fees.

3. How do I figure out my basis when calculating if I have a gain?

It’s in your interest to have as high a basis as possible in your property to minimize potential taxes, says Dennis. “Start with whatever you paid for it based on the closing statement when you purchased the property,” says Schneier. While you can add improvements to the tax basis, you can’t add ordinary repairs that maintain the property. So if you put in a new kitchen, that’s an improvement that will increase your basis. But if you put on a new roof because the old roof was in dire need of repair, that doesn’t increase your basis. Make sure to keep receipts and document all your expenses, he adds.

Loan shopping just got easier

Fri, 06 Nov 2009 12:00:00 GMT

Finding and making an offer on the home of your dreams — euphoria! Getting a copy of your loan cost estimate from your lender — utter confusion. If you’re like most home buyers, you’ll spend hours deciphering all the costs involved in a mortgage loan. And, then you wonder: What’s the difference between a processing fee, closing fee and settlement fee? What exactly is a yield spread premium, and how do you know you can’t get the loan cheaper elsewhere? After all, the cost of the loan is about more than the interest rate.

The Department of Housing and Urban Development intends to make things less confusing on Jan. 1, 2010, with a new Good Faith Estimate form, or GFE, which outlines the costs of a proposed loan, as well as a revised settlement statement, which displays your final loan costs and is signed at closing. HUD estimates that average borrowers will save nearly $700 because they can clearly define costs and compare loans.

“It was immensely difficult for the borrower to decipher the costs that they would be expected to bear when it came to closing,” says HUD spokesperson Brian Sullivan. “If you were presented a loan offer and the costs were very clear, you can get other offers, easily compare and make decisions.”

Ritch Workman, owner of Workman Mortgage Company in Melbourne, Fla., and a Florida state representative, agrees: “Everyone needs to shop for a loan. Half of those who get ripped off wouldn’t have if they’d just called one more person rather than follow the lowest interest rate online.”

Here are four tips for finding the most cost-effective mortgage:

1. Know your loan type. Many borrowers now in foreclosure didn’t understand the type of loan they were getting. Adjustable-rate mortgages reset, triggering payments they could no longer afford. To better educate the consumer, “on the first page of the GFE, you’re now told what type of loan you have, your monthly payment and whether or not there’s a prepayment penalty,” says Jay Varon, an attorney with Foley & Lardner in Washington, D.C., who specializes in HUD-related issues. In the past, your only point of loan comparison was the interest rate. The new form answers questions such as, ‘Will my interest rate change?’, ‘Is there a balloon payment?’, and ‘Is this a fixed-rate mortgage?’”

2. Dedicate time to shopping. Workman urges consumers to use the shopping chart provided in the good faith estimate and allow time for the process. “If you’re working with someone who faxes you a GFE within minutes of your phone conversation, know that it isn’t accurate,” he says. It takes time to get cost disclosures from the title company and other steps, which means you should allow time to gather and assess the information.

3. Determine how long you’ll live in the home. Your timetable will pay a role in what loan you choose. “If you might have to move or only plan to be in the house a short time, paying a lot of points so you can have the lowest interest rate won’t make sense,” says Varon. “If you think this will be your home for 15 years, paying points to lower the interest rate may be the right thing to do.”

4. Concentrate on the rate and the bottom line. “During big refinancing booms, people brag about their interest rate,” says Sullivan. “But that’s not the only predictor of a good offer.” A good offer should have a low interest rate coupled with low loan costs. Remember, you’re not always comparing apples to apples, says Workman, who notes that mortgage brokers and mortgage bankers have different fees attached to the loans, some of which are offered as a credit back at closing. “If interest rates are the same, go to your cash at closing. That bottom line is key. You can use that to shop competitors and then [compare other] fees when you find comparable loans,” he says. Then factor in service, because good service can save you time at the closing — and time is money.

Fifty-something first-time buyers

Thu, 05 Nov 2009 12:00:00 GMT

Tom Hehir grew up in San Francisco and knew he’d never be able to afford to buy a home there. Even though he has a good job as a management consultant, he watched as the housing bubble took home prices into the stratosphere.

Then the bubble burst and everything changed. Hehir and his partner purchased a three-bedroom, one-bath home in the city’s Sunset neighborhood this fall. The first-time home buyer is thrilled with his large back yard, the cozy bedroom. But Hehir, 49, is less charmed by the knowledge that he’ll carry this mortgage till he’s nearly 80.

“I just laughed about that,” he says now. “It’s very clear that I will be paying off that mortgage until well into my senior years. God only knows what the economy or what my health will look like by then.”

Hehir isn’t alone. While the majority of first-time home buyers continue to be 20- and 30-somethings, the housing slump, combined with the $8,000 first-time home buyer tax credit, is ushering in a whole new type of first-time buyer: older folks. Fifty- and 60-somethings who thought home ownership was unattainable are now signing mortgages and buying starter homes that may be their last homes. But buying at a later age brings with it surprising differences, say these new homeowners, and require a different kind of financial prudence than faced by younger first-time buyers.

