Buying a Home

Trade-Offs

Five Compromises Worth Making When Buying a Home

Home buyers often start their search with a long list of must-haves, only to find they need to whittle down their list to remain within budget. Unless you’re a gazillionaire, it will be impossible to leave all the boxes on your wish list checked. So, how do buyers decide which pieces of their dream (home) they’re willing to give up?

In most cases, buyers will have to make compromises if they are to stay within their budget. We always tell buyers that if they can get 75% of what they are looking for they’re doing very well. What’s important for them to decide is which items on their wish list are must-have and which are less important and can be given up. Below are some commonly made concessions for buyers to consider:

Compromise #1 – Location  

It’s one of the first things buyers are willing to budge on. While finding a home within walking distance to work, shops, restaurants and public transportation is a buyer’s dream scenario, buyers do not want to compromise on their living space. Often the conveniently situated homes in a buyer’s price range are too small to fit their lifestyle needs, so the dream of a walk-to-town location very often will get removed from a buyer’s must-have list.

Compromise #2 – Square Footage

Not everyone is committed to doing every thing they can to keep from downsizing. If you’re willing to skip that guest room, playroom, or dining room, you may be able to stay within your budget and live in a nicer neighborhood. It doesn’t always make sense to devote a large portion of your housing budget and living space to have a guest room that will be rarely used. But, if your space needs might grow in the near future – say, if your family will be expanding – you might want to think twice
before moving into a tight squeeze.

Compromise #3 – Yard Size

When it comes to describing their dream home, buyers frequently say they want a large backyard. But in the Denver area, small lots are the norm and homes with large yards sell at a premium. After they’ve looked at a number of homes, buyers realize that the size of the back yard is not as important as the spaciousness of the interior of the home. In fact, when asked what they mean by a “large” backyard, the answer is almost universally the same: “large enough to fit a swing set.” Fortunately, this size yard is not difficult to find. But house hunters are less apt to compromise when it comes to the terrain itself. Buyers want a level yard to enjoy with their family and friends.

Compromise #4 – Awesome Garage

For first-time home buyers, it often comes as a surprise that not all homes have a two-car garage. Older homes, built in the 1920s, 1930s, 1940s, 1950s and 1960s, frequently do not. While there are homes that do not have a garage at all – and these homes are much harder to sell – buyers will often compromise and buy a home that has a one-car garage if the home has the other items on their must-have list.

Buyers are often flexible on the type of garage as well. Some garages are detached, which means that buyers can’t enter directly into the home from the garage. While some single-car garages are attached to the house, but have no direct entry from the garage into the house.

Compromise #5 – Specific Architecture

Often the first things buyers tell us about their wish list is that they want wood floors, granite countertops, and a specific architectural style. However, popular styles such as Craftsman Bungalows, Victorian, Tudor and Mid-Century Modern homes tend to be found in highly sought after neighborhoods and their prices can be very high. When buyers have taken some time to look at homes and consider their budget, a home’s aesthetics are usually the thing buyers are most willing to compromise.

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Coloradans Protect Yourselves During a Move

moving 1Coloradans protect yourselves during a move.  How should Coloradans protect themselves from problems during a move?  This well written article by Lisa Greim, was recently published in The Denver Post newspaper. It was part of a larger story, but I have copied this segment in its entirety because of the important information that it provided.

  • Understand that any estimate, even a “flat-rate”, “guaranteed”, or “binding” estimate, can be revised if the conditions of the move change.  If you estimate 1,000 pounds of stuff, and it actually weighs 1,200 pounds, or an hourly move took six hours instead of four, or there are two flights of stairs when you listed one,  your mover can lawfully charge your for the difference.
  • Get in-person, written estimates form three different companies.  An online inventory is a useful tool, but nothing beats having somebody walk through your house, look at your stuff and evaluate conditions that could complicate the move, such as street parking or stairs.
  • Make sure you have adequate insurance.  Required liability coverage is 60 cents per pound.  This means your 4-pound MacBook is insured for $2.40.  Check your homeowner’s or renter’s policy, or purchase full replacement coverage from your mover.
  • Some things were never meant to go in a box.  Play it safe and move that laptop, other electronics. valuables and family treasures yourself.
  • READ THE FINE PRINT, and don’t sign blank forms or documents.

