Category Archives: Selling a house

Flood... Flip... FLOP!

Flood… Flip… FLOP!

The pitfalls of trying to renovate and resell flooded homes, which should also concern buyers.

After any major flood event, such as the great flood of 2016, there are generally many damaged homes available for purchase, often at low prices. While such homes may offer great opportunities, they also bring with them a higher than normal number of factors which must be carefully considered. This is true for both those who might want to renovate them, as well as purchasers.

As with any renovation project, the wannabe “house flipper” must evaluate the potential market value of the finished home, and compare it to their total costs. Those costs include acquisition, renovation, interest, permits, and sales commission. One must always allow for unexpected cost overruns, and plan accordingly while keeping Murphy’s Law in mind.

With a flooded house, there are even more factors in the equation. Continue reading

A Tale Of Termites

A Tale of Termites

Termites are very destructive, and the outside appearance of wood doesn’t necessarily indicate what’s going on inside.

Not long ago, a very nice listing of ours went under contract. During inspections, evidence of termites was discovered in several rooms of the home. The inspector seemed to think that the termites had been in the house for quite some time, due to how far they had spread. After hearing this, we were very fearful of what damage they may have done. In this series of posts we are going to show how they were discovered, the extent of the damage, and what the final outcome was.

termite1

This picture shows a baseboard in one room of the house. At first glance, it appears normal, but if you look closely, you can see faint lines in the wood. A couple of those lines have dark spots or cracks in them. One can easily be fooled into thinking this is just the grain of the wood, but these actually indicate the presence of termites. Continue reading

Don't "give" your listing away!

Don’t “give” your listing away!

Selling a house is serious business, and your needs come first.

If you or a family member were sick, would you:

A) Go to your friend’s son who just got his medical license?
B) Visit the nice old doctor you sort of know, whose practice is slow so he “needs the business”?
C) Get treated by the best, most qualified doctor available?

Of course the answer is C! You want the cure to occur quickly, reliably, and with a low risk of anything bad happening.

While selling a house is not the same as dealing with an illness, it is still usually the single biggest financial decision in a person’s life. As a seller, you are also a customer. You are paying a commission to an agent in order to purchase service, experience, marketing, and representation, with the goal being a fast and successful sale. You do not want any unexpected surprises or expenses, or to wait forever.

You’d think that with the stakes so high, sellers would always choose an agent carefully, and demand the very best. However, we’ve seen far too many instances where owners treat selling a house completely differently from when they seek any other professional service. Instead of acting in their own best interests, sellers sometimes feel an obligation to “give their listing” to an acquaintance, or someone brand-new, or someone whose business is slow, etc. It’s very strange, as such owners somehow overlook the fact that they are about to make an enormous step, one which affects every aspect of their lives. Yet for some odd reason, they forget this, and put their fate in the hands of someone based on a casual relationship, or pity, or guilt. We’ve met people who listed with someone simply because they were the first agent they spoke to, and “felt bad” for not using them. Selling a house is far too important to “give it” to someone based on emotions.

A prime example of why not to do so: Long ago, an old client of ours called to say he was in dire circumstances and REALLY needed to sell his house. He was quiet and apologetic, and said that he’d already told a part-time agent he knew that he’d list with him. He explained that he felt sorry for the agent, and wanted to “give him a shot”. The owner didn’t have much confidence in the agent, as he actually said he expected to be talking to us after his listing was up and the house wasn’t sold! Yet, he still listed with that agent.

The agent put only a brief description and less than 10 pictures on the listing. About half of the pictures were sideways, and the square footage of the house was wrong by a huge amount!

The house was beautiful, and in a desirable neighborhood, but months and months went by and it didn’t sell. We never heard from the owner again, so they obviously renewed their listing in spite of everything. Eventually the house sold, but only after more than an entire year had passed and the owner had reduced the price several times. The owner lost months of valuable time, and thousands of dollars, due to the extra notes they had to pay and the price drops they had to make because of poor representation.

