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Archive for the ‘Home Appraisal’ Category

Making Mountains Out of Molehills

 

Making Mountains Out of Molehills

That small project could easily mushroom into a costly endeavor.

Oftentimes, homeowners don’t devote much care or attention to selecting a contractor to work on a minor repair or simple project. After all, they assume, it’s so small. They reason that it doesn’t matter if they hire a friend, someone just starting out, who doesn’t hold a proper license or who lacks vast experience and financial stability. At least, that’s what they think. Unfortunately, if you hire someone who doesn’t know what he’s doing, that small project could easily mushroom into a costly endeavor.

We recently talked with one couple who hired a man for a relatively small complete kitchen up fit who was just launching his own business. They got a "great deal." He gained needed experience. What could be wrong with that? Unfortunately, this person ordered cabinet-grade finished crown molding for their ceiling crown (and then painted it), when regular crown molding with the same profile was readily available. So instead of paying 60 cents a linear foot for materials, this couple paid nearly eight times as much. He never pulled a building permit, and we noticed potential electrical and plumbing code violations and other sub-standard work. That small up fit, which should have taken 6 to 8 weeks at the most, ended up taking 4 months. Then, they had issues with cabinet doors not closing properly and sheetrock damage that they hired us to repair. While none of these issues was earth-shattering in and of itself, you can see how the expense, aggravation and inconvenience mounted quickly. Not to mention the fact that tense situations like this which involve friends or family members can strain or even end relationships.

Particularly for small projects, the apparent savings of dealing with a cut-rate handyman can be tempting. Homeowners assume that surely any kind of handyperson can effectively tackle small projects, and they turn a blind eye toward the risks. While we were doing some interior remodeling work for one family, we saw the work being done by the contractor they hired (before finding us) to build a front porch extension. Unfortunately, he used white wood – essentially OSB sheathing - to frame a portion of the steps that was later to be covered in stone veneer. That wood was in direct contact with masonry. We told him that over time that exposed wood would absorb moisture and eventually rot, inviting termites. When we came back several weeks later, as we had predicted, the wood was already starting to swell. The contractors working on the project had just stopped – the homeowners hadn’t heard from them in 6 weeks. That was actually fortunate, since if the project had been completed as started, the homeowners wouldn’t have realized there was a problem until the stone started to fall off or they discovered an insect infestation.

Also, it’s essential to hire a contractor who can look beyond exactly what you ask for to grasp what really needs to be done. After all, he or she is supposed to be the expert – so they should use their knowledge to your advantage. For example, we were doing an interior repair for one family, and as I was waiting for them to answer their door, I noticed that their wood trim and front door molding was drying out and cracking. I simply pointed it out, explained that they could take care of it now, when it was truly a minor repair, or let it slowly rot out and replace the entire frame later. Likewise, if someone completes a small repair incorrectly – we’ve seen interior grade wood used to repair the exterior of a palladium window – that minor fix can mushroom into a huge project ($6,000 to $8,000 to replace the water-damaged window).

In the end, it all boils down to experience. While they may excel at work they typically handle, some contractors are simply not adept at handling repairs or small projects, because they don’t know what to look for and it’s simply not their forte. So before you hire that sweet little old man from down the street to handle your “small” project, think twice, and then have someone address it properly the first time.

Buyer Beware

 

Buyer BewareMotivated Seller. Bank-Owned Property. Under Tax Value. In today's challenging economic climate, these signs are popping up on more properties and in neighborhoods where they would have been unimaginable just a short time ago. So if space in your existing home is getting a bit tight, does it make sense to consider a distressed property, build from scratch or renovate your existing home?

The answer is: it depends.

There's no doubt that there are some unusual opportunities available right now, so you should explore all of your options. Since material costs have held constant, the cost of new construction has remained relatively stable. That means that in some cases you can buy a distressed property for less than it costs to build. But you have to go into a distressed sale with your eyes wide open, so that you don't have to open your wallet unexpectedly. Consumer protection laws emphasize caveat emptor, Latin for "let the buyer beware," in these instances. The phrase means that the purchaser buys at his/her own risk - and therefore should thoroughly examine the home for obvious defects and imperfections. Caveat emptor applies even if the purchase is “as is” or when a defect is obvious upon reasonable inspection before purchase.  (Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.)

That's why it's so critical to know what you are becoming involved with. Distressed properties usually have been unoccupied for an extended period of time. Homes that have been sitting empty often suffer from a lack of air flow (doors and windows tightly closed, no HVAC systems running, etc.) which exacerbates any moisture problems, concealed water leaks, or mold lurking beneath the surface. We recently inspected a one million dollar plus home that was actually a biological hazard, because you quite literally could scrape the mold off its walls. That home required stripping walls to the studs and treating the mold, extensive and expensive air filtration work, and repairs just to make it habitable.

