Nolo’s Real Estate Tips for Home Buyers

I recently came across an entertaining website from the National Association of Realtors® at www.housingmarketfacts.com. I will admit that I was originally drawn to it because I was expecting to find lots of statistics and predictions about market conditions, which I love, in part just because I can reflect, "Wow, there are really that many people looking to buy a house with 8 bathrooms?" or later look back and say, "Were they wrong about that!" And while the NAR has a wealth of statistics and predictions, this site was mostly a gateway to specific parts of the organization's official site, designed specifically for people who are thinking about buying. (It's more entertaining than the regular NAR website, though, since you're welcomed by a Princess Leia-like character... and by that I mean the little hologram projected by R2-D2.)

But not to be distracted. While elsewhere I'm hearing the housing market just took the biggest drop in two decades, the NAR is trying to convince me of the wealth-building value of buying a home. It seems like a tough sell (no pun intended), and it reminded me of something important first-time buyers should consider: when relying on information, consider your source. 

By no means am I saying that the NAR isn't a reputable source. But, as a first-time buyer, you should definitely look deeper before deciding when and where to buy and whether you'll build wealth in the process. One is that markets are very local. Values fluctuate within a county, city, or sometimes block. Another is that markets right now are volatile. Things can change quickly; any national organization compiling statistics can't keep up with the pace.

I agree with the NAR -- over the long term, most houses appreciate and help buyers build wealth. But whether, when, and by how much are all dependent on specifics. You can find the details in your market by checking comparable sales, evaluating sales history and growth, talking to local professionals, and keeping an eye on the amount of inventory in the market and how long it's sitting around.

And if you want a statistic to justify your decision to either buy or wait, jump on the internet. I'm sure you'll find it somewhere.

Alayna Schroeder

A recent poll of residents of the world's eight richest cities reveals that over 40% of Tokyo's residents don't want to sacrifice a convenient lifestyle to prevent global warming. While these results may seem startling, consider that the average house size in Tokyo is 64.5 square meters, or 694 square feet (not to mention that many residents probably take public transportation to work, and drive cars that put American gas guzzlers to shame). To really make a positive environmental impact, those of us who are quick to pat ourselves on the back for our eco-friendliness must think beyond bringing our own bags to the store and driving hybrid vehicles.

And there's no better time to think about these issues than when buying a home, which leaves a (literally) big footprint. While some features -- energy efficient appliances, CFL light bulbs -- can be added later, some "green" features are permanent. Consider these important factors:

• The size of the home. A few months back, I read an article about a woman in California's Central Valley who installed solar panels on the 3,000 square foot home she lived in, apparently alone. She was quite smug about her positive environmental impact. But she could have had done even better by choosing a smaller home that took fewer resources to build and could be heated and cooled more efficiently.

• The age of the home. Older homes sometimes don't have energy saving features, but can often be adapted to include them. Two years ago I had better insulation sprayed into my attic; it almost paid for itself with the rebate from my utility company, not to mention my lower heating and cooling bills. Again, fewer natural resources are spent when an old home is updated than when a new one is built.

• The size of the lot. A large grassy lot could mean a great place for dogs and kids to play, or it could mean heavy water use, toxic weed killers, and hours of upkeep time. If you don't buy more lot space than you need, you'll save yourself hassle, money, and environmental impact to boot.

According to a recent article found at Inman News, Realtors® are making less this year than they did last. Those with two years of experience or less fared the worst, while those with 16 or more years of experience fared best.

Given the state of most real estate markets, these results aren't surprising. Experienced agents know what they're doing, so they know how to find business and get satisfied return customers. Even though they may be closing fewer transactions then they did last year, and even though each of those transactions may be worth a little less, they've weathered down markets before and will probably come out alright on the other side.

This is all good news if you're a buyer. After all, most agents aren't struggling to get enough listings, they're struggling to find buyers to purchase them. That puts buyers in a prime position to get the best possible service. Here are a few tips on what to look for:

• Personal service. As veteran Realtor® Mark Nash explained to me, the best personal service often comes not from the top producing agents, but the midrange producers. That's because top producers may have assistants that show you homes, answer your calls, and might handle everything up to writing the offer. As a result, the experienced agent or broker knows less about your needs and whether the home you're considering meets them. Make sure the person you hire is with you every step of the way.

