Top Ten Reasons it's a Great Time to Buy...

Here is a pretty good rendition of the ubiquitous "Top Ten Reasons" to buy real estate right now.  This one is from Paul Pastore out in Arizona.  Most of what he talks about applies in Maine (except some of the Phoenix stats, of course).  Here it is in its entirety - thanks Paul!

1. Selection, selection, selection. There are about 57,000 resale homes on the market in Maricopa county(Phoenix). Regardless of the price range a buyer desires, there are plenty of houses from which to choose. Just a few years ago the resale inventory dropped below 5,000 units. A buyer was forced to make compromises if they were going to locate the home of their dreams. There is a great selection of attached homes, condos, and townhouses. You can find large lots, small lots, and a lot that will accommodate your boat or RV. There are lots of options in this market.
2. No Bidding Wars. In 2005 we had one client that made an offer on ten homes. They lost the first nine to the 'feeding frenzy' that existed. Other buyers bid the properties up substantially from the original listing price. There were escalation clauses where buyers authorized their agents to outbid other offers by thousands of dollars. There is no competitive bidding in this buyer's market.
3. You can make an offer. A few years ago when you made an offer, the only question was how high above the list price could the buyer reach in hopes of being the best offer on the table. Today the sell price list vs. price ration is about 96%. A seller will not be insulted if you 'make them an offer they can't refuse'.
4. Patience is tolerated. In the hot seller's market that existed everything was rushed. Find a house before other buyers did. Hurry up and make the offer.  Today a buyer can take their time. Look at several homes and think about your decision for a few hours.
5. Due diligence is welcomed. In this market a buyer is encouraged to obtain a home inspection, termite inspection, and appraisal. In 2005 many buyers waived these contingencies in order gain an advantage with multiple offers.
6. There are plenty of specs. In the not too distant past buyer had to 'play games' if they wanted a new home. There were lotteries and waiting lists in order to obtain new construction. Some buyers slept in their cars in order to get to the head of the lines. R.L. Brown estimates that builders have thousands of specs ready for immediate occupancy.
7. Repair requests are welcomed. After a buyer completes a home inspection, they are allowed to submit a repair request to the seller. In the past a seller might insist the home was sold 'as is'. Many times, there were back-up buyers waiting for a primary buyer to upset the seller whose home was increasing in value almost daily.
8. Few, if any investors. It is estimated that one third of all sales in 2005 were to investors. These non-owner occupied buyer caused the market to inflate and affordability to decline. Mortgage fraud became commonplace. It's a great time to buy without having to compete with hundreds of prospective landlords.
9. Location, location, location. Today's buyers can find homes closer to work. In the past buyers flocked to Maricopa and Queen Creek in order to find affordable homes. In this market, reasonably priced homes are within biking or walking distance to schools, rapid transit lines, and relatives.
10. Real Financing is available. The 'wink, wink' zero down, no doc, adjustable, sub-prime loans are gone. Fixed rates are back. FHA financing, first time homeowner bond programs, special loans for teachers, and police officers are back in business. It's a great time to buy real estate!

My Favorite Real Estate Investment Books

We often assist clients with the purchase of investment property here in Maine - whether it be a multi-family building or a vacation rental.  Some clients are experienced investors while others are newer to this method of building up their "portfolios."  Here are four books I often recommend for anyone considering investing in real estate; they are great "refresher" reads as well for those already in the real estate investment game...

The Unofficial Guide to Real Estate Investing by Martin Stone

Investing in Real Estate, Fourth Edition by Andrew James McLean & Gary Eldred

Find It, Buy It, Fix It by Robert Irwin

The Real Estate Investor's Pocket Calculator: Simple Ways to Compute Cashflow, Value, Return, and Other Key Financial Measurements by Michael Thomsett

Happy Real Estate Investing!

David Whitten

6 Ways to Cut Mortgage Expenses

SmartMoney.com has a great piece on how to cut mortgage costs.  Some of it takes work in the months leading up to securing a mortgage, but this list is something that potential buyers should review (unless they are paying cash for their next purchase).  I am posting Kelli Grant's story in its entirety here:

Home prices are already costly enough without getting raked over the financial coals with your mortgage application. Here are six ways to keep costs in check.

Polish Your Image
Before you apply for a mortgage, check out your credit score. If it's not up to snuff, taking some steps to give it a boost could easily save you thousands in mortgage interest.