Unlike new construction, there are no warranties on distressed homes — you are buying them as is — and there's often a lack of information on how they were built to begin with. While that may not be an issue if it was constructed by a reputable builder, it could be if the homeowners were building their own home as an investment. Structural and electrical issues are common. Plus, you may be dealing with issues of theft or vandalism of key home systems. It's critical to get a distressed property inspected and then walk the property with a licensed, professional contractor you trust who can help identify any issues before you buy.

In the case of a short sale, realize that you'll be facing a much longer buying process. We recently saw one that took nine months to close because there were two banks involved and all parties had to agree.

If everything else falls into place, you also have to consider whether the home has the features your family needs. When you buy an existing home, you are buying another family's lifestyle, so make sure the house will fit yours. You can take some of the money you saved and invest it in wise renovations that can turn that bargain into a home that functions well for you. If it needs too much work, you may want to invest instead in remodeling your existing home (see our Blog article on Renovating vs. Moving). If you can't modify your home or alter another to meet your needs without exceeding your budget, then it makes sense to build exactly what you want.

In the end, buying a distressed property is much like shopping from a clearance rack, just on a much larger scale. Sometimes you find a great bargain in your size. Other times you need to alter the garment to fit you, and you still come out ahead. Occasionally, you get it home and realize that you threw your money away because the piece just won't work for you. The key is to remember that a good deal is not a bargain if it ends up costing you more in the end.

10 Reasons to Remodel vs. Moving

 

10 Reasons to Renovate Instead of MovingAre you frustrated with the lack of a workable home office? Does your home really need a more functional and updated kitchen?  A larger, updated master bathroom? An accessible master suite on the main level? Instead of selling your house, you may want to consider renovating. Adding an extra room, reconfiguring existing areas or even tackling a second-story addition may be your most cost-effective and least disruptive option. Here are 10 reasons why people opt to renovate:

Moving expenses

RemodelorMove.com estimates the average cost of moving a typical $200,000 home (Charlotte’s April 2010 average sales price was $201,410, according to the Charlotte Regional Realtors Association), at a staggering $15,000 to $50,000. That includes moving preparation, the actual move, Realtor commissions, upfits and purchases for the new home, and a possible increase of $0 to $10,000 in property taxes.

Fees

That figure doesn’t include seller-paid closing costs, which typically run 3-5% of the sales price.

Hidden issues

While you know what’s in your home, you may be inheriting someone’s problems if there are issues that don’t show up on your new home’s inspection report. If the seller is making repairs, make certain they have been properly completed by a licensed, professional contractor -  electrical, exterior wood, roofing, boxing, siding and subfloor structural issues often won’t become apparent for several months or longer, when the cost to re-repair correctly will come out of your pocket.

Moving disrupts families

You’ll need to pack up personal belongings and keep the house in “ready-to-show” condition to be prepared for prospective buyers.

Moving disrupts networks

In addition to the friends you’ll be leaving behind, there are school, church and social changes that impact the entire family.

You may have to move twice

If you haven’t already located or closed on your new home by the time yours sells, you’ll need a temporary place to stay.

Double jeopardy

If you move before your existing home sells, you’ll need to cover two mortgages for an undetermined period of time.

Quicker than you think

Depending on the scope of the project, here are some surprisingly fast (approximate) construction times for common projects done by a licensed, professional contractor: the average room addition takes five weeks, a complete kitchen remodel 6-8 weeks, and a complete bathroom remodel 4-6 weeks.

Timing is everything

While the housing market is improving, values are not yet back to 2006 levels – which means holding onto your home until the market rebounds may make financial sense.

Solid investment

If planned and executed properly, you may recoup a large portion of your renovation expenses, particularly if you plan to stay in your home for a few years. Remodeling Magazine’s Cost Vs. Value 2009-2010 Southeast report puts recoup rates at 90% for attic bedrooms (mid-range project), 84.4% for basement remodels (mid-range project), 74.6% for a mid-range major kitchen renovation or 64.9% for an upscale version that includes features like granite countertops, 71.9% for a mid-range bathroom remodel or 64.3% for an more upscale bath renovation, and an impressive 146.8% for steel entry door replacement (mid-range project).

When considering those returns as well as all the issues involved in deciding whether to renovate, it’s vital to weigh what award-winning home improvement writer and author Kathy Price-Robinson wrote on her remodeling blog: “If you plan on living in your house for more than five years, you must factor in the quality of life increases as well as the payback on your investment. After all, is it a home where you live and shelter your family, or is it just an investment like a mutual fund?”

