Don’t Get Stuck in 2-House Trap

Linda Goodspeed for The Patriot Ledger, February 24th, 2012
Question:  we went to an open house recently and fell in love with the place.  We really want to move out of the house we are in.  It does not work for us, and we cannot wait to sell it.
Should we go ahead and put an offer on the new home even though we haven’t sold our current one?  We don’t want to lose the new one.
Answer:  your question reminds me of the proverbial chicken and egg question, and which came first.  Which comes first?  Buying a new home or selling the old one?
If you buy the new home before selling the old one, you may get stuck with two homes and two mortgages.  I have a friend in that situation, and it’s not pretty.  They are starting to dip into their retirement accounts to make ends meet.
But if you wait to sell the old home before buying a new one, you may lose your dream home or be forced to choose a home you are not too keen on.  My aunt and uncle did that.  They bought a new home in a hurry.  I think they regret their choice, the price they paid, location, the layout, everything.
An increasingly popular solution is making an offer on a new home contingent on the sale of the old one.  A contingent sale offer gives the buyer a set period of days — these are not open-ended — to list the current home and get a contract on it.  The period is usually 30 or 60 days.
During the contingency period, the seller is able to continue showing the home.  If a new buyer steps forward, the contingent offer usually has a “kick out” clause giving the original buyer a day or other specified time period to step up and purchase the home even if he has not sold the old one.  If he cannot, the contingency agreement expires and the seller is free to accept the second offer.
Contingency sale offers, however, add an element of uncertainty to the deal, and some sellers will not accept them.  Even though the seller can continue showing the home, the contingent offer is noted in listings, causing many potential buyers to bypass the home.
A contingency offer can also create a precarious chain of events because of the multiple parties involved in making it work.   If one person in the chain fails to get financing, a satisfactory home inspection, sell their home, etc., multiple contracts can topple and the whole house of cards comes tumbling down.
In a slower market like we have now, a seller may be more open to accepting a contingency sale offer, especially if the seller knows you are a motivated buyer who is ready to price your own home aggressively.
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Do Research before Buying a Newly Built House

Dana Dratch, Bankrate.com, February 24th, 2012
Buying a new house brings up different issues than buying a pre-owned home.  You have access to more information on building materials and systems than a subsequent buyer.  But unknowns lurk:  what will the completed neighborhood look like?  Will it include all the features promised in the brochure?
Bottom line:  buyers need to research a different set of questions before making anoffer on a new house.
If you are vowing “out with the old and in with the new,” here are some tips to help you make a smart buy on a new house.
What if you love the house, except for the wallpaper in the powder room or the carpet in the den?
You might be able to persuade the builder to change a few things before you move in, says Stephen Melman, director of economic services for the National Association of Home Builders.
With an existing home, alterations are often negotiated with the seller, he says.  That can be uncomfortable.  But with a new home in an unfinished neighborhood, the labor and materials are still on site, so “it’s no big deal.”
Most builders are flexible and provide a greater range of choices in things such as appliances, flooring and paint — “the kind of choices that didn’t exist 10 years ago,” Melman says.
If your changes aren’t finished by the time you close, “it’s probably a really good idea to escrow some money” so the builder has incentive to do the work, said Ron Phipps, immediate past president of the National Association of Realtors.
Builders often work with banks and, as a result, may be able to offer financing options, Melman said.
So, while you still want to get prequalified with a lender before you start shopping for a home, it makes sense to weight all of your options.  And you can always try to use the offer of builder financing to drive a better deal with your own lender.
Phipps says that with a new house, “you’re starting fresh, its economic life is longer, you get to personalize it, and you don’t have to undo what that other person thought was important.”
Where will you likely save some money? the power bills.  Those new applicances and systems in new homes often equate to lower power bills, says Barry Zigas, housing policy director for the Consumer Federation of America.
Even with a new home, you will want a warranty.  It often means the builder will come back and fix problems, Melman said.  “You’re not going to have that in an existing home.”
Warranties vary widely, so read the fine print, said David Jaffe, vice president in the office of the general counsel for the National Association of Home Builders.  Typically, they run from as little as one year to as many as five years.
Some builders include arbitration clauses in contracts, in which buyers give up their rights to file lawsuits.  Instead, they use a dispute resolution process designated by the builder.
While arbitrations can be a quicker and less expensive way to solve problems for buyers, much depends on how the arbitration is handled and who picks the arbitrators, Zigas said.  Check the track record of the arbitration company if one is specified, he said.  Does it have a reputation of being consumer-friendly?
And before you sign a contract it is smart to have your own lawyer review all the documents.
If you are buying in a community built around certain amenities — such as a pool, golf course or tennis court — that is part of the value of your purchase, Phipps said.  If the amenities are still on the drawing board, do a little due diligence if you are banking on their completion.
“Anything that involves new construction or phased development means you are at risk of the developer running out of money,” Zigas said.
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Scituate Dance Studio Makes all the right moves