Consider this: Folks who have a top score (760 to 850), can get a rate of 5.96% on a 30-year, fixed-rate mortgage these days, according to Fair Isaac, the firm that creates the risk calculations used to calculate credit scores. A score just a few points lower (759 to 700) will net you a higher rate of 6.18%. For a $250,000 loan, that's a difference of $12,772 in interest over the life of the loan. (Crunch the numbers yourself using our mortgage calculator.)

The good news? Many folks can increase their credit score significantly in just a few months. To see how, check out our column 7 Ways to Boost Your Credit Score.

Get the Right Loan
"Walking into a lender and saying, 'I need a mortgage' is a lot like going to a used-car lot and saying, 'I need a car,'" says Keith Gumbinger, vice president of HSH Associations, a financial surveyor and publisher. You'll end up with something, but it could be a lemon. So do some research ahead of time to know which one makes the most sense for you. (Let's face it, there are some wacky mortgage products out there. For more, see our story My, What an Exotic Mortgage You Have.)

For help with this, see our story What Kind of Loan Should You Get?. You also may want to check out our Fixed or Adjustable? worksheet.

Make a Down Payment of at Least 20%
In this new era of interest-only loans, many home buyers are skipping this advice. But if you can swing it, this is still the way to go. Not only will this provide some equity in your home, but it's also a way to avoid private mortgage insurance, or PMI. (This protects the lender if you default on the loan.) Costs for PMI can be significant over time — about $40 a month per $100,000 of the loan, according to estimates by the Federal Trade Commission.

Consider Paying Points
Points are fees lenders charge in exchange for lowering the interest rate, says Ken Markison, senior director of the Mortgage Bankers Association of America, a trade organization. A point is equivalent to 1% of the total loan amount, so by paying them you'll lower your monthly payments, but you'll increase your upfront costs substantially.

Granted, this may not be worth it if you don't plan to own the home for very long. Consumer Reports advises against paying points if you plan to live in the house for less than six years. To crunch the numbers yourself, use our Points or No Points? calculator.

Pay Closing Costs Upfront
Wrapping them into your mortgage means you'll end up paying interest on that extra few thousand dollars over the lifetime of the loan, according to Consumer Reports. So pay upfront if you can.

Pay Close Attention to Fees
Fees can easily account for 2% of the total amount borrowed, according to a 2004 report by Consumer Reports. Unfortunately, you can't avoid many of them outright, but you can save money by choosing a lender that's competitive, says Gumbinger.

The tough part? Fees are hardly standard. Not all lenders charge the same fees, or even call them by the same names. Or they might roll a few fees — say, your credit report and upfront appraisal — into a larger umbrella fee, like an application charge. (See the chart below for common fees and costs.)

Getting concrete information about fees can be tough, but most can be found in what's known as a "good faith estimate," which is a breakdown of the costs associated with a mortgage. Lenders don't have to supply one until you apply, says Gumbinger, but most will if you ask. "A lender who won't be upfront about his fees might not be one you want to do business with," he says. Be sure to ask if the estimate includes all the applicable fees, and how likely the amount is to change between now and closing.

Fee	Average Cost	Description
Application (not including credit report or appraisal)	$261	Ask if this fee is refundable should you opt to take your business to another lender.
Appraisal	$318	Denotes your property's value, as reported by an independent appraiser.
Credit check	$25	Don't expect this charge to be waived, but Consumer Reports recommends asking your lender for a copy of the report and its bill.
Document preparation	$215	Covers the preparation of the final paperwork. This can get a little complicated, says Gumbinger. Get details on what's included to make sure you aren't paying for overhead costs like photocopying or mailing.
Flood certification on borrower's property	$18	Determines whether your home is located in a flood zone.
Title search	$217	Checks the property for unpaid mortgages and tax liens.

* Cost data from HSH Associates

Once you have good faith estimates from the lenders you're considering, compare them side by side. If you come across fees that are unclear or seem inflated, do question the lender, advises Gumbinger. You may be able to reduce the fee or have it waived. For more on this, see our story Cut Those Closing Costs!

The Fifty Year Mortgage

That's right:  fifty years!  It's not unheard of in some other countries, but this type of mortgage is really quite new to most of us in America.  Small lending firms are starting to roll this mortgage out in response to stiffer lending competition, higher-priced homes that many homeowners can't afford to pay off in 25 or 30 years, and higher interest rates.

Here are some important things to understand.  A borrower on a 50-year note builds equity very slowly; the first phase of repayment is practically interest only.  Also, rates on these are typically adjustable, so monthly payments can fluctuate.   For more information, check out this CNN piece on 50-year mortgages.