Selling your house is not a charity prize, to be given away to just anyone based on emotions. It is a huge event in your life, with far reaching and long lasting effects. There is considerable potential for things to go wrong, so it is crucial to have someone with the skills, knowledge, and experience to handle your sale, avoid the problems, and bring about a successful closing.

Town Hall Meeting on Flood Recovery 9/13/2016

Town Hall Meeting on Flood Recovery 9/13/2016

Notes and comments on the meeting

I attended this meeting last night, which was held at our beautiful Live Oak United Methodist Church. Those present included State Representative Valarie Hodges, Livingston Parish President Layton Ricks, Livingston Flood Administrator Chuck Vincent, several representatives of FEMA, SBA, the governor’s office, GOHSEP, and others.

Below is a summary of the notes I took during the meeting, along with my comments in italics.

Continue reading

After the 2016 Flood: What to Expect in Real Estate and Beyond

After the 2016 Flood: What to Expect in Real Estate and Beyond

Answers to important unresolved issues may change this, but as of now, here are our broad views on what lies ahead.

We broke down residential properties into 3 general categories, and offer our thoughts on issues related to each:

1. Homes which were untouched by the flood
As detailed in our previous article, we believe that prices for these homes should rise modestly (10-15%) over the next year. This is due to the simple law of supply and demand. Among these houses, those in so-called “no flood” zones (zones X, C, or B; properly called “moderate to low risk areas”) should be the most sought after. (Click here for a more complete explanation of flood zones.)

Undamaged houses in “flood zones” (zones A, AE, or V; properly called Special Flood Hazard Areas / SFHAs) will still be in demand, but because of their flood zone classification, they’re not quite as attractive.

2. Homes which received minimal flooding, and have never flooded before
These houses should still be very marketable after PROPER repair, especially those not in an SFHA. Sellers will have to disclose the fact that it flooded, of course. Homes such as these will take some time to repair, and once complete, probably won’t fetch quite as much as undamaged homes. However, they will have considerable value, since there are a limited number of homes which were completely untouched. It’s possible that bargains may be found among these once-flooded houses, if the owners decide to sell them as-is and move instead of repairing them.

3. Homes which received a significant amount of flood damage
Houses in this category have many potential issues to examine. Local governments are requiring inspections before issuing building permits. Also, higher water levels mean more damage, thus the “substantial repair” rules are more likely to apply. “Substantial repair” is a repair costing at least 50% of the property’s market value. FEMA mandates that properties requiring substantial repair must also be brought into compliance with current NFIP (National Flood Insurance Program) guidelines. In other words, if a house is below BFE (Base Flood Elevation) and “substantially damaged” then it must be elevated at least to the BFE in order to be compliant. Ascension and East Baton Rouge Parishes have even stricter requirements with regard to “substantial repair”. Ascension normally requires elevation to 1’ above the highest water level during a flood, and East Baton Rouge considers 40% to be the threshold for “substantial repair”. However, as of now, Ascension has relaxed their elevation requirement to 1’ above BFE, which is still tougher than FEMA’s standards.

Houses such as these will need a lot of work. If the owner had flood insurance, then they SHOULD receive sufficient funds to repair it, unless elevating is required. Flood policies include up to $30K of ICC (Increased Cost of Compliance) coverage to help elevate, but that might only pay to raise a small house on piers, and not much else. Mandated elevation is the number one concern on everyone’s mind right now! If a house needs “substantial repair” and lies below BFE, then the cost of elevation must be added to the already large repair cost. Even with flood insurance, the total is likely to be out of reach for many homeowners. People are justifiably upset about this. Some are talking about simply walking away from their homes, as they have no way to pay for everything.

If communities are left with thousands of houses which are deemed both non-compliant and substantially damaged, and whose owners cannot afford to elevate them, it will be a disaster. The houses would stand empty, meaning we could be faced with entire neighborhoods of abandoned homes.

