Real Estate Information

The Cost (And Benefit) of Homeownership Today

Everyone generally knows one of the great benefits of homeownership is the mortgage interest write-off come tax time every April.  The question is how does that benefit translate in real dollars?  Tough question.  The answer is, “It depends.”  Whether you saved a couple hundred or a couple thousand dollars with the write off this past year, there are many more factors involved for the home-renter considering becoming a home owner if you want a true picture of the bottom line benefit of homeownership.  Some of those factors already have dollar signs attached to them: current monthly rental payment, purchase price of home, mortgage interest rate, length of loan, etc.  There is a buying versus renting tool available here at the Ginnie Mae website to help you factor in all those numbers and give you a better picture of your specific situation.

Here’s a great article discussing those hard number factors as well as some of the more subjective dynamics like pride of ownership, dealing with landlords, long term plans, and the volatility of the real estate and mortgage markets.

The best way to go about documenting your household inventory is to go room to room, writing down all your property in each room, its cost when purchased, the year purchased, and its current value.  You may not have all that information readily at hand.  That’s alright.  Just be sure to complete the list to the best of your abilities without exaggerating values.  If this feels like an incredibly daunting task, remember to take your time and only tackle one room at a shot. If you do one room every Saturday morning until you’re complete, you’re less likely to become overwhelmed, and more likely to be prepared if the worst ever happens.  Don’t forget basements, storage buildings, and the garage!

Here’s a tip:  Use a video camera.  Take your handheld video recorder, and once again walk room to room filming the contents of your home.  This is in addition to your written list, not in place of it.  For the video you do not need to cover every individual item, just scan the room making sure you get footage inside closet spaces and jewelry boxes. Capture shots of all computer and other electronic equipment.  Narrate as you go, explaining what things are, so you have audio to go with your video.  Here are some inexpensive video recorders that are great for this task: Kodak Zi8, Flip, and Sony.

If you suffer a loss resulting from a fire, for example, that is not covered by your insurance there is still some relief possible through the government.  There’s helpful information in IRS publication 2194 titled “Disaster Losses Kit for Individuals” here which explains potential tax benefits available for people who suffer a loss that is uninsured.  This short article explains the basics as well, and again, I advise you to speak to your professional tax preparer and insurance agent to explore your current situation.

If you haven’t already done so, you might consider completing a household inventory of your family’s possessions.  The obvious reason is its support when filing an insurance claim for a loss of property.  In the case of a fire, theft, flood, hurricane or any other event casualty that takes or destroys your personal property, this list can help you in the process of getting reimbursement through your homeowner’s or renter’s insurance, and if you ever have the misfortune of having to pick up the pieces after one of these disasters it can make the road to recovery somewhat smoother.  It’s a daunting task for sure, but compared to going back after losing everything and trying to reconstruct a list of the contents of every room, it is time well spent.

Here are the basics:  The first thing you need to do is speak with your insurance agent and be sure you fully understand what your current policy covers.  Second, fill out the complete inventory sheet of all your possessions.  Third, compare the current value of your possessions to your existing coverage.  You may discover previously unknown gaps in your coverage, or that you have too little or too much coverage for total value of your possessions.  And lastly, take your list outside your home!  Put it in a safe deposit box, or take a copy to stick in your drawer at work.  Just don’t leave it at home.  Don’t go through the trouble of completing this very necessary exercise only to lose your list along with all your possessions in a fire.

Up next, Part 2 of “The Importance of a Household Inventory,” which will include tips on tax relief and tools to help make the completion of your inventory faster and easier.

Four Reasons the Outlook is Positive for the DC Area Real Estate Market

Despite the talk about a national “double dip” in the housing market, the outlook in the Washington, DC area is actually quite positive.  While most people have heard the expression “Real Estate is local,” that sentiment has never been more true than now.  Our area is unique in many ways, and it is that uniqueness that is allowing us to lead the way in the housing recovery.

1. Unemployment Is Low and New Job Creation Is High

According to the Labor Department, the DC area posted the lowest jobless rate of all large metropolitan areas in January, at 6.1%.  In addition, our area enjoyed the fourth largest over-the-year increase in non-farm payroll employment, with 40,800 more jobs in January 2011 than in January 2010.[i]  Aside from leading the nation in job growth, the DC area is more transient than many other metropolitan areas.  The constant flow of people moving into and out of the area means that there is always demand for housing.

2. Home Prices Are on the Rise

The average sales price in the DC metro area for each quarter of 2010 was higher than its respective quarter in 2009.  In fact, in the fourth quarter of 2010 prices rose 7.5% compared to the fourth quarter of 2009.[ii]  While home prices dropped in most markets in January 2011 as compared with 2010, the DC area was one of only two markets that saw an increase.  Prices in the DC metro area showed 3.6% in January 2011 as compared to January 2010.  The only other market to see year-over-year growth in January was San Diego, which saw a modest .1% increase.[iii]

3. Inventory Has Decreased Over the Past Year

The number of new listings of single family homes in Montgomery County for the first quarter of 2011 was 13.8% lower than in the first quarter of 2010.  In March 2011 – typically the kickoff month for the busy spring season – there were 18.6% fewer single family homes listed than in the same month in 2010.[iv]  This all translates to a smaller pool of homes for a seemingly constant buyer pool.  Because of the shortage in supply, it is not uncommon for well-priced homes in good condition to receive multiple offers shortly after being listed for sale.  In fact, one of our March listings received six offers, several of which were above list price, within days of hitting the market.