As with any mortgage, speak to two or three lenders to find out what all your options are before deciding.  This product might work well for very specific circumstances but, personally, I'd recommend buying a lower-priced home on a 30-year mortgage and working on building equity.

Real Estate "Title Issues" Are Not Uncommon

Did you know that more than 1 out of 3 residential real estate transactions involves some type of problem with the title?  (from the American Land Title Association).  What does that mean?  A title issue can be something like discovering that a previous owner still owes money (outstanding taxes, spousal support, child support, other debts) and a lien has been placed on their property.  Typically the obligation must be met for the lien to be cleared; then the title issue can be resolved.  Other title issues can stem from errors on deeds ranging from resolving questions of ownership from some point in the property's history to simple spelling errors or other deed ambiguities. 

When title issues arise - as they do with a professional title search - it is important not to panic.  This is where your choice of an excellent real estate agent will come into play.  He or she will work closely with the title company and with the other party to the transaction to negotiate a resolution that meets everyone's needs.  A title glitch need not be the end of the deal.  But remember, it's always best to find and resolve title problems now, rather than the next time the property comes up for sale!

Buying a Home with No Money Down

Reuters news service has picked up on the NAR report that more than 4 out of 10 new home buyers purchase their first home with no money down.  The NAR attributes this largely to the proliferation of non-traditional financing tools over the past few years.  With variable rate mortgages, these 100% financed homes could become more expensive on a monthly basis as interest rates fluctuate in the coming months.  It can also mean trouble if buyers went into those transactions expecting double-digit appreciation to continue unabated.

So, while 43% of first-time buyers financed 100% of the purchase, another 50% of first-time buyers financed "between 71% and 99% of their homes."  That's alot of credit.  Some economists and regulators worry that there will be a significant upswing in delinquent payments or even defaults.  Buyers, more than ever, need to work with a very skilled lender, broker and probably a financial advisor when getting ready for such a big transaction.

Only 18% of repeat home buyers financed 100% of their homes, presumably because they're rolling some of the proceeds from the sale of their prior home into the new property.

Maine Investment Property - Choose Wisely in 2006

As the real estate market eases, many parts of the country will say goodbye to the double-digit appreciation rates they've been experiencing for the past few years.  In some markets, single-digit increases will be the norm (still increases, nonetheless).  However, some higher end markets (as well as higher end brackets within geographical markets), may see flat appreciation or even depreciation.

My sense is that the depreciation scenarios would be in some of the bigger metropolitan areas around the country.  Most real estate here in Maine is not in the higher end bracket and should make modest gains in 2006.

Jim Keene, co-author of "Retire on the House," looks at markets in two segments:  lower-end and higher-end.  Then he looks at each of those specific to where you are in the country.  He says a respectable 5-10% gain in many areas will be maintained, but in places like San Diego, Los Angeles and Boston he estimates that it would be more like 2% or 3% appreciation rates for standard properties.

Keene also is pretty clear that people who own multiple homes in the "volatile" markets (Florida to Boston or San Franciso to San Diego, for example) should consider unloading their "excess" investment properties.

While the shifting market represents some great opportunities for home buyers or investors to find "deals", it also becomes a little trickier from an investment standpoint.  Keene puts it quite well:  "If you're going to buy a single family home as an investment property in which you have mortgage payments, property taxes, insurance and maintenance, in most places in the country your rental income will not overcome the costs," Keene said.  "You're relying on the appreciation and it's not necessarily a good time to invest. Take a look at some other types of investments to invest some of your excess equity," he said.

For more from Jim Keene, check out http://retireonthehouse.com/

Expect Growing Condominium Demand in Maine

There are several reasons why condo demand will grow in the not-so-distant future.  Those reasons are really the same ones that have always been there, it's just that more people (read:  baby boomers) are about to act on those reasons. 

• As land costs increase, one way to obtain an affordable home is buy in a high-density area.  That has definitely happened in Portland as many single family homes evolved into apartments and have now been condo-ized.  We're also seeing a significant number of in-town Portland condo development projects these days - no doubt in anticipation of this coming demand.
• As people near retirement, condos and "condominium neighborhoods" become more attractive:  less maintenance, more community, less isolation.

These factors, combined with a growing dislike of long commutes and high fuel prices, means that the chances are 50/50 you'll trade your single family home for a condominium in the next few years according to some industry experts.  In many parts of the country it's not uncommon to have a 1 or 1.5 hour commute each way to work.  That has generally not been the case in Maine, but even a 30 or 45 minute commute in bad weather can be enough to cause rural residents to consider an in-town location.