 

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Homeowner’s Insurance Policy

Money BarWhen buying a home, pay close attention to the terms and conditions of your homeowner’s insurance policy.  Overlooking them could result in delayed, reduced or denied claims and higher premiums.

The Consumer Federation of America (CFA) and United Policyholders (UP) say it behooves you to read your insurance policy carefully – especially the fine print.  More insurers are shifting the risks and costs to the policyholders.

Pay close attention to:

Exclusions.  Most policies contain exclusions for floods, earthquakes or landslides. If you live in an area prone to any of these, you’ll need special coverage.   Policies also may not cover, or will have limited coverage for mold damage, non-flood water damage, high-value items (art, collectibles, jewelry etc.), work-at-home equipment, and other specific items.  “There are new exclusions in property insurance policies today that consumers are not aware of that can blow their financial security to shreds after a serious loss”, said Amy Bach, Executive Director of United Policyholders.

Deductibles.  These are up-front costs you pay before benefits kick in.  Most policies have two different deductibles – a flat dollar amount for most losses and a higher deductible for wind-related losses.  High wind losses can be very costly.  Clarify with you agent or insurer what your out-of-pocket costs will be in the event of a high wind related loss.

Building Codes.  Building code compliance issues will increase rebuilding costs, but they aren’t always covered by your policy.  Some policies exclude any additional costs caused by local construction ordinance or building code upgrades.  You’ll have to purchase this coverage as an add-on to your basic policy.

Price.  Homeowner insurance policy prices are based on a host of other factors.  Compare price when you initially purchase coverage and again if you experience a large rate increase.  Also, shop around once every few years to make sure you are getting the best rate for the coverage your need.

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What is Title Insurance?

Green & Red HousesThe main reason behind Title insurance  is that you and your mortgage lender want to make sure that the property is indeed yours and that no one else has any lien, claim or encumbrance on your property.  A Title insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property which is covered under your policy.  It also  contains provisions for indemnification against losses which result from a covered claim.

Title companies maintain “title plants” which contain information regarding property transfers and liens reaching back many years. Maintaining these plants, along with researching and examining title, is where most of your (one-time) premium dollars go.   Title insurers work to identify and eliminate risk before issuing a title insurance policy, by identifying and eliminating potential risks, therefore, preventing future losses caused by title defects that may have been created in the past.  For example, a person might claim to have a deed or a lease giving them ownership or the right to possess your property.  Or perhaps a person could claim to hold an easement giving them a right of access across your land.  Another person may claim they have a lien on your property securing repayment of a debt. There could be an IRS lien.

You should never purchase a property without Title insurance even if you know the owner.  People go through life changes.  They get divorced, change their wills, engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons.  There may also be matters affecting the property that are not obvious or known, even by the existing owner.  A Title search and examination seeks to uncover these defects.

 

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What is a Qualified Mortgage?

Online HomesOn January 10, 2014, the Consumer Financial Protection Bureau placed into effect the new Ability-to-Pay rule. This new rule amends regulation Z under the authority of the Dodd-Frank financial industry reform. It requires mortgage lenders to consider the consumer’s ability to repay home loans before extending them credit.  There is also a category of loans, called “Qualified Mortgages”, that limit how much of a home buyer’s income can go towards debt.

A lender is presumed to have met the “ability-to-pay” requirements if the lender makes a Qualified Mortgage. A Qualified Mortgage must meet certain requirements and and cannot have certain risk features such as:

  • An “interest-only” period, when you pay only the interest without paying down the principal.
  • “Negative amortization”, when the loan principal increases over time, even though you are making payments.
  • “Balloon payments”, which are larger-than-usual payments paid at the end of the loan term.  However, these are allowed in some cases.
  • Loan terms that are longer than 30 years.   
  • Generally your monthly debt, including your mortgage, cannot exceed more than 43% of your monthly pre-tax income (there are some exceptions).
  • Qualified Mortgages don’t allow lenders to charge excessive upfront points and fees, and have limits on discount points.

