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How to Assess the Real Cost of a Fixer-Upper House

How to Assess the Real Cost of a Fixer-Upper House

by | Dec 2, 2014 | Buying, Homeownership, Real Estate, Selling

When you buy a fixer-upper house, you can save a ton of money, or get yourself in a financial fix.

Trying to decide whether to buy a fixer-upper house? Follow these seven steps, and you’ll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.

1.  Decide what you can do yourself.

TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house.

  • Do you really have the skills to do it? Some tasks, like stripping wallpaper and painting, are relatively easy. Others, like electrical work, can be dangerous when done by amateurs.
  • Do you really have the time and desire to do it? Can you take time off work to renovate your fixer-upper house? If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?

2.  Price the cost of repairs and remodeling before you make an offer.

  • Get your contractor into the house to do a walk-through, so he can give you a written cost estimate on the tasks he’s going to do.
  • If you’re doing the work yourself, price the supplies.
  • Either way, tack on 10% to 20% to cover unforeseen problems that often arise with a fixer-upper house.

3.  Check permit costs.

  • Ask local officials if the work you’re going to do requires a permit and how much that permit costs. Doing work without a permit may save money, but it’ll cause problems when you resell your home.
  • Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit.
  • Factor the time and aggravation of permits into your plans.

4.  Doublecheck pricing on structural work.

If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems.

Get written estimates for repairs before you commit to buying a home with structural issues.

Don’t purchase a home that needs major structural work unless:

  • You’re getting it at a steep discount
  • You’re sure you’ve uncovered the extent of the problem
  • You know the problem can be fixed
  • You have a binding written estimate for the repairs

5.  Check the cost of financing.

Be sure you have enough money for a downpayment, closing costs, and repairs without draining your savings.

If you’re planning to fund the repairs with a home equity or home improvement loan:

  • Get yourself pre-approved for both loans before you make an offer.
  • Make the deal contingent on getting both the purchase money loan and the renovation money loan, so you’re not forced to close the sale when you have no loan to fix the house.
  • Consider the Federal Housing Administration’s Section 203(k) program, which is designed to help home owners who are purchasing or refinancing a home that needs rehabilitation. The program wraps the purchase/refinance and rehabilitation costs into a single mortgage. To qualify for the loan, the total value of the property must fall within the FHA mortgage limit for your area, as with other FHA loans. A streamlined 203(k) program provides an additional amount for rehabilitation, up to $35,000, on top of an existing mortgage. It’s a simpler process than obtaining the standard 203(k).

6.  Calculate your fair purchase offer.

Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs.

For example: Your target fixer-upper house has a 1960s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.

Your comparison house, in the same subdivision, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.

The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000.

Ask your real estate agent if it’s a good idea to share your cost estimates with the sellers, to prove your offer is fair.

7.  Include inspection contingencies in your offer.

Don’t rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:

  • Home inspection. This is key in a fixer-upper assessment. The home inspector will uncover hidden issues in need of replacement or repair. You may know you want to replace those 1970s kitchen cabinets, but the home inspector has a meter that will detect the water leak behind them.
  • Radon, mold, lead-based paint
  • Septic and well
  • Pest

Most home inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you cash at closing to pay for the repairs. The seller can also opt to simply back out of the deal, as can you, if the inspection turns up something you don’t want to deal with.

If that happens, this isn’t the right fixer-upper house for you. Go back to the top of this list and start again.

 

By: G. M. Filisko:© Copyright 2014 NATIONAL ASSOCIATION OF REALTORS®

Listing and Selling Your Green Home

Listing and Selling Your Green Home

by | Nov 18, 2014 | Green Living, Real Estate

Choose a green real estate agent

Hire a real estate agent who knows as much about green homes as you do. About 5,000 REALTORS® nationwide have earned the NATIONAL ASSOCIATION OF REALTORS® Green Designation by taking classes in green building, sustainable business practices, and green home marketing. A private company offers the EcoBroker designation.