On a positive note, it is likely that there will be opportunities among houses with considerable damage. Some owners will want to simply get rid of their damaged homes quickly, and sell them at bargain prices. This would allow those willing to invest the money, time, and effort to acquire a house inexpensively. Doing so would benefit new homeowners, property flippers, or those wanting to use the house for rental income, thus bringing new life to these homes and neighborhoods. However, buyers need to be very diligent in evaluating “bargain” houses, as any potential issues such as elevation, etc. would be theirs to face. Non-compliant homes are especially problematic, because even a cash buyer could not purchase and renovate them, and simply choose not to have flood insurance. Parishes will not issue a building permit for the repairs on a non-compliant structure, so they’d still have to elevate if the house is below BFE.

The prospect of abandoned homes is something else to consider for those thinking about picking up flooded houses cheap. Suppose that the newly renovated property is surrounded by empty, gutted houses? It won’t have much appeal, and could turn out to be a bad investment. Nobody wants to live in the middle of abandoned homes or vacant lots.

We believe that there will be new activity among even the badly flooded homes. People have a way of bouncing back strongly from disasters like this, and often the neighborhoods end up being better than before. However, that activity could be severely limited by the FEMA/local elevation rules. After Katrina, there were Road Home grants which helped many people without flood insurance. As of now though, nothing similar seems to be available, and thousands of people are gravely concerned.

We’re not sure what the solution is, but the prospect of losing a substantial part of the population (thus the tax base) should motivate governments into action. Hopefully those in charge recognize the gravity of the situation, and will fight for a workable solution. Ultimately, it’s the federal government (as in FEMA and the National Flood Insurance Program) whose guidelines are the overriding factor, so they would have to either relax the rules, or cough up the money to help fix these houses.

If you want to know more about your specific situation, give us a call or send an email. We’ll help you in any way we can.

After the 2016 Flood: Now What?

After the 2016 Flood: Now What?

With the floodwaters gone, many are wondering what lies ahead for home sales and prices.

The devastating flood of 2016 laid waste to much of central Louisiana, on a scale not seen since Hurricane Katrina 11 years ago. More than 80% of the structures in Livingston Parish sustained flood damage, and 35% of those in East Baton Rouge. Other nearby parishes were severely affected as well.

As you may have seen in our 4-part series on flood insurance and related issues, our former home in St. Bernard Parish was completely flooded and lost to Katrina. While there are indeed differences between the flooding from Katrina and this year’s flood, there are many similarities as well. Just as in Katrina, entire neighborhoods have been devastated, and many thousands of homes have been made unlivable. As it was back then, everyone is asking with regard to houses: “Now what?”

There is no simple answer to that question, because issues such as FEMA payments, rebuilding requirements, and others remain unsettled. However, based upon our research of what happened in the years following Katrina, and our knowledge of the market, we can offer some informed analysis.

The main factor is that the supply of habitable houses is down, at least temporarily. There was already a shortage of available homes prior to the flood, and with tens of thousands damaged, that supply has now shrunk incredibly. The law of supply and demand will definitely apply, though with some limitations.

After Katrina, I saw some people raise the price of their undamaged houses ridiculously high just days after the storm, hoping to “cash in” on the sudden demand. However, since most home sales are financed, the price MUST be supported by an appraisal. This fact kept rampant price gouging to a minimum. At the same time though, there WAS a legitimate shortage of homes. Plus, buyers who had cash could afford to pay a reasonable premium to quickly get a house untouched by the hurricane. So, home prices indeed rose.

Danielle and I remain members of the New Orleans MLS, so I did some in-depth research of home prices before and after Katrina. I chose to compare homes which sold at a price of $250K or less; were in Very Good or Excellent condition; and were not foreclosures. I excluded St. Bernard Parish from the initial search, since EVERY structure in the entire parish (including our house) was declared uninhabitable after the storm.

From January 1, 2005 through August 28, 2005 (the day before Katrina) sales of homes meeting my search criteria averaged $92.59 per Square Foot of Living Area (SFLA). In this period, 4,309 such homes were sold.

I then ran the exact same search, for the same period 1 year later, in 2006. The average sales price per SFLA was $105.85. The number (volume) of sold homes increased to 4,487.