• Experience and expertise. Veteran agents have years of experience, but you want to make sure they've been in your current market long enough to know the ins and outs. Also, ask about special certifications -- they may be an indicator of specific experience and a commitment to the profession.

• Lower fees. Though the seller's agent traditionally gets paid a 5-6% commission that he or she splits with the buyer's agent, there's nothing dictating these amounts. Don't be shy about negotiating for less, especially if you're thinking about buying a listing from the agent's brokerage. If this isn't your first purchase and you're staying in the area, you may be able to get a discount if you list your old home and buy a new one using the services of the same agent.

I must admit--I have absolutely no intention of moving anytime soon, but every now and then, I look at what's available. Just the other day I found a house that looked promising. For its size and location, it's underpriced by at least 10%. My interest piqued, I scrolled through the pictures. A pool. Ugh. I don't want a pool. (I promise, I'm not buying anytime soon. Even if I am picturing myself in each house I look at.)

It got me thinking about the buzz I hear now and again--does a pool add value? And the resounding answer? It depends. I grew up in the desert community of Lancaster, California--almost every house had one. But the house I was looking at is in a cooler, more eco-conscious northern California city. Does a pool add value in Lancaster? Yes. Does it add value where I live now? Probably not.

That's not the end of the story, of course. Even if you don't want a pool, a pool need not be forever. I have an aunt whose pool provided me with years of childhood enjoyment (it had the old-fashioned rough bottom, and my siblings and I stayed in until our toes bled, but it was worth it). Now in her 70s, she thought about moving out of the house so she didn't have to care for the pool anymore. Instead, she had it removed. Sure, it cost several thousand dollars, but it was a lot cheaper than the transaction costs of selling the house and moving to a place without one.

If you're house hunting and come across a house with a pool (or other undesirable feature) you don't want, don't automatically strike it from the list. Treat it like you would any other potential fixer-upper: weigh the cost of the fix-up (both in actual cost, and in the hassle and stress a project may bring) against the value you'll gain as a result.

Alayna Schroeder

With home values having recently gone down in many parts of the U.S., held steady in others, and even shown gains in a few areas, how are your supposed to know whether you're paying the right price for a home?

We gave a lot of advice for assessing the market in our book (Nolo's Essential Guide to Buying Your First Home) -- things like going to lots of open houses, checking comparable sales prices on sites like Zillow, and asking your real estate agent to prepare a report on sales prices of comparable properties (the "comps").

That advice still holds true -- but as was recently pointed out in an article by Realtor Magazine (a professional publication), it's especially important to pay attention to the prices of pending, rather than closed, sales, for the basic reason that they're the most recent. (And in a falling market, the appropriate price for the house you want to buy may be even less than the most recent pending comps.)

A good real estate agent will present the prices of pending properties to you no matter the market and explain any trends. But it helps if you know what you're looking for -- and, in some cases, what to ask for.

Ilona Bray

Homebuyers with dogs, get ready to say goodbye to muddy paws: Pet showers (which we only recently blogged as a must-have among British pet owners) are now on the list of what's newly trendy among U.S. home buyers. Yes, it's right up there along with a reduced carbon footprint, home elevators, outdoor living spaces, concealed appliances, and giant bathrooms.

Who makes these lists? This one comes from Mark Nash, one of the trusted advisers to our book (Nolo's Essential Guide to Buying Your First Home). He compiled results from an e-zine survery, and the results were reported in Realtor Magazine (scroll down to the article, "What's In, What's Out").

Ilona Bray

By now, many of us have heard of the latest trend in foreclosure sales: shepherding a group of interested buyers onto a bus, then driving them around to look at foreclosed homes (and maybe stopping for lunch along the way). Definitely efficient for the agent involved, probably interesting for the potential buyers.

In many states, there’s lots to choose from. But buyers who think every distressed property is a good deal should think again. There’s usually very little room to negotiate with the lender, and waiting for a reply can take awhile. I have a friend who put in an offer on a short sale three weeks ago, and is still waiting for lender approval.

Another potential problem is that you may have to take the property “as is.” That means you won’t have the benefit of a professional property inspector to look the place over (though apparently, some foreclosure tours bring one along). If you find problems later, they’re yours to fix, even if they were the prior owner's fault.

Finally, there’s the simple problem of moving into a house that may be in disrepair. Beyond worrying about whether everything works properly, you may have to do some serious work to make the place habitable. Some houses are even missing their fixtures or kitchen cabinetry (and there's a trend in stealing copper wiring -- sadly, sometimes worth more than the house itself).