The hardest balance to strike is between saving enough for retirement and taking on the burden of a mortgage, said Anthony Webb, a research economist at the Center for Retirement Research at Boston College.

“The ideal is to be a homeowner without a mortgage at the time of retirement,” said Webb. “If you’re a homeowner with a mortgage in retirement, you are putting yourself at a lot of risk if you’re unable to meet the payments. If you’re a renter and you fall on hard times, one can always downsize. It’s much harder if you’re a homeowner. And it’s an expensive process to sell a home.”

Prospective older homeowners also must ensure that investing in housing doesn’t prevent them from also having enough cash on hand for retirement and emergencies. For most homeowners, their home is their greatest financial asset. But for people on a fixed income, putting all your money into a mortgage makes it impossible to put that money into savings or investments you can access quickly in case of emergency.

“We all have to face up to the fact that not everyone can quit working at an age of their own choosing,” Webb said. “I’m in my 50s, and my health and employment are holding out. But for many people, employment opportunities disappear, health breaks down. The problem is that it’s not foreseeable.”

On the other hand, he said, having a mortgage at least locks in the cost of housing for the foreseeable future, and frees you of the unpredictability of the rental market.

That’s the main appeal of home ownership for 53-year-old Karen Newcomb. After decades in San Francisco’s out-of-reach real estate market, Newcomb moved back to Florida. She rented until her landlords tried to raise her rent and her accountant urged her to move her money from stocks to real estate. She found she could afford a house in Deerfield Beach, Fla. – a two-bedroom place with room for an office for her copywriting business. In the end, her mortgage, including taxes and insurance, is $200 less than her rent.

And it’s the combination of the drop in the market and the federal $8,000 tax credit that’s made Sheila Moore into a first-time buyer at 61.

Moore, a single mother and a records clerk at Vanderbilt University in Nashville, was so busy working and raising her son she didn’t consider buying a house. Now she’s waiting to close on a three-bedroom brick house she says will not be fancy, but will be hers.

“For me, this is the right place at the right time,” she said. “When have you ever in U.S. history known the government to give you eight grand just for you to buy a house? This is the chance of a lifetime for some people and I’m one of those people.”

While Moore knows she may not live long enough to pay off the house, she’s hoping to pass it on to her son as a way to build future wealth. Plus, she looks forward to calling the shots in her home.

“I’m excited because I feel like it’s mine to do with what I want to do,” she said, “whether I play it up or play it down, dress it up or leave it alone.”

To avoid disaster, prequalify buyers

Tue, 03 Nov 2009 12:00:00 GMT

Just three weeks after they put their home up for sale in August 2008, Lisa Diamond and her husband received an offer of their full asking price of $899,000 for their three-story, Victorian-style home in San Francisco. They were reassured by their real estate agent that the buyer had the money required to close the deal and were encouraged to allow him to move in before the close of escrow because the deal was so solid.

Unfortunately, the buyer turned out to be without the means to buy the property, and the Diamonds had to evict him. Even worse, the buyer caused tens of thousands of dollars of damage to their property.

The Diamonds were much more cautious when they put their home back on the market a short while later. To protect themselves, they used these helpful tools to research, background check and prequalify their new buyer:

Google name search on the buyer to check for recent litigation, bankruptcy or bad press.

Better Business Bureau check on the buyer’s employer.

A look at the records on the buyer’s home to find out how much is owed on the mortgage, when it was purchased, and any other relevant details about its status. (This type of information can be purchased from sites like homeinfomax.com.)

A certified letter (requested by the Diamonds) from the buyer’s personal bank attesting to the buyer’s financial status and ability to afford the costs associated with closing on the home.

Such steps would have seemed unnecessary just a few years ago, but tighter credit requirements have reduced the pool of qualified buyers — and sellers should be cautious. It’s possible to waste considerable time and energy wooing a buyer who is unqualified to purchase a home. Real estate agents also have their own qualification process to shield their sellers from trouble.

At a minimum, Marilyn Buckley, an agent with the Buckley-Parshall Team of Nothnagle Realtors in Rochester, N.Y., wants to see a mortgage pre-approval letter from the buyer within 24 hours of receiving an offer on a property. (A pre-approval lender shows that a lending institution has checked a potential buyer’s ability to borrow a specified amount.) But pre-approval on its own is not sufficient anymore. “I also look at the lender,” says Buckley. “Is it a reputable firm or someone I’ve never heard of?”

Even banking relationships are examined. “The location of the buyer’s down payment is also critical,” says Dana Graham of Prudential California Realty Palos Verdes. “I don’t want to hear that it’s in the Bank of Kandahar.” A major U.S. bank raises fewer red flags.

Graham uses the time immediately following acceptance of an offer, when buyers are basking in the euphoria of their upcoming purchase, to ask them to apply for a mortgage with a firm he trusts. At this point, buyers are generally more willing to submit to certain requests, he says, to ensure they get the house.

He also shortens buyer deadlines, such as reducing the time given the buyer to receive mortgage approval and conduct a home inspection, from the standard 17 days to 10. His reasoning? “It’s much easier for a buyer to get out of a deal than the seller,” he says, so he works to keep the sale moving forward quickly while also alerting the seller as soon as possible to potential problems. As the saying goes, “the best defense is a good offense.”