So, the average sales price per SFLA for these homes increased by 14.3% after Katrina, with the sales volume going up about 4.1%.flood2016_now_what_graph1I  went back and applied the same search criteria to St. Bernard Parish. Prior to the storm, from 1/1/2005 through 8/28/2005, there were 246 sales, averaging $82.71 per SFLA.

Due to the utter devastation in the parish, it took a long time for rebuilding to begin, so only 7 (SEVEN) houses meeting my criteria were sold there in all of 2006! I therefore extended the post-Katrina comparison period through the end of 2007. During this time, 131 such homes sold, at an average price per SFLA of $92.28.

While the number of sales fell by 46.7%, the average price of those sales was 11.6% higher! It makes sense that the volume was down, since literally EVERY house had been damaged. It also stands to reason that prices went up, due to the low number of available homes. It is encouraging that even homes in an area which was completely destroyed, all of which had to be repaired, still sold on average for 11.6% more than before the storm.flood2016_now_what_graph2

In my opinion, our part of the state after the 2016 flood is a lot like New Orleans and its surroundings were after Katrina. Some areas were completely flooded, while others were untouched, and yet others fell somewhere in between. I think we will see a similar trend in prices, with non-flooded homes, and later, homes which flooded once and were well-repaired, increasing in price somewhere in the 10%-15% range. This estimate will NOT apply to homes which were heavily damaged and/or lie below Base Flood Elevation (BFE). Those will not fare so well, unfortunately.

The road back to full recovery from this disaster will be long and difficult. If you’d like to ask our opinion on your specific situation, we’ll be glad to do so. Just give us a call or send an email.

In my next article, I’ll talk about some of the issues, challenges, and opportunities you can expect with regard to real estate in the coming months.

Hell Freezes Over!

Hell Freezes Over!

That’s got to be why the fees on a widely-used type of mortgage will be FALLING as of October 1, 2016.

The USDA Rural Development (RD) Single Family Housing program just announced that the cost of their version of mortgage insurance will be significantly lowered for fiscal year 2017! This is the period starting October 1, 2016 and ending September 30, 2017.

Commonly known on other loans as PMI, MI, or MIP, these fees are called guarantee fees on RD loans. It’s the same thing, by a different name – mortgage insurance that YOU pay, which covers the lender against any loss they might face should they foreclose on the house and have to sell it for less than what they are owed. Having to pay for something that benefits only the lender is frustrating, but it’s a necessary evil. Without it, lenders wouldn’t write mortgages.

On an RD loan, there are 2 parts to their guarantee fees: The first is an upfront, lump sum fee which you pay at closing. Currently it is 2.75% of the loan amount. The 2nd part is a recurring fee based on an annual 0.5% of the outstanding loan balance, which is broken down and paid monthly as part of your note. While it falls slightly as your principal goes down, this monthly fee stays in effect for the life of your loan.

RD has been raising their guarantee fees over the last few years (see our previous article) which is why we were utterly amazed when we were notified about the upcoming reduction. It will definitely benefit buyers who finance with an RD loan, thus helping sellers as well. Since the loan fees will be less, houses will be more affordable.

As an example: Currently, to buy and finance a $150,000 house with an RD loan would require a 2.75% upfront guarantee fee, which is $4,125.00. The annual guarantee fee of 0.5% is $750.00 per year, which works out to an extra $62.50 on the monthly note.

As of October 1, 2016 the upfront rate drops to only 1.0%, and the annual fee to 0.35%. On our $150,000 example house, this would make the upfront fee $1,500.00 which is a difference of $2,625.00. The annual fee would drop to $525.00, or $43.75 per month, a savings of $18.75 off of the note.

Regardless of the price of a home, these reductions are substantial, and will make a significant difference to many people. We salute the RD program for enacting these reductions.

IMPORTANT NOTES:

  1. If you have an existing RD loan, these changes DO NOT affect you! Existing loans are locked in at the rates and terms in effect when the loan was originated.
  2. The new, lower rates only apply to loans which receive their official commitment from RD on or after October 1, 2016. If you’re buying a house prior to that date, and the RD commitment is issued anytime from now through September 30, 2016, the current rates will apply.