Even if all these factors don’t deter you, do your own research first. In a market full of opportunity, you’ll probably be able to find a home without these problems at a fair price. And you shouldn't have a problem finding a real estate agent eager to take you on a personalized tour, either.

Alayna Schroeder

Trust the English to come up with a list of tips for homebuyers who have -- or are thinking of getting -- a dog. It's in the Telegraph, and includes the sage advice, "If your dog is unhappy with your new house, you will end up unhappy there, too."

Of course, not every house will have the backyard creek and first floor walk-in shower featured in the article, but it's worth keeping your eyes open for such dog-friendly features. At the very least, every pet owner should consider where the dog's paws will first step after a romp in the mud.

While you're reading the Telegraph, check out the "Property" and "Gardening" sections, where every home really does look like a castle.

Ilona Bray

Getting It Done. Paul A. Rude, retired California General Contractor and Certified Member of the American Society of Home Inspectors, answers your questions on remodeling, dealing with contractors, and home maintenance.

The law in California and nearly all other states requires a permit for just about any remodeling project, so most homeowners get permits, right? Wrong. Private home inspectors see non-permitted work every day. Here in the San Francisco Bay Area, the consensus among experienced ASHI inspectors is that at least 60 to 70 percent of all home remodeling is done without permits. When I ran this number by a local city inspector with more than 20 years of experience, she laughed and said it sounded too low.

Why is so much work done without official sanction? First, the application process can be daunting. Many communities have obscure and sometimes unbelievable restrictions, often intended to maintain the “authentic” character of their neighborhoods. If your bath requires changing a single window, you may have to pay for a design review, additional drawings, or even a public hearing. In general, the larger the city, the more complex the requirements, although some small, exclusive cities also have very stringent rules.

And a bureaucratic blessing doesn’t come cheap anymore. In the old days, permit fees were nominal, but California cities have seen their tax base dwindle since Proposition 13 passed in 1978, and they have jacked up all sorts of fees to compensate. A permit for a modest remodel can easily be $2,000 or more -- not to mention that city offices are almost never open, except when you have to take time off work to visit them.

Then there’s the tax thing. In California, under Prop. 13, property taxes are based on the price you paid for the house, plus limited annual increases and local assessments. If you bought your home 15 years ago for $150,000, your taxes might have been about $2,000 a year at first. With annual increases and new assessments, they might now be $3,000 or so -- still low by present standards. But an addition or major remodel will be assessed at today’s values, according to a formula in the state tax code. The cost of a large addition could easily exceed the original cost of the house, possibly doubling the taxes. If you stay in the house long enough, the tax bill may eventually exceed the construction costs.

So, do you get a permit or not? Follow your conscience. But if you’re going the outlaw route, talk to the neighbors first. Few cities have the resources to monitor neighborhoods for power-saw noise -- the main source of Stop Work orders is complaints from neighbors. If you have a long-running feud with the guy next door, he might get even by calling in your unlicensed bath remodel. If a neighbor’s big remodel project does have a permit, the city inspector will be coming around and might notice your off-the-books project. Even if you play by the rules, it’s always best to let folks know what changes you’re planning. It’s just human nature to be agreeable when someone consults you in advance, and to be annoyed when noise and contractors’ trucks show up unexpectedly.

Paul is the owner of Summer Street Inspections in Berkeley CA. His opinions are based on conditions in California and the San Francisco Bay Area. Conditions elsewhere may be substantially different. Contact Paul at paul@summerinspect.com. To find an ASHI inspector in the Bay Area, go to www.ggashi.org. Elsewhere, go to www.ashi.org.

Dedicated dog showers are in (no more kitchen sink baths for Fido). The living room is out (replaced by the multi-use great room). We have this on no less authority than real estate author, broker, and columnist Mark Nash, whose annual list of What’s In, What’s Out with Home Buyers has just been published. Mark’s lists are so interesting (and usually on target), I thought my readers would be interested in seeing it in full, so click on over to the article at Realty Times. For more Mark Nash columns and articles, on everything from shopping for a home when you’re pregnant to purchasing flood insurance, see his website www.1001realestatetips.com. You’re bound to learn something new and interesting! (Snoring rooms, anyone?)

Marcia Stewart