What's In and Out with Homebuyers in 2006

Mark Nash over at Broker Agent News does such a good job with this article, that I'm just going to republish it in its entirety. 

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The majority of full-time real estate agents hear a lot of feedback every day all year from homebuyers as they visit potential resale and new construction homes.

They wonder why builders, developers and home-sellers add finishes or upgrades that say "cheap" or "soon-to-be-out-of-date", in addition to owners who think the laminate wood-grained kitchen cabinets look fine.

Old standbys like solid oak hardwood floors might not be on the design edge, but quality and durability out sell trendy any day in residential real estate. After a year of property showings in 2005 and eight previous years with homebuyers as well as requests from consumers after the review of "1001 Tips for Buying and Selling a Home" in The New York Times, I've compiled a list of home runs and strikeouts for those looking to sell to homebuyers in 2006.

What's In

• Smaller square footage homes. After years of sprawl, new construction buyers want less space with better finishes.
• Quality kitchen cabinets. With the kitchen/greatroom the center of family living, buyers today are looking at furniture style cabinets.
• Bamboo wood floors. It could overtake maple as the favorite light-colored wood flooring in 2006.
• Wall space for flat screen TV's. Specify power and cable boxes close to locations where homebuyers want to place the latest in visual technology. The popular location for installation in new construction is over the fireplace.
• Multiple and high-powered phone lines. With modems, dsl, wi-fi moving into mainstream use, tech-savvy homebuyers want "wired" homes.
• Separate shower stalls and bathtubs in master bathrooms. The growing divide among "soakers" and "showers" is increasing. Not having one of each in a master bath could quelch a purchase.
• Built-in home stereo systems are a must-have for many audiophiles. Wireless hasn't quite made the pre-wired audio system home obsolete, at least not in 2006.
• Balconies and decks wider than 3 feet. Homebuyers want usable outdoor space. Big enough for a bistro table and chairs and a couple of pots for container gardening.
• Guest parking. With the rise in condominiums, lofts and zero-lot line subdivisions, homebuyers want their guests to have a hassle-free experience when they arrive at their new home. Buy or lease an extra space for family or friends.
• Dog Parks. Dogs and home ownership go hand-in-hand. The new way to meet neighbors in the hood is to interact with them at the dog park. Before buying a home, check out the nearest one.
• Ranch or one level homes. The baby-boomers are discovering their utility in droves.
• Second Homes. The baby-boomers are also keeping this market segment strong. Demand for second homes was still on the upside in 2005, but if primary home demand weakens, the second home market will historically follow.
• Seller give-backs. With a more balanced market in most metro markets, requests by buyers to pay closing costs have increased, and some sellers are paying them.
• Carbon Monoxide detectors. Home inspectors red flag homes that have only smoke detectors. Inexpensive and lifesaving, install one on every floor of a home before opening to homebuyers.

What's Out

• The real estate bubble. It's a correction with a soft decline in prices.
• Ebony-stained hardwood floors. You're better off tearing it out than trying to sand the ebony out to refinish.
• Single-rod closets. Buyers want the most storage in the least amount of space. Organizers accomplish this.
• Dark rooms with small windows. Natural light can overrule a lot of other problems in a home.
• Wallpaper. Buyers never have the same taste as decorators. Take it down (carefully) and paint.
• Builder grade light fixtures and interior fixtures used outside. The right fixtures say quality to buyers.
• Mid-century awnings on exterior windows and doors. Buyers want to let the sun shine in.
• Mirrored backsplash's in kitchens and everywhere else. Mirrored walls and ceilings say 1980's hedonism.
• Commitment (strong, bold trendy) colors. They look great in magazines, but as one buyer said to me "I don't live in a magazine".
• Gas grills that need their own tank. Buyers prefer the gas piped from the house so they don't have to replace tanks.
• Dropped ceilings. It might have updated a bungalow in the 1950's, but buyers want as much vertical space as possible.
• Flipping. Increasing inventories of unsold homes is increasing, signaling weakening demand by all buyers. If you are holding properties to flip, prepare to place them on market after the holidays.

On the Way Out

• Stainless steel appliances. Word-of-mouth says the cleaning requirements aren't for everyone.
• Laminate flooring that looks like hardwood. Not only can buyers tell it's not wood, the noise it makes with high-heel shoes is the deal killer during property showings.