Let us know if you have any questions, or need help buying or selling!

What Your Agent Doesn’t Know Can Cost You Now and Beyond the Sale

What Your Agent Doesn’t Know Can Cost You Now and Beyond the Sale

Getting the right agent is crucial when putting your home on the market.

When you hire an agent to sell your home, you spend quite a bit of money at closing, but what are you actually paying for? It really depends on who you hire and how they perform their duties. Unfortunately, many sellers end up hiring what we refer to as “real estate secretaries” – someone who enters the listing into the MLS, puts up their sign, (maybe) answers calls, fills out a contract, and shows up at closing to get their check. When sellers see bare-minimum service like this, they ask “Why am I paying them thousands of dollars to do so little?” and they are right to question this.

Being well represented as a seller goes beyond not just getting your value out of your listing commission in the form of great marketing, communication, and follow-up. The process of selling a property involves multiple parties, legally binding contracts, and many complex steps before closing, so it must be executed diligently, to avoid the risk of large expenses and even lawsuits. It is your agent’s knowledge, advice, guidance, and experience (or lack thereof) which will make the difference here. This is where the value is found in information that you can’t just get from Google and wing it. A seasoned, thorough, detail-oriented agent will have those skills, which prove to be priceless in many situations.

While these concepts all sound good, let’s look at a real life example which came up very recently. The seller of a property had some previous title work done with a title company and was under the impression that if the buyer used their title company, then the seller would save significant closing fees. So, the seller told the listing agent to mandate that the buyer must close with their title company. First of all, the seller was mistaken about the closing costs, since most closing costs are the buyer’s responsibility and a seller’s fees typically only run $250-$500 at closing, and often less. Far more important however was the fact that by mandating the closing company, the seller (and agent) were actually violating the Real Estate Settlement and Procedures Act (RESPA), a federal law that governs the sale and purchase of residential property. This law “prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.” (Reference: HUD RESPA Section 9) Violating this section of RESPA allows a buyer to sue the seller for up to 3 times the amount of the title insurance, so with a typical title insurance cost of $800-$1200, the liability to the seller is $2400-$3600 (probably in addition to attorney fees etc), all to try to save at most $500.

Not only was I concerned about putting everyone in the transaction in a position to be sued if something were to go wrong with the title, but I also wanted to have a different set of eyes on the title work to be sure that it all gets processed correctly. I emailed my concerns to the listing agent, citing the federal law and the liability vs. potential benefit for the sellers, and the sellers decided that it, indeed, was in their best interest to not push this issue with my buyer. All of this happened in the background without upsetting my buyer and causing them unnecessary stress.

“Real estate secretaries” will not anticipate issues such as this one, and often lead the seller into dangerous territory, where expensive litigation or other financial losses could result. So, when you interview and choose a listing agent, keep in mind that the discount commission charged by an inexperienced agent or one who rushes through everything very superficially can ultimately cost you far more than an agent who has the experience, knowledge, and skills to keep you out of trouble and to maximize your profits at closing.

The Danger is In the Details

The Danger is In the Details

Seemingly small things can lead to big problems when listing your house.

When it comes to deciding on a listing agent, many sellers are often confused about what they should be looking for. Most won’t know what to ask except the commission question. Others will Google questions to ask and find some which are very helpful, such as, “are you full time?”, “How many homes did you sell last year?”, and “What will you do to market my house?”. These are definitely good things to know about the person who will be representing your home for the next 6 months. However, this only scratches the surface. Far beyond that is a level of professionalism and knowledge that you will be glad you have, or sorry you don’t. With agents of such high caliber comes one often overlooked facet – security and safety procedures for your home while it’s listed.

More and more, we face reminders that we cannot assume every person who requests a showing has the intention of buying. Yet, in order to sell a house, a buyer needs to be able to view it. So, sellers paint, declutter, repair, and stage their home to encourage their visitors to choose their property over others. However, often sellers do not think about protecting themselves from those who aren’t interested in buying, and this is where a truly professional agent will fill the gap.