Questions to ask a REALTOR® who specializes in green homes:

  • Have you had special training in selling green homes?
  • Do you serve buyers seeking green houses and do you have a list of buyers actively seeking green homes?
  • How many green home sales have you completed in the past year?
  • How do you market a green home differently than a regular home?

Ask whether your MLS is green

About 30 to 40 of the 900 home MLSs nationwide (databases where agents list properties for sale) have special fields in which your agent can identify your home’s green features. Agents for potential buyers can search a green MLS to look for a green home or green features like solar panels or an energy-efficient furnace.

Over time, as the home MLS data grow, the results will help appraisers easily find comparable sales of green homes, which they can then use to more accurately value a green home like yours.

On the web, large sites that use home MLS data offer some green home search capacity. At www.Realtor.com, you can search broadly for energy-efficient homes, but not for specific features like solar panels. At Trulia.com you can use keyword search terms like “solar” or “green,” but in addition to pulling homes with green features, that search will also bring back listings by real estate agents named Green and homes on streets with the word “solar” in the name.

Curious if your area has a green MLS? Among other places, you’ll find them in:

  • Albuquerque
  • Austin, San Antonio, and Houston, Texas
  • Charleston, S.C.
  • Memphis and middle Tennessee
  • Portland, Ore.
  • Santa Barbara and southern California
  • Traverse City, Mich.
  • Triangle region of North Carolina
  • Tucson and Phoenix, Ariz.

List your home’s green features

You can trumpet your home’s greenness in two ways in the typical green MLS.

Your real estate agent can note if your home or its features have been officially certified or designated green. Then, agents for homebuyers interested in green homes can search for local designations as well as national designations and certifications like:

  • Leadership in Energy and Environmental Design (LEED)
  • Energy Star
  • Enterprise Green Communities
  • The Environmental Protection Agency’s airPLUS Guidelines and Water Sense programs
  • Home Energy Rating System (HERS Index)
  • Living Building Challenge
  • National Green Building Standard

The other way to highlight your house’s green features is to specify them in the home MLS’ searchable fields. For example, if you have solar panels, water-saving devices, or geothermal heating, your agent can check those fields. Real estate agents helping buyers interested in a green home can also use the search function to find green homes with specific features.

In some green MLSs, your agent can highlight the brand and model of energy-efficient appliances and building materials. The result is a movement toward a more standardized and accurate way for buyers to find the type of home they want and for you to highlight your home’s green upgrades.

Use the home MLS comments section

What if your local home MLS isn’t green? Your agent can market your home’s green features in the home MLS by listing them in the additional remarks space. Work with your agent so she knows which features you’d like to highlight, which feature she recommends highlighting, and how those features contribute to your home’s energy efficiency and eco-friendliness.

Can you get more money for a green home?

Data show your green home could sell faster and at a higher price than a similar house without green features. In 2009, certified green houses in Atlanta sold 31 days faster than traditional homes, according to the Earth Advantage Institute, a Portland, Ore., nonprofit that certifies green homes. Certified green houses in Seattle built from 2000 to 2008 sold for 8% to 9% more per square foot than traditional homes, according to local sales statistics.

More from HouseLogic

Professional energy audits

What you should know about appraisals

Other web resources

REGREEN residential remodeling guidelines

More on tax credits for energy efficiency

G.M. Filisko is an attorney and award-winning writer who just added energy-efficient windows to her Chicago condo. A regular contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and leg

 

By: G. M. Filisko © Copyright 2014 NATIONAL ASSOCIATION OF REALTORS®

7 Steps to a Stress-Free Home Closing

7 Steps to a Stress-Free Home Closing

by | Oct 16, 2014 | Buying, Homeownership, Real Estate, Selling

Simple Steps to a Stress Free Home Closing

This cheat sheet helps you do your homework, so you know what you’re signing when you close the sale of your home.