Solve neighbor disputes before they turn toxic

Fri, 30 Oct 2009 12:00:00 GMT

In a perfect world, you’re best friends with your neighbors. You share cups of sugar, invite each other over for the holidays, and always say hello by knocking on the back instead of the front door.

But this isn’t a perfect world, and neighbors don’t always get along. Sometimes relationships with neighbors can become contentious.

Whether they raise your hackles with loud parties, or with more serious or even dangerous behavior, here’s how to cope with neighbor disputes:

1. Decide who owns the problem. If a dead limb from your neighbor’s tree hangs over your yard, who is responsible for taking care of it?

Local laws vary, but generally, if it’s within your property limit, it’s your problem, says Justin Arpey, an attorney with Atlanta-based Davis, Matthews & Quigley. That means if your neighbor’s tree dangles over your yard, it’s up to you to take care of it.

If you’re in a condo, check your regulations and declarations to see what is considered common area. A crumbling wall could be considered a common area, which means the condo association must take care of it.

2. Talk it out. It’s an obvious step, but can be hard to do, especially if you’re not close. “Try to talk to them over the fence, or give them a call to see if you can establish some sort of direct communication,” says Kris Donley, executive director of the Austin Dispute Resolution Center in Austin, Texas. Your neighbors might not even know there’s a problem, and they might be more open to fixing the issue than you’d expect. Before you knock on their door, write out what you want to say, as if you’re about to give a speech. Having those talking points can keep you on task.

3. Mediation. Talking isn’t going to solve everything, especially if you’ve had conflicts with your neighbors in the past, or aren’t good at confrontation. “If you tend to freeze up or lose your temper, or if you have negative history with the neighbor, it makes sense to seek mediation at that point,” says Donley. You can find a licensed mediator in your area by going to the website for the National Association for Community Mediation. They’ll act as an impartial third party, working to find a consensus in your dispute. If you don’t see a mediator listed in your area, says Donley, call the NAFCM center at your state’s capital. They’ll tell you the best place to go.

Whatever the dispute, calling the police or threatening legal action is the last thing you want to do. Not only can suing your neighbor be expensive, but it’ll make you and your neighbors enemies until someone moves away.

“I would recommend trying to work it out between your neighbor and yourself ad nauseum to do anything you can to avoid getting a lawyer involved,” says Arpey. “Once you do that, it changes the game and it changes the relationship with your neighbor. Litigation just isn’t that fun.”

Gen Y buyers want it all

Tue, 27 Oct 2009 12:00:00 GMT

When Kealoha Yoshioka was 27 and buying his first home – a fully renovated condo in Campbell, Calif. – he was dazzled by the extras: the dual bathroom sinks, the crown molding, the granite countertops.

Now, three years after his first home buying experience, the shine is off the extras, and he’s upside down in his mortgage. The allowance his wife and his accountant mother-in-law put him on for his Xbox games is all but gone, and the big expense is the couple’s 10-month-old puppy, Shiba. Yoshioka still wants all the bells and whistles in his next home – and he wants that new home to come soon, as the couple considers starting a family. But for the first time in his life, Yoshioka is doing something new: waiting.

“The niceties, the granite would be nice to have, but I wouldn’t get them unless I needed them at this point,” he says. “And it would be a good thing for us to move, but we’ll wait it out. Everyone tells us the same thing: ‘Wait. Be comfortable where you are.’”

But he’s not entirely comfortable. The last three years have been a crash course in real estate reality for Yoshioka and others like him in the Millennial Generation. For years, people have thought of the Millennials – folks between the ages of 15 and 32 – as the want-it-all generation: A generation so addicted to credit and so used to their parents’ lavish lifestyles that they’ll pay extra for the amenities that their parents traded up to have. Today, that desire holds fast, but the need to hold off is tempering their enthusiasm.

The bubble generation

That enthusiasm is expected to change home buying trends as the economy improves, says Terrye Underwood, senior principal at real estate research firm RCLCO in Los Angeles. As a group, Millennials, also called Generation Y, is larger than the Baby Boomers – there are 80 million of them compared to about 60 million Baby Boomers. Plus, they have more earning power than the generation before it, about $200 billion compared to $125 billion of Generation X.

“Generation Y stands to create the biggest wave of first-time home buyers ever in 2012,” said Underwood, speaking at PCBC, a builders’ conference, in June. “With this generation, we might naturally grow ourselves out of the current housing slump.”

But Millennials are also children of the housing bubble. They grew up with laxer credit rules than previous generations and with the first generation of mortgages that untethered income and employment from lending limits. Some watched parents repeatedly refinance or flip houses for quick profit.

That, combined with their earning potential and the not-so-distant frenzy of the housing market have made their have-it-all attitude seem rational, says Sam DeBord, Realtor and broker at SeattleHome.com.

“They bought nicer homes than their parents currently owned,” he says. “They wanted to make it happen quickly and it was status-driven as opposed to being about what they could really afford or what they really wanted.”

