Straight Talk About Real Estate

Timothy’s comment on August 10 asked whether you can recover the full cost of a remodel upon selling.

Let’s see: Find two houses right next to each other with the exact same floorplan, with exactly the same landscape, and same condition. Remodel the kitchen of one of them, but not the other, leaving everything else the same. Put both of them on the market at the same time, and see how much more the one with the remodeled kitchen will sell for.

While some people in the industry has tried to put a percentage or dollar amount of investment recovery you can see, there is really no scientific way of determining this accurately. There are too many factors in the sale of a home that is not measurable.

With that said, let me say generally speaking, you do not get back 100% what you put in. There are a couple of possible exceptions to that I can think of. One, you do the work yourself. If, and it’s not for certain that you will, sell higher than your cost, then you have just paid yourself the price of your labor. Two, your house is fixer-upper in obvious need of repairs and nothing has been updated for 40 years.

So unless you fit either of the above, do not put in money to remodel for the sole purpose of selling for more. I would do the three hints I blogged about yesterday, along with a new coat of paint.

If you do remodel, here are a few points of advice, based on common sense along with 20 years experience in the market place and gut feeling:

Do not buy the most expensive material. A $100 kitchen sink will probably get the same amount for your house as a $500 sink.

Stay with a neutral and timeless look. Any too trendy will narrow your field of buyers and have them thinking they will have to remodel again.

Adding lighting in a naturally dark room or area gives the feel of a bigger house.

Use inexpensive accessories and special touches to give your remodel a custom look, such as accent paint, upgraded faucets, upgraded door handles, etc.

Thank you for your good question, Timothy.

Many real estate sites give you a long list of things you should do to prepare your house for selling. If you are overwhelmed by that, here is a short list of 3 things you can do quickly and inexpensively to make your house more appealing to buyers:

1. Systemize your clutter. Here is a quick and easy method: Pack up clutter, pictures, and anything that you do not use on a daily basis and will not need until after you move. But don’t just throw things into a box, or you won’t be able to find them when you do need them.

Use this system that I learned from a workshop that enables you to find exactly what you need later. This hint is worth a million dollars. Put your items in a nice stackable box. I use boxes from the office that were used for reams of paper - they are a manageable size and best of all, they are free! Itemize on an index card everything that is in the box. You do not need to catagorize the items because that would take time and preplanning. For example, on one card, I have “3 small glass vases, 1 small reading lamp, 5 framed family pictures, back issues of Real Estate Today.” Number the index card, and put the same number on all 4 sides and top of the box with a big permanent marker. You should be able to see the number from at least 10 feet away. Stack the boxes against the wall in your garages.

Two weeks later, if I want to get a vase to use, I thumb through my index cards. I see the vases are in box #1. I go to the garage, see box #1 plain and clear, pull out that box, and there is my vase. You will amaze your friends and family by being able to locate exactly what you need among all the stuff in your garage within 5 minutes!

2. Increase curb appeal. But you do not want to spend hundreds of dollars on plants nor have the time to plant them. Instead, buy potted plants, especially those flowering in season, leave them in the pots, and put them in places that will catch the attention of the buyer. After you sell the house, you can take the plants with you and plant them into the ground in your new house.

3. Attract the buyer’s sense of smell. Buy a spray can of a light scent. Before the buyer comes, spray lightly outside at the front door, just inside the entrance, the bathrooms and kitchen. Emphasis here is light. A strong scent or too much of it will make everyone want to get out of the house as quickly as possible. I find that vanilla scent is not objectionable. This will cover up any cooking smells or stuffiness in the bathrooms. Do not use incense. I also do not recommend disinfectants such as Lysol because it smells like you are obviously trying to cover up odor. With a light sweet scent in the house, the buyers will leave with a positive association of a nice smell with your house.

These 3 hints do not cost you much, and will increase the attractiveness of your house.

“A lender is offering loans with no points and no fees. Is there a catch?”

First, some definition of terms. Points mean a percentage of the loan amount that you pay at closing. One point means you pay 1% of your loan amount. Fees usually include non-recurring costs associated with getting the loan. Some of those fees are appraisal, credit report, documentation, title, escrow, notary, recording, and processing. Some lenders could charge additional fees.

It is common sense that the lender has to make money somewhere. If the borrower doesn’t pay him anything, where does he make his money?

Lenders make money on the “backend” by charging a higher interest rate.

For example: The lender offers you a no point loan with an interest rate of 5.75%. The same lender can give you a lower rate of 5.5% if you pay one point. By giving you a .25% higher rate, he gets a “rebate” from the investor who lends the money.