Ameila Kunhardt/The Patriot Ledger

Stephanie Nogueira, owner and operator of the Duval  Dance and Music Academy, lead members of her competitive dance team in a class  at her Scituate studio, Thursday, Feb. 18, 2012.

By Alex Spanko

The Patriot Ledger

Posted Feb 21,  2012

Video

Combining  business sense with dance skills

SCITUATE —

Stephanie Nogueira bought Duval Dance and Music Academy in 2004 and had been  looking for a larger space for the Scituate school since the day she moved  in.

She finally found it in the former Raymond’s Paint & Wallpaper location  at 17 New Driftway in Scituate, just a few miles from the studio’s old Front  Street location. Construction on the 2,600-square-foot space began in October,  and the school officially opened in its new home Jan. 2.

Duval Dance has been around since 1949, when original owner Florence Duval  started teaching classes out of her Scituate home, Nogueira said. The business  changed hands a few times after Duval sold it in the 1990s. Nogueira, 30, was  fresh out of college when she took over the studio from its previous owner eight  years ago, but she was prepared for the challenge of running her own  business.

The Stoughton resident had earned a bachelor’s degree in marketing from Salve  Regina University in Newport, R.I., while also pursuing a minor in dance. She’d  been developing that craft since she was two years old, studying at Judy’s  School of Dance in Randolph until she left for college.

Although Nogueira found success with Duval, its 1,600-square-foot space on  Front Street limited the amount of programs she could host. With that in mind,  she designed her new facility to include two large dance spaces and a smaller  music room, where two instructors now teach voice and instrument lessons. The  move also allowed her to offer Zumba fitness classes for adults, and she plans  to expand her summer camp offerings for the coming season.

Nogueira employs a staff of eight dance instructors and two secretaries, and  she still spends six days a week teaching at the studio. She conducts classes in  a variety of styles, including jazz and ballet, for students up to age 18, as  well as special programs for preschool-age children.

Duval Dance is the second business to set up shop in the former hardware  store in recent months. Restaurateur Joanie Wilson opened the Backyard Burger  Bar in the rear of the building in December.

Duval Dance and Music Academy can be reached at 781-545-3100, or visit  duvaldance.com.

Len and Leslie Marma and their blog, Marshfield Real Estate are pleased to include Scituate in their blog ……….

Fed Chief give the Good, Bad and Ugly on Housing and Monetary Policy

By Kerri Panchuk • February 24, 2012 • HousingWire.com

A new generation of Americans may eschew homeownership altogether after witnessing fallout from the housing bubble, said James Bullard, president and CEO of the Federal Reserve Bank of St. Louis.

Bullard made that assertion while commenting on a paper titled, “Housing, Monetary Policy, and the Recovery” during the U.S. Monetary Policy Forum under way Friday in New York City. The paper was written by Mike Feroli (JPMorgan Chase), Ethan Harris (Bank of America), Amir Sufi (University of Chicago Booth School of Business), and Ken West (University of Wisconsin).

Bullard, commenting on the paper’s findings, said a major shift is under way, reshaping the old story of homeownership as the ultimate American dream.

“The current cohorts of new homebuyers likely see homeownership as a fundamentally riskier proposition than earlier cohorts, and therefore may be more likely to rent than own,” he said. “Such a theory may suggest a more permanent shift to renting.”

Bullard also warned that Americans with outstanding mortgage debt are weighed down by excessive debt levels.

Of the 75.3 million American homeowners, 49.4 million had debt outstanding in the most recent third quarter.

Altogether, these homes had $712 billion of equity to support close to $10 trillion in mortgage debt.