This was true of every generation in the lead up to the housing crash, of course. But for Gen Y, which had never experienced 15 percent interest rates, let alone a serious recession, it also made the generation more vulnerable to predatory loans and to the impulse to take out mortgages for more than they could afford, he says.

Today, DeBord sees a shift in the thought process of the Millennials he works with that’s affecting home buying trends. Like everyone else since the economic slowdown, Millennials assume they’ll own their first home longer and don’t assume it will function as an ATM. Most importantly, they have to be careful about how much they borrow.

“They’ve learned caution,” says Susan Seal, associate broker at Houlihan Lawrence in New York City. “They no longer let themselves fall in love with a home, but agonize about the potential rise and fall of the future market.”

Jumping in

Gen Y has also learned something else about home buying: In a buyers market, they may be able to actually afford all those bells and whistles this time around. That’s what Jeremy Schessee, 31, found when he started house-hunting in June.

He bought an 824-square-foot, one-bedroom condo in a brand-new development in San Jose, Calif. He got many of the upgrades: tile floor, granite countertops, high-end appliances, hardwood floors in the living room. He sprang for the big walk-out patio and the walk-in closet and a big shower in the bathroom. He made sure the place had laundry facilities.

He admits he could have gotten a roomier two-bedroom for close to the same price. But the standard finishes just don’t feel like him.

“I know in the future a two bedroom will probably be worth more, but I don’t want to live with tile countertops and the standard oak cabinets if I don’t have to,” he says. “If anything, I feel like I’ve gotten a little more choosy now because I’m able to. People are willing to fight for my business. Normally, when I go buy a car, I just take whatever they give me. I don’t want to haggle over price or make a huge fuss. But with the condo, I go in almost every weekend and ask for the key to see the progress. I’m not afraid to ask for things like a better move-in date. If I can afford it, why not?”

Real estate investment products: Investing in everything but the house

Fri, 23 Oct 2009 12:00:00 GMT

The financial industry doesn’t lack creativity. Firms have dreamed up investment products to fit every niche of the market. And if a particular market doesn’t exist, they’ll make it.

Not surprisingly, the real estate boom and subsequent bust inspired all kinds of new investment products that let investors (or speculators, as the case may be) take a gamble on housing without having to bet on the whole house. These investment vehicles make sense in theory. Renters who are worried they’ll miss out on real estate deals, for example, can invest in a fund that tracks the U.S. real estate market. Income investors, meanwhile, may find value in buying troubled loans.

But experts warn against jumping into the latest and greatest real estate investment vehicle until considering where it will fit in your portfolio. “If it’s too esoteric, don’t invest in it,” says Evelyn N. MacIntyre a certified financial planner with Capelli Financial Services in Bloomfield Hills, Mich.

Here’s what some financial advisors have to say about three new financial products that promise to let investors dabble in real estate.

MacroMarkets trusts

In June, MacroMarkets, a financial firm cofounded by Yale University housing economist Robert Shiller, launched two new investment vehicles – one bullish, one bearish – that track home prices in 10 major cities. If you’re worried that home prices will fall, you can hedge your bets with MacroShares Major Metro Housing Down. Conversely, if you want to double down on real estate, you can invest in MacroShares Major Metro Housing Up. The trusts, which trade on the New York Stock Exchange and resemble an exchange-traded fund (ETF), don’t invest in actual securities. Rather, assets shift back and forth between the two trusts each quarter to account for changes in real estate prices.

Expert take: While the trusts offer investors a direct – and liquid – stake or hedge on residential real estate, some financial advisors are leery about recommending them to clients. “It’s real estate price speculation pure and simple,” says Michael Kitces, a certified financial planner and director of research for Pinnacle Advisory Group in Columbia, M.D. (And if you’re truly interested in hedging against your own real estate market, betting for or against an index of 10 cities may be of little use. Real estate is, after all, local.)

Troubled loans

During the credit crunch investors wanted nothing to do with distressed bank loans. Of course, one man’s aversion is another’s opportunity, which is why the market for bad debt is booming. So much so that even individual investors are now buying loans via such sites as BigBidder.com and LoanMarket.net. The risk-reward scenario varies from one loan to the next, but loans typically sell for a fraction of their original value and offer sizeable yields. The caveat: Investors in these loans are responsible for collecting their payments or hiring a loan servicer to do it for them.

Expert take: The market for distressed debt has played an important role in getting our financial system back on its feet, says William Valentine, manager of Valentine Ventures, a wealth management firm based in Bend, Ore. “I would have loved to have seen something like this a couple of years ago.” But that’s not to say he’ll be recommending troubled loans to his clients. “The risk-reward profile will probably be pretty similar to that of high-yield bonds,” he adds. But high-yield bonds don’t come with the hassle of collecting on your loan or, worse, foreclosing on it.