Among the listing paperwork and sign installation should be a discussion regarding safety and security during the listing period. Yes, the buyer’s agents will be present when the property is shown, and theoretically they should be right next to their buyer the whole time, but that might not always be the case. With that in mind, the seller should prepare their home accordingly. A quality agent will run down a list of suggestions that greatly reduce any problems for sellers.

One very important consideration, which on the surface doesn’t seem to be a problem, but can make a world of difference, is your lockbox. These hold the keys to your home and allow agents to access them. In an attempt to save money, many agents use combination lockboxes, which have either dials or push-button mechanisms. When a call is received to book a showing on a house with a combination box, the code is simply given over the phone to the caller, thus granting them access to the home. Yes, the listing broker could ask a few questions to try to verify the caller, but most of the time, that simply is a matter of the agent’s name, brokerage name, time they want to show it, and maybe phone number. Since agents market themselves for a living, these pieces of information are not hard for anyone to find on the internet via a simple search.

In addition to easily getting the code, there is the issue of keeping the code private. Not only will buyer agents need to find/remember this code and enter it without their buyers seeing, but they have to remember to re-scramble the letters/numbers when closing the lockbox. Commonly though, we have walked up to many listings where the code was still showing on the lockbox, meaning it was unlocked, and therefore the keys were available to anyone who walked up. The latest incident of this was on a local listing in January, and the keys were actually missing! Since the lockbox was on the front door, it was obvious to passersby that it was there. Just by checking periodically for that inevitable time when the last person forgot to scramble the code, someone who probably doesn’t have good intentions got those house keys. Of course, I immediately told the owners, but when showing multiple houses, not all agents will remember to do so.

In order to prevent the combination lockbox security issue, we use electronic lockboxes called Supra boxes. These are expensive, but they are the only lockboxes we use, because of the peace of mind they afford to us and our clients. Only authorized, monitored entry to your home is allowed. These boxes are industry-specific and require paid membership with an electronic key that is assigned to each agent. When they get their e-key, the agent is also given an individual access code which must be punched in. This prevents anyone from just picking up their key and using it. So, without an e-key AND the matching personal code, no one can enter our listings!

Perhaps the greatest advantage of using a Supra lockbox is that it automatically reports all access. After a lockbox is opened, we are sent a notification containing the property address, date, time, and WHO is opening the lockbox. We carefully monitor all access to our listings, and compare the notification to our list of showing appointments. Although it is a no-no, and all of our listings require appointments before showing, once in a great while agents will show without an appointment. If this occurs, we immediately call when we see the notification, and find out what they were doing there. These notifications allow us to immediately send each agent a request for feedback about the property. We can also eliminate the question of whether or not an agent showed a property, as sometimes the sellers aren’t sure they actually did so. In addition, should something happen at a property during a showing, such as lights being left on, etc. we can narrow it down and determine who did it.

So, although asking about the type of lockboxes an agent employs in the listing of your home seems trivial and way down the list of priorities, it, along with other security and liability-prevention measures, is a substantial question. The answers to these questions are indicative of the overall approach of the listing agent you are considering. Are they going with the easy, cheap, unconcerned route, or have they invested in your home’s security and taken steps to prevent larger problems down the road?

Doors to Future Resale Value

Doors to Future Resale Value

A Great Question About Closet Doors

A client who recently bought her home has been doing quite a bit of renovations to get the property updated and to her taste. She writes:

“Would I have better resale value by re-installing the sliding closet doors in the front bedroom or by replacing them with the same type of hinged doors that I put in the back bedroom?”

Closet doors shouldn’t make a difference in resale value. However, the hinged doors allow someone to access more of the closet at one time, and are a more modern style, so I would go with these. Also, they are simpler, and do not slide on a track like bifold or sliding doors. In our experience, such tracks always break, and/or the doors come off of them. The only slight downside to hinged doors is that they swing open into the room, so that must be considered.

Small details like closets that aren’t frustrating to open and interior trim features that seem more in-line with current trends may not make the appraiser add a little extra to your value. However, these certainly can be among those intangibles which make the difference to a buyer when deciding between properties.

Thanks for the question, Marie!