Meanwhile, the loan-to-value ratio average, which hung around 58% in 1970 and 2005, shot up to 90% during the crisis and remains there, Bullard said.

He says this dichotomy suggests homeowners who bought in the bubble borrowed in a manner where they never expected the possibility of price declines.

John Williams, president and CEO of the San Francisco Federal Reserve Bank, commented on the same report, saying that while the housing bubble was a major player in the crisis, it’s not the only major headwind pressuring the economy.

In fact, Williams said the bubble started to pop after home prices peaked in 2006. By the time, Lehman Brothers collapsed in September 2008, home prices were already down by 20%, but were not the huge drag they eventually became on the economy.

He says prior to September 2008, “Housing starts had already fallen sharply, but effects on nonhousing indicators were relatively modest.” Williams added, “The stock market, though off its highs, was still about where it had been when home prices peaked. And the economy was bearing the housing crash reasonably well. In many ways, it looked like a replay of the recession following the dot-com bust.”

Williams says Lehman’s crash was a game-changer, sending the markets and investors into a panic.

Federal debt levels

Besides individual debt, high levels of federal debt are also a concern. Other Federal Reserve players speaking at the conference warned that the central bank and Congress have a tough road ahead due to exceedingly high federal debt levels.

“In particular, the interest bill on the growing federal debt burden has been temporarily restrained by the low level of interest rates and high level of remittances from the Federal Reserve to the Treasury,” said William Dudley, president and CEO of the Federal Reserve Bank of New York. “In addition, while significant fiscal adjustments must take place, it is important to recognize that such efforts will necessitate offsetting shifts in private domestic spending and production both here and abroad. Finding ways for these adjustments to occur smoothly is an important challenge for economic policy.”

Meanwhile, Charles Plosser, president and CEO of the Federal Reserve Bank of Philadelphia, said the central bank needs to begin drawing a clear line of demarcation between the central bank and lawmakers who influence through political activity.

“Once a central bank ventures into fiscal policy, it is likely to find itself under increasing pressure from the private sector, financial markets or the government to use its balance sheet to substitute for other fiscal decisions,” Plosser warned. “Such actions by a central bank can create their own form of moral hazard, as markets and governments come to see central banks as instruments of fiscal policy, thus undermining incentives for fiscal discipline. This pressure can threaten the central bank’s independence in conducting monetary policy and thereby undermine monetary policy’s effectiveness in achieving its mandate.”

Plosser revived a point he introduced three years ago, saying he once argued for an accord between the Treasury Department and central bank that would cut back on the ability of the Fed to lend to private individuals and firms outside of its discount window.
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Treasury to Cap HAMP Mods to Property Investors

By Jon Prior • February 24, 2012 • HousingWire.com

The Treasury Department will cap the amount of mortgage modifications property investors can receive under a revamped Home Affordable Modification Program, officials said this week, to no more than a handful.

In January, the Obama administration expanded the program to allow homes occupied by someone other than the owner. There were other changes as well, including higher incentives for reducing principal, writing down second liens and loosened debt-to-income qualifications.

Before the changes, HAMP was expected to reach roughly 800,000 borrowers after redefaults are factored in, according to the Congressional Oversight Panel. Banking analysts anticipate the revamped program to add 500,000 more borrowers.

The Treasury will likely cap the amount of properties an investor can get modifications on, probably around four, Darius Kingsley, chief of homeownership preservation office at the Treasury, said in an interview.

“We have some people asking, ‘Why would you help investors?’ Well, we’re not helping hedge funds or investment companies with large inventories of homes. The change was meant to help individuals with one, two to three investment properties,” Kingsley said.

Official guidance on the cap and what hardship an investor must show will be sent to mortgage servicers in the next few weeks, Kingsley added.

Laurie Maggiano, director of policy at the Treasury’s homeownership preservation office, said investors will have to show intentions to rent out the home over the long term.

“The idea is to make sure the modification is going toward a property with someone living there year round,” Maggiano said the Mortgage Bankers Association servicing conference in Orlando, Fla. Thursday.

How long term an investor must rent out the property is still to be determined.

“For individuals living in hard-hit cities, it doesn’t matter if an empty home was owned by an investor or not,” Kingsley said. “The thing that matters is to keep foreclosures and abandoned inventory down as much as possible.”
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How “Winter” Impacted the Early Spring Real Estate Market

Boston-area home sales are in full force, thanks to the Winter That Never  Was.