Homebuilder exchange-traded funds

You could buy individual homebuilder stocks (i.e. KB Homes and Toll Brothers), but a better route may be the ETFs that track home builders. The funds, which track a basket of securities but trade like stocks, were decimated last fall. But in recent months they’ve been pumped up by investors who saw value in their fire-sale prices. The SPDR Homebuilders ETF (NYSEArca: XHB) and iShares Dow Jones U.S. Home Construction Index ETF (NYSEArca: ITB) has recently doubled their March lows.

Expert take: Homebuilding is a sector of the market that deserves some attention, says Kitces. “When something is destroyed as much as this sector was, it tends to have upside.” But much of that upside already may have been realized. Even if you do believe in the long-term prospect of home-related stocks, be careful not to go overboard. “Most investors are likely to already have exposure to home stocks through their diversified mutual funds,” says MacIntyre.

What about using these funds as a hedge against higher or – if you opt for an ETF that bets against housing – lower real estate prices? Probably not the best idea, says Valentine. “This isn’t a pure play on housing,” he says. You’re not investing in houses. You’re investing in businesses that build houses. What’s more, the stock market has more influence on these shares than the real estate market. If you’re looking for true exposure to real estate, your best bet is to invest in a Real Estate Investment Trust or REIT fund. These investments are backed by hard assets, says Valentine, and right now they’re yielding more than most buildings earn in rent.

Strong housing market ZIP codes

Mon, 19 Oct 2009 12:00:00 GMT

Residential real estate markets around the country have experienced tremendous losses over the last few years, but recent data from Cyberhomes shows that the trend just might be reversing in some areas. This gallery takes a look at 11 locations that are bucking the downward trend of their surrounding metro area. Could these standouts be leading indicators of a more widespread turnaround?

All data derives from the Cyberhomes Quarterly Real Estate Report for the second quarter 2009. The locations were chosen by comparing the annual percent change in median sales price of individual ZIP codes to that of their surrounding metro area. Other elements, such as the population in the ZIP code and the number of sales, were also factored in. Property listings were located via Cyberhomes’ search tool.

Buyers capitalize on home comps

Tue, 13 Oct 2009 12:00:00 GMT

Home sellers typically rely on information about recent sales of nearby homes to figure out how much their own home might be worth. But home buyers also can use this data, commonly called “comparable sales” or “comps,” to decide how much to offer for a home.

Comps track price trends

Rather than assume the seller’s asking price is the market value of the home, buyers can use comps to figure out an appropriate price to offer, explains Barry Nystedt, a broker at Buyer Broker Realty in Newton, Mass. Comps can also be used to track market trends, assess how active a market is and weigh whether a home has been competitively priced.

Buyers should consider the timing of home comps as well as the prices, Nystedt adds. While many sales close within four to six weeks, some take as long as five or six months. Those longer sales may be poor comps to use since they could reflect outdated market conditions. A competent Realtor can help buyers identify home sales that are truly comparable and interpret the information about those sales.

Some buyer’s agents will call the seller’s agent and ask about comps to help the buyer decide how much to offer. That strategy can be very effective, according to Linda Walters, a broker at Sage Realty in Wayne, Pa.

“If they can’t provide any comps, I have a leg-up on the negotiation because they know that I know that they can't back up their asking price,” she says.

Comps can help — but not always

Comps can be especially important for buyers if the seller has received multiple offers that have bid up the sale price. That’s because the home’s appraisal might not support that higher price, explains David Kerr, a team leader at ZipRealty in Oakland, Calif. If the appraiser believes the home is worth less than the agreed-on sales price, the buyer might have to pressure the seller to accept a lower price, pay the difference in cash or try to convince the appraiser that the home is worth more, so the loan will be approved. In any event, comps may be helpful.

That said, comps can lose their luster if a home nets a very large number of offers for much more than the asking price, says Fern Masters, broker/owner of Flagship Realty of Palm Coast in Palm Coast, Fla.

“If you are in that situation, comps don't really help you. If you want to buy that house, you have to give the sellers what they want,” she warns.

Comps also may be irrelevant if the seller’s loan balance exceeds the value of the home (i.e., a short sale) or if the seller is a bank (i.e., a post-foreclosure sale). Some seller’s agents will forward the buyer’s comps to the lender, but very often the lender will ignore that information and rely instead on an appraisal. In that case, the bank’s decision of whether to accept the buyer’s offer very often will be, as Kerr puts it, “at the whim of an asset manager.”

Time to take the plunge?

Mon, 05 Oct 2009 12:00:00 GMT

When a real estate market is experiencing falling home prices, everyone wants to know the same thing: “Have we hit bottom yet?” Homeowners want to know so they can stop reading the latest real estate news with a bottle of antacids and a full shot glass by their side. Home buyers, whether first-timers or seasoned investors, are looking for the right time to get the most for their money.

Unfortunately, just as it’s impossible to know exactly when a local market has reached its peak, it’s equally improbable to know for certain when home prices have hit bottom. Like any mystery, however, even when there's not hard-core evidence showing the status of the market, there are always clues. These can help you decide to dig in your heels or proceed with conviction.

Taking stock of the market

“The most important indicator is inventory,” says Daniel Herron, a Realtor with Keller Williams Advantage Realty in Denver. “Specifically, how many homes coming on the market versus how many homes that are coming off.”