The highlights above were provided by the Consumer Financial Protection Bureau and the Federal Reserve.  More information can be found at http://www.consumerfinance.gov and http://www.federal reserve.gov.

 

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Ability-to-Pay Rule (2014)

Online HomesOn January 10, 2014, the Consumer Financial Protection Bureau placed into effect the new Ability-to-Pay rule. This new rule amends regulation Z under the authority of the Dodd-Frank financial industry reform. It requires mortgage lenders to consider the consumer’s ability to repay home loans before extending them credit.  There is also a category of loans, called “qualified mortgages”, that limit how much of a home buyer’s income can go towards debt.

Consistent with the act, the proposal would apply the Ability-to-Pay requirement to all consumer-purpose mortgages (except home equity lines of credit, timeshares, reverse mortgages or temporary loans). At a minimum, creditors’ must consider these eight underwriting factors :

  1. Current or reasonably expected income or assets.
  2. Current employment status.
  3. The monthly payment on the transaction.
  4. The monthly payment on any simultaneous loan.
  5. The monthly payment for mortgage-related obligations.
  6. Current debt obligations, alimony, and child support.
  7. The monthly debt-to-income or residual income.
  8. Credit history.

The highlights above were provided by the Consumer Financial Protection Bureau and the Federal Reserve.  More information can be found at http://www.consumerfinance.gov and http://www.federal reserve.gov.

 

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Getting Set Up in Your New Home

Automobile Registration…303-205-5607

Online HomesDriver’s License…303-205-5694

County Information:

  • Arapahoe…303-795-4400
  • Denver…720-913-2000
  • Douglas…303-660-7400
  • Elbert…303-621-3136
  • Jefferson…303-279-6511

Electricity:

  • Intermountain IREA…800-332-9540
  • Xcel Energy…( all but Elbert County)…800-895-4999
  • Mountain View… (Elbert County)…800-388-9881

Gas:

  • Xcel Energy…(all but Elbert County)…800-895-4999
  • Mountain View…(Elbert County)…800-388-9881

Newspaper:

  • Denver Post…303-832-3232

Post Office:

  • 800-ASK-USPS
  • For nearest location…800-725-2161

Telephone:

  • Qwest…866-642-0444
  • AT& T…800-288-2020

Television/Cable/Satellite:

 

 

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How Does the Legalization of Recreational Marijuana Affect Residential Real Estate?

It is impossible to ignore… Colorado has legalized recreational marijuana.  And while state law recognizes recreational marijuana as legal, federal law currently does not.

According to the Denver Post, of the ten largest cities (by population) in the State of Colorado, only Denver is currently accepting license applications for recreational pot stores.  The majority of counties have postponed making a decision and instead are watching closely to see how enactment is working in other parts of the state.

Home buyers are  concerned how legalized recreational marijuana use will affect their purchase of residential real estate.  Will it affect the neighborhoods where pot shops might open up? Will it affect crime? Traffic? Property values?  It’s important to note that as of this writing,  grow operations are only allowed in areas zoned industrial.

However, this new law does allow for in-home cultivation of up to six plants and that is the area of concern for residential real estate. If there is evidence of an extensive grow operation, buyers need to be aware that there is potential for widespread mold. Under this new buyers need to have an increased level of awareness during the inspection.

According to Colorado Inspection Services, large scale in-home growers cut holes in ceilings to allow for ventilation and to run water lines.  They also change the duct-work and rewire the house to accommodate higher voltage grow lights.  You should pay special attention during the inspection to unsafe wiring, over-sized fusing, damaged fixtures, holes for vents and electrical access, wood rot, rusted gas appliances, damaged vents, and mold from venting to interior, attic or crawlspaces.

Investor/landlords will also have to pay close attention to their rental properties and the behavior of their tenants.  While personal pot use is legal, pot use on a rental property may result in violations in loan covenants relating to “illegal activities”, or issues with hazard insurance coverage.