4. Interest Rates Are Still Low, But…

While interest rates are still near historical lows, experts from all quarters are predicting that rates will begin to rise in the near future.  The current low rates, coupled with the threat of future increases, seem to have created a sense of urgency among buyers that had been missing in the latter half of 2010.  Those who have been waiting to see whether home prices will continue to drop are beginning to understand that continuing to wait may not pay off in the end.  In fact, it would take a 5% drop in home prices to offset a 0.5% increase in interest rates.

So what does it all mean?

The bottom line is that the real estate market in the DC area is more stable than that of other parts of the country, so prospective buyers and sellers should not hesitate to make a move!

[i] Data from the Bureau of Labor Statistics
[ii] Statistics and chart from Metropolitan Regional Information Systems, Inc. (MRIS) data
[iii] As reported in the Washington Post, March 29, 2011
[iv] Data from MRIS, as presented by the Greater Capital Association of Realtors (GCAAR)

Each year, Remodeling magazine publishes a “Cost vs. Value” report that identifies the average cost recouped for a number of popular home improvement projects.  This year’s report (see link, below) analyzes thirty-five projects and provides return on investment data for the nation as a whole as well as for nine geographic regions and eighty individual cities.  According to the report, the following five projects yielded the highest return on investment for the Washington, DC metropolitan area in 2010:

Several other projects that are popular in our area were very close behind, including replacing windows, adding an attic bedroom, and remodeling a basement.  When looking at the list, one should keep in mind that Remodeling is looking strictly at the percentage of the cost of the project that is recouped when the house is sold.

While return on investment should be an important factor in a homeowner’s decision to embark on a home improvement project, there are other factors that warrant consideration.  How long do you anticipate living in the house after the project is completed?  How much will the improvement enhance your quality of life while you are living in the home?  The answer to that last question will be difficult to quantify, but that does not make it any less valid.

Of course, if you are planning to sell in the near future, the return on investment for any work you do to your home should be your primary consideration.  In that vein, here is a list of inexpensive improvements that will make your home more attractive to prospective buyers:

1. Paint Rooms in Neutral Colors
2. Remove Wallpaper
3. Wash Exterior Siding
4. Clean Windows
5. Replace Out-of-Date Light Fixtures
6. Replace Kitchen Cabinet Hardware
7. Buff or Refinish Worn Looking Hardwood Floors
8. Steam Clean Carpeting
9. Replace Chipped or Cracked Bathroom Tiles and Clean or Replace Grout
10. Freshen Up Landscaping around the Home’s Entry

Links:

Remodeling Magazine’s Report
http://www.remodeling.hw.net/2010/costvsvalue/national.aspx

Inexpensive Home Improvement Projects from eHow.com
http://www.ehow.com/way_5120200_lowcost-home-improvement-ideas.html

Washingtonian Magazine’s Remodeling Guide
http://www.washingtonian.com/packages/greathomedesign/index.html

Ten Ways to Increase the Value of Your Home from HGTV’s Frontdoor.com
http://www.frontdoor.com/Sell/10-Ways-to-Increase-the-Value-of-Your-Home/1231

Home Sellers’ Guide from About.com
http://homebuying.about.com/od/sellingahouse/qt/ResaleRepairs.htm

If so, you'll want to check out this great article, posted on Trulia.com:

http://bit.ly/gNKcXc 

The DC area is covered with a blanket of snow, and with just over three months to go before spring, this is not likely to be the last time.  Here is a list of areas requiring attention after a snow or ice event:

1. HVAC condensers

2. Dryer vents

3. All accessible drains

4. Basement windows

5. Heat pumps or air conditioning units

6. Gas furnace or hot water heater vents

7. Exterior GFI outlets

8. Window sills

9. Driveways and walkways

Leaving snow and ice buildup in these areas can potentially cause your home’s systems to shut down, water damage to occur, or other unsafe conditions to develop.

Our thanks to Case Design/Remodeling for providing this information.

If you are considering selling your home – or if your home is already on the market – there are steps you can take to increase the likelihood of a quick sale.  Some of these steps are common sense: clean the house thoroughly, make sure that basic repairs have been completed, and price the house appropriately.  If you haven’t sold a home in several years, however, you will find that there are additional steps you will need to take to compete in the Internet age.

1. Provide High Quality Photos and/or a Virtual Tour

Many prospective homebuyers begin their search on the Internet, and some will make the decision about whether to visit your home based on the quality and quantity of photos they see.  Because of this fact, it is essential to provide numerous photos of both the interior and exterior of your home.  In addition, many Realtors will recommend that a virtual tour be created.  The goal is to attract the interest of prospective buyers before they have even seen your home in real life.  Your Realtor will be familiar with several companies that produce high quality photos and virtual tours and will be able to make all the arrangements for you.