Inventory is simply the number of homes for sale. The inventory is often reported for the entire country, a region, state or city. Your Realtor can document the inventory in an area of your town, or even a specific neighborhood.

Think of a car lot. If a dealer has too many cars, then you know you can probably get a good deal. If you want a model that is particularly popular, such as a hybrid when gas prices are high, you are likely going to have to pay sticker price or even more. The same inventory model works for real estate.

To gauge where a local real estate market is headed, you should look at the last three months of inventory and compare that to the last six months — “enough time to see a genuine trend,” Herron says. Look to see whether inventory is rising or falling. A study in the Denver area, for example, showed inventory dropped 21 percent from May 2008 to May 2009, he said. More importantly, the supply of homes dropped from six to 5.1 months.

Generally, a six-month supply — this is a hypothetical situation where at the current pace of sales, there would be no homes remaining to buy after six months if no new homes were put on the market — is considered a balanced market. Anything above six months is a buyer's market. In markets hardest hit by the downturn, the housing supply in some cities was 24 months or more.

Looking for a bottom

Herron says another key indicator to where a local real estate market is heading is the number of days houses are on the market (DOM) before they sell. If the DOM is falling, it shows that buyers are motivated to make a purchase.

Although it may not be ironclad, it’s fair to assume a market has at least touched bottom if you can document a declining inventory over a three- to six-month period (supply falling) and there is a steady decline in DOM (demand rising).

It’s important to compile these figures for the immediate area and home type you are considering because statistics from a larger area will be misleading.

The numbers in the study Herron sited were for the Denver area. But not every neighborhood was the same because the real estate market can vary considerably from neighborhood to neighborhood. He notes that in the Denver neighborhood of Green Mountain, for example, there was just a two-month supply of homes over the previous six months — which was much lower than the inventory for Denver as a whole. Home prices in this area were at $250,000 or less. But homes in more expensive areas nearby, where properties were above $600,000, were taking 20 to 22 months to sell.

In this scenario, looking at too large an area could lead a buyer looking to purchase in Denver's Green Mountain neighborhood to not act quickly enough at the low end and too quickly at the high end.

Bill Garber of the Appraisal Institute, a trade organization for real estate appraisers, says another important real estate indicator is fewer seller concessions. These are “non-real estate items, carrots to buyers to make them purchase a house,” says Garber.

When sellers are fighting for buyers, they sometimes offer everything from cash back to vacation trips to buyers, which would inflate the real value of the house. Buyers should talk to a couple of local appraisers and their agent to see if seller concessions are waning, which indicates a shift to a normal or even a seller's market.

“A $500,000 house is not a $500,000 house if it’s sold with a new Lexus in the garage,” says Garber.

How to expedite loan modifications

Mon, 28 Sep 2009 12:00:00 GMT

Zero-down financing, adjustable-rate mortgages and no-interest loans can spell trouble for homeowners in financial upheaval from a job loss or hardship. If you’re unable to make your mortgage payment each month, however, there’s good news — in many circumstances, you can save your home from foreclosure by working with your lender on a loan modification.

It’s important to act early before you miss a mortgage payment to preserve your credit rating. The U.S. Office of the Comptroller of Currency reports that loan modification success rates are linked to how soon homeowners contact their lender after getting into financial trouble. Homeowners who call their lender early and obtain a loan modification before missing their mortgage payments are 12 percent less likely to default on the loan than those who obtain loan modifications after missing two mortgage payments.

A loan modification is an agreement between you and the lender to change the terms of your loan, usually resulting in a lower payment you can afford. Help might come in the way of an interest-rate reduction, a loan extension or a rollover of unpaid payments into the loan. It’s typically not a temporary fix, but a permanent solution that works for both the lender and the homeowner.

Loan modifications may be frustrating and time consuming, but when successful, they’re beneficial for all involved. The bank avoids the cost of foreclosure, and the homeowner works out a loan agreement that allows the owner to keep the home.

“The first step struggling homeowners should take is to contact their lender or servicer,” says Rick Simon of Bank of America Home Loans. “Servicers will ask specific financial questions to help better understand the homeowners’ situations and determine the best options available.” And, those who are familiar with the qualifications and requirements are more likely to move through the process quicker.

Here are some tips for expediting your loan modification proposal with your bank or loan servicer:

1. Be prepared. According to a video produced by Freddie Mac, you can expedite your loan modification by having the following documents and information available when you call your servicer.

• Your monthly mortgage statement (which should include your loan number and property address)

• Your homeowners/condominium fees statement

• Recent pay stubs, W2s and tax returns to document monthly pretax income

• Your Profit and Loss statement (if you’re self-employed), which helps a lender determine your ability to repay your loan.

• A list of your typical monthly expenses (Bank of America offers a checklist)

• Documentation from other debts, such as home-equity loans

• The balance and minimum monthly payment on credit cards, car loans and student loans

• Anything that can document why you fell behind on your loan, such as a letter from your employer about a recent layoff, a utility cancellation notice or invoices for large purchases such as a new air-conditioning unit or other item that helped cause the financial hardship.