You’ve already cleared several hurdles by finding the right home, negotiating the best price, and getting approved for a mortgage. The last obstacle on your homebuying track is the closing, which can be both tedious and tense. By knowing what to expect and doing some legwork, you can smoothly put your closing behind you. These seven steps will guide you.

1.  Set a Closing Date

Ask your title company to set a closing date and time that meshes with the end of your lease or the sale of your existing home. Don’t want to skip work? Ask for an evening or weekend closing. Tight on cash? Schedule your closing for the end of the month. That’s when you’ll pay the least amount of interest at the closing table.

2.  Gather Your Funds

Buyers usually have to bring money to the closing. Ask the title company what forms of payment it accepts. Chances are you can’t use a personal check.

If you have to move money into your bank account to pay your closing costs, do so a week ahead to avoid last-minute problems. If the title company requires the funds in the form of a cashier’s check, stop by the bank a few days before closing to pick it up.

3.  Purchase Title Insurance

If you’re getting a mortgage, you have to buy a title insurance policy. Think it protects you against problems with the title of your home? Nope, it protects the lender in case the sellers really didn’t own the home or someone else had a claim on it.

To cover yourself, you can buy an owner’s title policy from the same insurance company that sells you the lender’s title policy. Or, shop online at Closing.com, EasyTitleQuote.com, or FreeTitleQuote.com. An owner’s title policy insures you against losses from fraudulent claims against your ownership and errors in earlier sales. In some areas, sellers traditionally pay for the buyer’s title policy.

Whether or not you get the owner’s policy, if you buy a title policy from the same company that issued the prior owner’s title insurance, you can ask for a reissue discount or “bring-down” rate. There’s a discount because the title company only has to check the records filed since that prior owner bought the home, not since the dawn of time.

4.  Line Up Homeowners Insurance

Get quotes and compare policies to be sure coverage will start by your closing date. An annual policy should run $500 to $1,000, depending on your home’s size, age, and amenities. To get a lower premium, opt for a high deductible or buy your homeowners insurance from the same company that insures your car.

If you live in an area where natural disasters occur, like earthquakes, floods, or hurricanes, you’ll need separate insurance to protect your home from those hazards.

5. Review Your Good Faith Estimate and HUD-1 Settlement Sheet

Your lender already gave you a Good Faith Estimate (GFE) that showed your estimated closing fees. Some of the fees on your GFE can’t change and others can rise by 10%. Before you go to the closing, compare the numbers on your GFE with the numbers on your HUD-1 settlement statement. Question your loan officer about any fees that increased.

6.  Do a Walk-Through

Schedule an appointment to walk through the home one last time just before your closing.

  • Make sure repairs you requested have been made.
  • Look for major changes since you last viewed the property.
  • See if the sellers left everything they promised to leave.
  • Check to see that the sellers took all their personal belongings.
  • Test electronics and appliances to ensure they’re still working.
  • Turn on the HVAC and hot water. Are they functioning right?
  • Walk the yard to be sure no plants or shrubs have been removed.

7.  Resolve Issues Identified in Your Walk-Through

If your walk-through uncovers problems:

1.  Delay the closing until the seller corrects them (if your state allows it). But that’s often not feasible because your lease is probably over and you’ve already scheduled movers.

2.  Negotiate a discount to your sales price to cover the cost of the work needed. If the air conditioning is on the fritz and a contractor says the repair will cost $500, ask that the sales price be reduced by that amount. If you make that request at closing, however, be ready for a delay while the title company redoes the paperwork.

3.  Have the title company hold a portion of the seller’s proceeds in escrow until the dispute is resolved. Once that happens, the funds will be released to you or the seller, depending on the outcome.

Related:

  • Do You Have the Right Amount of Homeowners Insurance?
  • Do You Need an Umbrella Policy?

Sources: G. M. Filisko, © Copyright 2014 NATIONAL ASSOCIATION OF REALTORS®

 

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