BY Bill Janovitz POSTED ON 2/24/2012

. BostonMagazine.com

(Photo via ThinkStock.)

The weather isn’t the only thing showing signs of an  early spring (more like: “the winter that never was”). But perhaps the weather  is in fact influencing buyer psychology around here because buyers are out in  force, and there are not enough homes on the market to meet demand for  median-priced homes in well-regarded towns.

I had a buyer client who made an offer this past  weekend on a house priced at $699,000 in Lexington. This was the first week on  the market. There were four offers. Their best and final offer was well over  asking price. They came in third place.

Lexington is a neighborhood of very homogenous house  styles and sizes, and as such, easy-to-find comps. It’s an apple-to-apples  comparison and will represent the first of these houses of this size in this  neighborhood to go above $700,000 in two years — and the last one was an anomaly  that looked so nice that it was featured in a design section of a magazine. This  most recent one was a perfectly fine, well-maintained house in pretty serious  need of updates in the kitchen, baths, and flooring area. There have been a few  recent (past six months) sales in the same neighborhood, all under $699,000. If  I were the listing agent, I would be a little worried about the bank appraisal,  frankly. I’ve been in that position before.

A colleague in my office also brought on a house this  past weekend in another part of Lexington. It was priced below $900,00o. More  than 40 people came to the open houses and 10 brokers showed the house to  clients over the course of the weekend. It has an accepted offer the first  week.

Another house priced at $699,000 in town also came on  the market this weekend and sold immediately. But this is February! I usually  spend this time getting my tax materials in order, preparing for the spring  market, and napping. No sleep for the weary.

Let’s look at Multiple Listing Service data from  towns I’ve been showing to buyers during this time:

In the towns of Arlington, Belmont, Lexington, and  Newton, 53 single-family homes priced between $500,000-$900,000 listed on or  after January 1 of this year have gone under contract (listed in MLS as either “Under Agreement” or “red flagged,” i.e. having an accepted offer while  continuing to show for back-up offers). Of those Under Agreement or closed  sales, there was an average of only 15 days on the market. The red-flagged  houses still getting shown for back-up offers continue to accumulate days on  market until the status is changed to Under Agreement.

Some of these are houses that were taken off the  market for the holidays and put back on right after the New Year. So, one of the  houses under agreement in Lexington factors in with the actual accumulated 81  days on market. Omit that one, and the average falls to 13 days on market. Of  all the towns combined, only 100 houses came on the market in total between  January 1 and February 21. So, even when factoring in listings that came on in  recent weeks, about half have accepted offers.

This is a pretty remarkable for the winter. I am  calling my clients who were targeting spring to list their homes and seeing if  they want to consider rushing it along a bit to beat a possible big uptick  in competing inventory.
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Maintaining Safe Dryers

Fire Chief Kevin Robinson offered safety information about maintaining dryers.
In 2009, there were 93 dryer fires in Massachusetts, resulting in one civilian injury, one firefighter injury and $1.8 million in damages.  Over half of these incidents occurred in one and two family homes.
Simple steps taken regularly can reduce the likelihood of such household dangers.
1. Clean the filter screen after each load.  This will keep the vent clear.  When accumulated lint clogs the vent, the dryer can overheat and a fire can result.
2. Wash the filter screen every 6 months.  Wash with warm soapy water and a brush to remove chemical residue left by dryer sheets which can clog the filter and overheat the dryer causing a fire.
3. Stay home while the dryer is in use.  Turn off the dryer before leaving the house.
4. Clean the vents outside.  Twice a year you should clean the hose pipe the vents to the outside.  Use the vacuum cleaner to suck out accumulated dust and lint.
5. Vacuum the motor area.  The dust and lint in the vent pipe can ignite if it gets hot enough.  Vacuum the motor area if you can get to it.  You may have to remove the panel.
6. Clean commercial dryer vents regularly.  Commercial dryers get a lot of use and will have a common venting system.
7. Don’t dry mop heads. The dryer’s head can ignite the cleaning chemical residue on mops heads.
8. Keep surrounding area clear.  Don’t leave clothes or other combustibles too close to the dryer.  The dryer’s heat may ignite them.
Source:  Office of the State Fire Marshal, Commonwealth of Massachusetts
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