2. Make your case. Write a solid statement about your need for a loan modification to give to your lender or loan servicer. The hardest part of the process is writing a letter about what caused you to be in financial trouble, according to Freddie Mac. But, it’s an important step. “Write out a short statement about your financial problems,” says Simon. “Be as specific as possible. It doesn’t have to be long. This helps the servicer process your application more quickly.”

3. Phone off-peak. It can be hard to get through to your loan servicer. “Representatives are seeing an increase in call volumes,” says Bank of America’s Simon. Calling your loan servicer at off-peak times will decrease on-hold times and increase the likelihood of speaking with a professional in a timely manner. According to Simon, off-peak times are generally in the evening in the Eastern Time Zone or late afternoon in the Pacific Time Zone.

4. Don’t be sloppy. Complete paperwork accurately. After the initial call, if the homeowner qualifies for a loan modification or other workout, an application packet will be sent. According to Bank of America, about 80 percent of submitted applications have omissions or mistakes. Review everything carefully and make sure all supporting documents are signed. “Incomplete paperwork takes additional time to correct and creates more delays in the process,” says Simon.

If you can’t afford your current mortgage payment, but can pay a lower one, a loan modification can help you keep your home. And, according to Bank of America, it’s a cost-effective way for lenders to avoid dealing with trying to unload another distressed property — a true win-win.

Making eco-friendly home features pay off

Wed, 23 Sep 2009 12:00:00 GMT

When it comes to dollars and cents, energy-efficient, low-E windows and high-performance insulation are a better bang for the home buyer’s buck than shiny hardwood floors. Fortunately, the real estate market is beginning to recognize this: A survey of “green” home sales by Earth Advantage, a non-profit green building organization in the Pacific Northwest, found homes in the eco-conscious Portland area sold for 4.8 percent more and stayed on the market 24 percent fewer days than comparable homes without earth-friendly improvements.

If you’ve made green renovations to your home and are getting ready to sell — or if you’re thinking of making eco-friendly home improvements and have an eye on return on investment — check out these tips for making sure your earth-sensitive changes get you all the “green” you deserve.

Focus on eyes ... and wallets

Buyers are more likely to pay a premium for green improvements they can see, touch or feel in their wallet, says Andrew Jay Gross, chairman of The Green Committee in the Beverly Hills/Greater Los Angeles Association of Realtors. “Buyers clearly look for visible green features, like lighting, floors, appliances and garden features that use indigenous plants to conserve water,” he says.

Energy-saving lighting systems that use watt-sipping compact fluorescent or LED lights can really turn buyers on to a property, he explains, because they can see the system and know they’ll feel the difference in their wallet. And if you think these lights are all big classroom-style tubes or huge twisted coils, think again. More and more energy-saving bulbs are coming on the market in a variety of shapes and sizes to fit into even the most sophisticated décor.

And while they appreciate the good karma of saving and sustaining the earth, most buyers are likely to flock to the improvements that will save them money in the long run. Energy savings are really one of the driving forces pushing green into the mainstream of home buyers’ consciousness, says Jeff Ammons, president of LiveGreen Inc., a company that specializes in helping homeowners make marketable green improvements to their homes. “Most homeowners care about sustainability, but when it comes to money, energy savings is the big seller,” he says. “Sustainability requires more effort and longer payback periods than energy savings."

Ammons says many buyers he’s seen are looking up and down for improvements … literally. They seem to care most about the insulation and sealing in the attic and crawl spaces, and love upgraded, energy-efficient HVAC systems, he says.

Choose a real estate agent who understands ‘green’

A lot of buyers who aren’t searching specifically for an eco-friendly home can still be drawn to one if it’s marketed properly. “Each marketing effort is an education to most buyers,” says Jan Green, a Realtor and certified EcoBroker in Scottsdale, Ariz.

Green says she can’t just say, “Low-VOC paint” and expect it to sell a home, because most buyers don't understand the term. “But even when I explain that it means there are no volatile organic compounds in the paint, I have to explain what that means.” So if your real estate agent doesn’t completely understand what the green features in your home do or why they add value, neither will potential buyers.

But as green homes become more common, professional certifications are emerging to meet the needs of sellers. The best-known green real estate agent certification is probably the EcoBroker designation, which is administered and awarded by the Association of Energy and Environmental Real Estate Professionals (AEEREP).

John Beldock, Executive Director of AEEREP, says that as consumers become savvier about what makes a home green, it’s even more important to have someone representing your home who really understands eco-friendly features. “The best marketing is credible, honest marketing, based on accurate representations and without ‘greenwashing,’” or making something appear greener than it actually is. (You can find EcoBroker Certified professionals on the EcoBroker website.)

Find the right buyers

While almost any buyer will be interested in a home that’s more energy-efficient, there’s still a certain group of home shoppers who don’t want anything except a green home. To target this group, you and your real estate agent may want to go beyond the run-of-the-mill Multiple Listing Service (MLS) listing.