What’s it Worth?

 

What's your home worth?Whether you are looking to buy a new home, sell your existing residence, or renovate the home you already own, the first and most important question on your mind is likely to be: What’s it worth?

As consumers, we place a high level of trust in the professionals who assign a value to our homes. Early in May 2009, the U.S. Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) adopted new guidelines to assist in accurately and independently determining the value of homes. Enacted in the aftermath of the housing crisis, the Home Valuation Code of Conduct (reprinted at the bottom of this article) was designed, in essence, to prevent lenders or other third parties from unduly influencing the results of the appraisal process.

As is true when you are doing anything new, accurately interpreting the intent of the change and then following the correct procedure to implement it can be a bumpy process.  Some lending companies have incorrectly interpreted the code to mean that they must use the services of appraisal management companies. This can be problematic if their employees are not familiar with local market conditions, or worse yet, are not even based in this state. To help combat home valuation problems that some buyers, sellers, and real estate agents have run up against, the North Carolina Real Estate Commission recently sent this letter to the Federal Housing Finance Agency.  The text of the letter (reprinted below this article) was reprinted in the October 2009 "Carolina Real Estate Commission Real Estate Bulletin."

Before an appraiser determines the value of your home, ask about the four main issues broken out in this letter to achieve the most accurate results: Does the appraiser work for an appraisal management company? If so, is it owned by, controlled by or affiliated with your lender? Is the appraiser state licensed, and will he conform to accepted practices? Is the appraiser familiar with the market, and does he have access to current market data? Asking these few simple questions can have a major impact on one of the most critical aspects of buying, selling or renovating your home.

Home Valuation Code of Conduct

Editor's Note: The recently implemented Home Valuation Code of Conduct is intended to enhance the independence and accuracy of the home appraisal process and provide added protections for homebuyers, mortgage investors and the housing market. In response to complaints from real estate consumers and brokers regarding the Code, the Real Estate Commission has announced its support for legislation requiring appraisal management companies operating in North Carolina to be regulated by the North Carolina Appraisal Board, and it directed that the following letter be sent to the Federal Housing Finance Agency.

September 23, 2009

The Federal Housing Finance Agency

1700 G Street, NW 4th Floor

Washington, DC 20552

Dear Sir or Madam:

To assist your agency in monitoring and evaluating the effectiveness of the Home Valuation Code of Conduct implemented May 1 by the U.S. Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae), the North Carolina Real Estate Commission has directed me to share with you its observations and experiences with regard to the Code and to respectfully offer its suggestions for improvement. The Real Estate Commission is a governmental agency charged with protecting the interests of real estate consumers in our State. The Commission recognizes and appreciates your efforts through the Code to address some of the more egregious abuses visited upon the public by the unscrupulous acts of certain mortgage lenders. However, like your agency, we have found when adopting rules and implementing new legislation, some innocent misunderstandings and intentional attempts to exploit ambiguities in them are perhaps unavoidable.

With regard to the Code, prospective homebuyers have complained to us that lenders assert that under "new rules" the lenders must order appraisals through appraisal management companies. We have also received complaints from buyers, sellers and real estate agents that appraisers assigned by such companies to perform the appraisals are not familiar with or sufficiently informed about the real estate market where the property is located to make accurate appraisals. We are, in fact, aware of cases where appraisers have traveled from other states and of cases where appraisers attempted to perform appraisals without consulting MLS sales data. Further, despite the apparent intent of the Code to distance lenders from the appraisal process, we have learned that some lenders own or have an ownership interest in the appraisal management companies they use.

Although the Real Estate Commission does not at this time support a proposed moratorium on the continued implementation of the Code and we are aware that bulletins and other supplemental information about the Code have been published, it recommends for your agency's consideration that the Home Valuation Code of Conduct itself be amended to:

  1. Clarify that lenders need not engage appraisal management companies;
  2. Prohibit lenders from engaging appraisal management companies which are owned, controlled by, or affiliated with the lender;
  3. Expressly require lenders to engage, whether directly or indirectly, appraisers who are state-licensed and that the appraisals performed by such appraisers conform to the minimum requirements of state laws and rules and the Uniform Standards of Professional Appraisal Practice; and
  4. Expressly require appraisers who are engaged to perform appraisals to be familiar with the market where the property is located and to have access to and use the best available data for that market in performing the appraisal.

We hope our suggestions are received in the helpful spirit in which they are intended and that you will you not hesitate to contact our office if we can be of any assistance to your agency with this or any related matter.

Sincerely yours,

North Carolina Real Estate Commission

Reprinted from: Real Estate Bulletin October 2009