 

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When Buyers Can’t Agree on What Home to Buy

DartMany home-buyers get exasperated when they can’t agree on a home purchase. Some buyer’s become angry, others will use the  the silent treatment, and some withdraw from the process.  But there is hope…even for people with widely divergent views.  Here are some steps you can take to improve your chances of agreeing on a home:

  1. Engage an agent who is thoroughly acquainted with the area.  Experienced agents like Robert and Jani can often locate a compromise property that will satisfy the key preferences of both parties. 
  2. Define your preferences and set priorities.  Each person should make a “wants and needs list”,  in order of preference and provide this list to your agent.  Understand, that if you get 75% of what is on your list you are doing great! It is rare to get 100% of everything you want.
  3. Go on an “Exploration Tour”.  Sometimes it is difficult to find the words to describe what you are looking for.  You may need to see an array of possibilities, so that your preferences reveal themselves.  For this reason, Robert and Jani will often start your home search by showing you a wide variety of neighborhoods, floor plans, and architectural styles.  Your verbal and non-verbal reactions will reveal your true preferences.
  4. Try to look at homes together, rather than separately.  Several years ago, Robert and Jani were showing homes to a recently married executive who was transferring to Colorado.  The executive found a contemporary home that he fell in love with.  But, when his bride flew in to finalize the purchase decision, she did not like the home.  She had been dreaming of living in a much more traditional home.  So, all the time he had spent looking at homes turned out to be a waste of time and they had to start all over again. Both parties were frustrated.
  5. Don’t put the selection of a home ahead of your relationship.  Trying to force your partner to accept a home he or she doesn’t like can jeopardize your relationship.  On the other hand, a compromise can strengthen your relationship.  A fair compromise will help both of you feel that your needs have been recognized and respected.
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Moving Made Easier!

moving 1Moving can be one of the most stressful events in a client’s life.  Having a bullet-proof plan from inventory to moving day can relieve much of the stress.  Here are some ideas to consider in planning ahead:

Two Months Before Your Move

  • Start calling moving companies for an in-home estimate. Be sure to get your estimate, date and time in writing.
  • Contact your insurance company for coverage for moved items.  Do you have coverage in transit?
  • If you are doing the move yourself, reserve a truck.
  • Order moving supplies like boxes and tape online.  It is much cheaper.
  • Or, start hunting down boxes.
  • It is helpful to know the room dimensions of your new home.  If your furniture won’t fit, there is no use moving it.
  • This is a great time to make an inventory list and begin decluttering.

One Month Before Your Move

  • Confirm your moving plans with your mover.
  • Declutter, donate or sell items that you no longer need.  It’s costly to move items no longer in use. 
  • Start packing.
  • Label boxes with contents and the destination in your new home.
  • Label extension cords and electronic outlets carefully.  It will help when reconnecting them in your new home.
  • Arrange going away parties.

Two Weeks Before Your Move

  • Re-confirm your move.  You can never follow-up too many times.  A mis-communication could be disastrous!
  • Make a list and contact information of everyone who needs to be notified about your change of address: Post Office, credit card companies, banks, insurance companies (health, life, car), Stock Broker, Attorney, Investment Adviser, utility company, cable company, magazine subscription, newspaper, etc.  

One Week Before Your Move 

  • Continue packing.
  • Once your loan has been approved and your closing has been confirmed, notify everyone of your new address.
  • Contact your utility company for transfer of service  from you to the new owner,

Two days before your move

  • Defrost your freezer.
  • Clean our your refrigerator, leaving only things you want to take with you.  
  • Dust and Clean the rooms that have been emptied and that you are no longer using.
  • Pack an overnight kit with essential supplies (snacks, clothing, toiletries, scissors, tape, first aid kit and medications).

Moving Day

  • Disconnect all remaining appliances. Keep the power cords with the item.
  • Box up the last few items you needed for the last couple of days.
  • You should be organized by now, so that all you have to do is direct the movers. 

If You Are Moving Out Of Town 

  • Get copies of medical and dental records and prescriptions for your family and your pets.
  • Get copies of children’s school records for transfer.
  • Consider special car needs for pets when traveling.
  • Let a friend or relative know your route.
  • Carry Traveler’s checks or an ATM card for ready cash until you can open a new bank account.
  • Empty your safety deposit box.
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