Generally speaking, one point is equal to .25% interest rate. Or 1/2 point equals .125% interest rate.

So should you take 5.5% and pay 2 points or take 6% with no points? Which is better for the borrower? It depends on your situation. An honest lender will help you do the calculations and show you which scenerio is better for you. Either way he makes money.

Does it matter who my agent is just as long as he finds me the house I want?

Absolutely, it matters!

Your agent has a fiduciary relationship with you, there to protect your interests. If your agent is not knowledgeable or negligent of the details in a transaction, you will lose. Finding the house is merely 5% of the purchasing process.

I know of a buyer who found out after closing that there were defects in the house not disclosed by the seller. She called her agent repeatly. Needless the say, the agent did not return her call. She finally got a hold of the broker of the company, and found that her “agent” did not have a real estate license. She was never given the required Real Estate Transfer Disclosure Statement, never saw a copy of her inspection report, and simply thought that once she found the house she wanted, everything would be fine. Being a first time buyer, she didn’t even know what questions to ask.

She filed a complaint with the Department of Real Estate against the company. She is now being sued by the broker for libel because she told her friends to avoid this company. Can you believe that?

Buying a home is probably your biggest financial investment. Who your agent is matters.

Money Magazine, August 2005, named the top 100 best places to live in the United States. Chino Hills, California is #68.

I have sold quite a few homes in Chino Hills. We own a rental home there also. It is a well-planned community with a good balance of recreational parks, residential homes, and commercial properties. The city has been able to draw in large retailers and restaurants to form regional shopping centers. Thus there is a strong tax base without a mega mall, maintaining the feel of a small town.

The Chino Valley Unified School District has two high schools, the newest one just graduated their first class this year, 2005.

As typical of growing new communities in the Los Angeles suburbs, the homes in Chino Hills are basically tract homes, with small lot sizes in the range of 4000 to 5500 square feet, and stucco construction. There are areas of custom homes, luxury gated communities, and large home lots in Chino Hills for those in the upscale market.

The commute into Los Angeles for work will take you at least 2 hours during rush hour. But the proximity to Los Angeles allows you to enjoy the arts and leisure there. Just avoid heavy traffic hours.

A 3-unit property in Ontario, California, sold in December, 2002 for $275,000.
The new owner turned around and sold it in February, 2004 for $379,000.
Now that new owner is going to put in on the market for $568,000.

Looking at the comps, that $568,000 price is pretty fair. It might even go for more. This is unreal. It just doesn’t seem right, but that’s the state of the market now.

A client called me and asked, “I hear about these 1% loans, is it too good to be true?”

There are in fact loans with interest rate of 1%. But it is not what you think.

It’s a neg am loan, negative amortization. This means the monthly payment you make is based on 1% interest rate. But your note rate, or the actual rate is actually much higher.

The note rate is always an adjustable tied to an index plus a margin. For example, let’s say your adjustable rate is tied to the MTA index (12-Month Treasury Average) plus a margin of 2.5%. With the MTA at 2.8, plus 2.5 margin, your note rate is 5.3%.

The difference between the payment for 5.3% and 1% is put into the principle amount of your loan. Yes, your payment is low based on 1% interest rate, but your loan amount increases every month. If you took a loan out for $250,000 at the beginning of the year, your loan amount at the end of the year could be something like $265,000. And remember, the payment is based on your loan amount. As your loan amount gets larger, so does the amount that is added on to the loan.

That’s how the 1% loan works.

What are buyers looking for? From the other perspective, what can sellers do to fetch more dollars?

Walk-in closets, great rooms such as a large open family room, modern kitchens.

What does not matter as much: formal living room and dining room, swimming pool.

Tired of high home prices?

This is true, there is free land …in Kansas and a few other states. In order to stimulate growth in rural areas with declining population, these communities will give you land to build your house. The requirement is you actually have to live there.

With the growth of internet businesses, where people are not tied down to a location, it may be a good alternative to congested city life.

If you live in a condominium, or any kind of planned unit development, it is likely that you pay an association fee.

I am often asked: Can the association fee be raised to any, potentially infinite, amount?

First, a homeowners association, or HOA, is as the name implies, an association comprising of the homeowners. As a homeowner of that association, you have a voice and a vote. You can also run for a Board position where you can have more influence on all that affects the property.

California Civil Code Section 1366 explains restrictions on HOA assessments. There are limits to how much the HOA can assess. The text of the Code is rather long; you can Google it and read about the specifics.

You will see there that some of the restrictions on association fees assessments do not apply in cases of specific emergencies, such as a court-ordered expense or required repairs to the property when there is a threat to personal safety. In that sense, the association fee can potentially be raised to any amount.