2. Establish a Strong Internet Presence

Since so many people use the Internet to assist them in their home search, it is important that your home appear on multiple web sites.  Houses listed with a Multiple Listing Service will automatically appear on Realtor.com.  This is significant as Realtor.com continues to be one of the most visited real estate sites on the Internet.  Other sites that receive substantial traffic include Trulia, Zillow, and Craig’s List.  While both Trulia and Zillow pull listings automatically from the MLS, a post must be created manually on Craig’s List.  Some Realtors create a stand-alone web site for each of their listings (i.e., CherryHillLane.com).  This technique can be useful when paired with a sign rider displaying the URL for the site.

3. Set the Right Price

While pricing a home correctly has always been important, it is absolutely imperative given the current state of the market.  Use valid comparables and avoid setting the price based on the amount of money you want or need to net from the sale.  When looking at comparables, you should concentrate on homes that have sold recently, are nearby, and are similar to yours in terms of size and amenities.  Resist the temptation to arrive at a price based on what homes were selling for one to two years ago.  Instead, focus on homes that have sold in the past six months – the more recently, the better.  If the comparables do not support the sales price that you have in mind, talk to your Realtor and/or your lender about your options.

4. Stage Your Home

Staging used to be just for high-end and vacant homes, but not anymore.  These days, staging can range from a handful of well placed accessories to a whole-house makeover.  In a buyers’ market, it is essential that your home show as well as possible.  Buyers are less willing to use their imaginations, and they expect each room’s purpose and potential to be obvious.  A dining room should be immediately recognizable as a dining room, a bedroom as a bedroom, etc.  Extra furniture and accessories should be removed as they often make a room appear smaller than it actually is.  Consider renting a storage unit while your home is on the market.  Some storage companies provide complimentary use of a moving truck for several hours to facilitate moving your items.  Ask your Realtor if you need recommendations.

5. Work with a Tech Savvy Realtor

Home buyers are increasingly tech savvy, and your Realtor should be as well.  As smartphones become more and more common, people have come to expect almost immediate response to phone calls and e-mails.  Because e-mail and text are quickly becoming the preferred mode of communication for many people, it is important that your Realtor be comfortable with these types of interactions.  Buyers also expect information about the house, including disclosures, to be readily available.  Your Realtor should utilize the Internet to ensure that all of the important information is just a click away.

What Every Homebuyer Should Know

Why get a home inspection?

Many buyers think that the only reason to get a home inspection is to find out whether anything is wrong with the house they are considering purchasing.  While this is an important objective of any home inspection, it is not the only one.  A home inspection is a great opportunity for prospective homeowners to learn about the systems, appliances, and structural elements that make up the house.  A thorough home inspector will take the time to discuss things like the age of each of these components and the maintenance that will be necessary to keep them operating smoothly, and will often estimate when they might need to be replaced.  An inspector will also point out the locations of important items like the electrical panel, crawl space entrance, and water shut-off valve.  In short, a home inspection is a chance to “learn the house” prior to moving in.

Who should conduct the inspection?

Your real estate agent will be able to recommend two or three qualified, experienced home inspectors.  All home inspectors should be insured, and in some states they must be licensed.  To see the licensing requirements for each state, visit the National Association of Home Inspectors web site (see link, below).  While not a requirement, it is a good idea to choose an inspector who belongs to either the American Society of Home Inspectors (ASHI) or the National Association of Home Inspectors (NAHI).  These organizations have standards of practice and codes of ethics to which all members must adhere.

Who should be present at the home inspection?

The buyers and their agent (or a representative of the agent) should always attend the home inspection.  The listing agent will typically advise the sellers to leave the house during the inspection, but occasionally the listing agent will be present.

How much will it cost?

The cost of a home inspection will vary based on factors like the location, the size and, in some cases, the sales price of the house.  Some inspectors charge a flat fee, while others base their fee on the size or price of the house.  Always call at least two home inspectors and ask them what the inspection will include, approximately how long they anticipate it taking, and how much it will cost.

What other types of inspections are there?

 There are many types of environmental testing that can be performed on a house, the most common of which are radon, asbestos, and lead paint.  Testing for these and other potential hazards may or may not be advised for all homes.  A more common type of inspection that is performed on many homes is a termite inspection.  Many lenders require that a termite inspection be performed and that any necessary treatment or repairs be completed prior to settlement.

Where can I find more information?

The American Society of Home Inspectors (ASHI)
   http://www.ashi.org/

The National Association of Home Inspectors (NAHI)
   http://www.nahi.org/

US Inspect
   http://www.usinspect.com/

Mid-Atlantic Inspection Services
   http://www.midatlanticinspections.com/

I'm often asked if this is a good time to buy a home. Some clients are concerned that home prices may fall further than they have already. They are assuming that the best course of action is to wait for the bottom in the market and then buy. The problem with this approach is that you don't know where the bottom is until you see it in the rear view mirror, meaning until you've missed it!

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have gone up in the last six months, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates up, it could cost you even more to service a mortgage on an identical home!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today's market.