New sites are cropping up to cater to eco-conscious home seekers and sellers. Green recommends including your home on sites like ListedGreen.com, GreenHomesForSale.com, and the EcoBroker.com site, which draw an already eco-savvy crowd who know they’re specifically looking for a green home.

Many local Realtors groups are working to modify their area MLS listings to cater to green homes, as well, since many buyers who aren’t necessarily super environmentally aware are still interested in reaping the energy-saving benefits these homes offer. Now, instead of only being able to search by metrics like home size, school district or price, in some cases buyers can also search on some websites for LEED-certified residential properties (which meet strict green-home criteria set by the U.S. Green Building Council) or Energy-Star-rated homes. But don’t stop there — take advantage of social networking sites like Facebook and Twitter to promote your home's green qualities, as well.

Remember that no matter what, there is value in green. “These energy and environmental features make for better properties, and consumers and investors favor properties with better walls, better windows, better mechanical systems and better indoor air quality,” Beldock says. “The key principal is accurately describing these features in a property.”

When to buy a foreclosure

Mon, 14 Sep 2009 12:00:00 GMT

The “f” word (as in, foreclosure) is hard to escape these days. The latest media reports are projecting a second tidal wave of foreclosures to hit in late 2009 or early 2010 as unemployment remains high, home prices continue to fall and banks’ self-imposed foreclosure moratoriums expire.

If, by some miracle, you’ve managed to save money over the past few years, now may seem like the perfect time to find prime real estate at a bargain-basement price and buy a foreclosure.

Buyer beware: There’s a gaping chasm between foreclosure myth and reality. Despite the hype, nationwide, foreclosures still comprise less than 3 percent of the actual market nationwide.

“The foreclosure market is tiny, tiny, tiny,” says Andrew Waite, publisher of Personal Real Estate Investor Magazine. “Delinquent mortgages have hit about 7 percent of total properties, which means that 93 percent are still in good standing.”

“There’s a lot of talk about foreclosures,” adds Elmer Diaz, president of the National Real Estate Investors Association, a non-profit organization dedicated to promoting professionalism and standards of excellence in the industry, “but individuals are finding out that they’re not getting the type of properties they’re looking for.”

There are two reasons for this, explains Diaz. First, the typical home in the predicted second wave of foreclosures is a residence in an outer-ring suburban development. “They’re above-median-average homes in the $250,000 to $300,000 price range that stand in a 20-block square that is 25 percent empty,” says Diaz.

Translation: The home may have curb appeal and will be in good shape, but neither the house nor the neighborhood possess enough of the five characteristics that would make it a five-star real-estate investment: value (what it costs to get into the property), convenience (proximity to where you work), amenities (restaurants, shopping), good school district (even if you don’t have kids) and beauty (everyone wants to live in a pretty place).

Second, many of the best foreclosure investments are being bought up by companies that purchase millions of dollars worth of foreclosed homes in blocks, fix them up, then sell them to clients either as an investment property (with a renter already in place) or as a primary residence.

“You need to buy a block of a half-million dollars or more in foreclosed homes to get the cream of the crop,” says Diaz. “The rest is the crap of the crap.”

Finding the discounts

But that’s not always the case. Joe Egan, president of Minneapolis-based Advantaged Equity, has bought and flipped more than 50 foreclosed homes in the Twin Cities metropolitan area over the past seven years. Egan maintains that there are still plenty of foreclosure bargains out there, no matter where you live, especially if you are patient and well-educated in your market.

“I probably make 10 offers to get one house,” says Egan. “My return has to be 20 to 25 percent. If I can’t get that, I walk away and go on to the next house.”

Buying a foreclosed property is a double-edged sword for an individual investor who intends to occupy the home, says Egan. In order to get the best deal on a foreclosure, he says, you need to make a strong offer, likely in cash, without any inspection or financing contingencies.

“With no contingencies you can save thousands of dollars,” says Egan. But that’s where a first-timer or a neophyte will get into trouble. The house could have problems with mechanicals, foundations, electrical or any number of big-ticket items.

“Marginal deals turn out to be bad deals,” Egan says. When he purchases a house, Egan always adds a $10,000 cushion for unexpected hazards. But even he still gets burned on occasion.

“I had to buy one house in winter the day before the bank was going to take it back,” he says. “The roof was 15 years old and there was four inches of snow on it so I couldn’t properly inspect it.”

The snow melted and, sure enough, the house needed a new roof. “Somebody who can’t pay the mortgage isn’t going to add a roof or tune the furnace,” he says.

Even given the potential pitfalls of purchasing a foreclosed home, Egan encourages it. “As long as you know what you’re getting into, go for it,” he says. “If you are looking to get into the home yourself, be patient, be prepared to make a few offers, make sure you get an inspection, and educate yourself on home improvement, even if it’s through free workshops at Home Depot.”

If Egan’s DIY approach feels too intimidating, take Diaz's advice. “If you’re not a roll-up-your-sleeves type of investor, chances are that you’re not going to get back the effort and money you sink into the place,” he says. “That’s why I advise that people should hook up with a turn-key investment. You’re going to pay more, but it’s worth the price.”