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Today's Top Real Estate News
Provided by Inman News
2/21/2012 6:04:48 PM
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3 home defects that can elude discovery
Who's liable for items overlooked during inspection?
Barry Stone
Inman News®
DEAR BARRY: We bought our home two months ago and have discovered three defects that our home inspector overlooked. These include a water leak under the kitchen sink, a gas leak in the front yard, and an unsupported PVC pipe for the front-yard hose faucet. Is our home inspector liable for these defects? --Lissa DEAR LISSA: Some of these defects may involve liability and some may not. Here is a short review of each of these items: 1. If there was a visible plumbing leak under the kitchen sink, your home inspector probably should have seen it. If the cabinet below the sink was packed with miscellaneous stuff, the problem may not have been visible on the day of the inspection. In some cases, storage prevents the discovery of defects during an inspection. 2. If the gas was leaking at or near the exterior of the building, the inspector would most likely have encountered it. If the leak was occurring in one of the yard areas away from the building, it could easily have been missed. 3. If the yard faucet is installed on an unsupported PVC plastic pipe, support is needed to prevent breakage, but this is too simple a repair to involve concerns over liability. All that is needed is a metal stake driven into the ground and strapped to the PVC pipe. When issues such as these arise, the home inspector should be contacted immediately. Reputable inspectors will address these concerns by revisiting the property to see what may have been missed. A mistake many people make is to have the problems repaired and then contact the inspector to demand payment. When liability issues occur, the inspector should be given the opportunity to see what was missed during the inspection. Home inspection agreements, in many cases, specifically require notification prior to making repairs. Hopefully, you have a home inspector who takes pride in his work and will seriously consider your concerns. DEAR BARRY: We bought a foreclosed home, as is, from a bank. When we removed the old carpet, we found large cracks in the slab, leading to costly foundation problems. The contractor who repaired the foundation found evidence of previous foundation repairs that were done incorrectly. We searched the county records and found that this older work had been done without a permit. Is the bank that sold us the properly liable for not disclosing this problem? --Carrie DEAR CARRIE: Banks are exempt from disclosure laws because, in most cases, they are unfamiliar with the homes they acquire through foreclosure. If you had bought the home from a private party, that person might have had knowledge of the substandard foundation repairs and would have been required to provide disclosure. In your case, the bank was probably unaware of the problem and could not have provided disclosure. Unfortunately, some banks take advantage of the disclosure loophole by avoiding information that they might have to disclose. For example, if you had hired a home inspector and had then decided not to buy the property, the bank would probably not have requested a copy of the report. Without having seen the report, the bank could maintain plausible deniability with other buyers. To write to Barry Stone, please visit him on the Web at www.housedetective.com. Copyright 2012 Barry Stone
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Seniors: Avoid lump-sum mortgage payoff
Alternatives help those on fixed incomes from becoming 'house rich and cash poor'
Benny Kass
Inman News®
DEAR BENNY: I am 74 and recently have been contemplating paying off my condo mortgage. The remainder of the mortgage is $98,000 at 6 percent. Can you help me through this? On the surface it seems like a good idea, but I'm not aware of all the particulars. I am in good health and will not need the $98,000 in the near future. --Dee Dee DEAR DEE DEE: I am happy to hear that you are in good health today. But can you guarantee that you will still be as healthy next year, or two or three years from now? What's your reason for wanting to pay off your mortgage and own your condo "free and clear"? I know you will respond and tell me that you are currently getting less than 1 percent interest on the moneys you have in the bank, so why not pay off that 6 percent loan? And I suspect you will also tell me that you have no real income so you cannot take advantage of any mortgage interest deductions. All this is valuable information. But over the years, I have represented too many homeowners who at 70-plus found themselves "house rich and cash poor." Don't let yourself fall into this category. Also, while it may never happen again, I remember getting 18 percent interest back in the early 80s on the money market account I had with a major lender. While no one can guarantee anything, I feel confident that bank interest rates on savings will go up over time. Here's a suggestion: If you can qualify, I would strongly suggest that you consider refinancing your existing 6 percent loan. Interest rates are currently hovering around 4 percent, which is extremely low. If you can refinance, you will reduce your monthly mortgage payment, but at the same time will keep your money in a bank account in your name and not that of your mortgage lender. And regardless of whether you are able to refinance, you might want to consider making larger monthly payments on your mortgage. This way, you have your proverbial cake and eat it, also; you keep your money in your bank but start reducing the outstanding loan balance at a more rapid pace. DEAR BENNY: I bought a condo in 2007 just before the bottom on real estate dropped. The building went into foreclosure and then receivership, and now a bank owns it. Only three of 12 condo owners are paying the assessment fee. We need our hallways and entrance doors painted, but the management company tells us that it doesn't have the money for that. I want to know what I can do as an owner: Do I locate the bank to see what its responsibility is to this property? The management company suggests that because I pay my assessments I should contact the other owners and gently ask them to pay their fees. However, I don't feel comfortable doing that. --Yvonne DEAR YVONNE: You need a lawyer who understands condominium law. I suggest you contact the Community Associations Institute to get the name of some lawyers in your area. First, there is a condo association; it was created when the condo documents were first recorded among the land records in your state. It is just that the association is dormant. In my opinion, the bank (the current owner of the rest of the units) has the obligation to (1) maintain the condo association, (2) vigorously collect condo fees from everyone, including the bank that owns the rest of the units, and (3) maintain the building's common elements. Second, l believe that the management company is not doing its job properly, especially when it tells you to try to collect condo fees from other owners. That's the job of management, not yours. I would demand to see a copy of the management contract; that would give you a lot of information about the owner of the remainder of the units. Every state has different laws when developers go "belly up" and the lender takes over the association. Your attorney should be able to guide you. And don't be concerned about having to spend some money on an attorney. It's your condo -- your investment -- and you clearly want to preserve it. DEAR BENNY: In a warranty deed, my grandmother conveyed 200 acres of farmland, for her life and on her death, to her bodily heirs. My mother, who is now 102 years old, had two children: my deceased sister and me. When my sister was alive, we naturally assumed that we were her bodily heirs and would share equally. My sister had four children, one of whom died and left two children. So who are the bodily heirs now? And how do they share? Will I still get half? --Art DEAR ART: I cannot provide you with specific legal advice, but can give you my opinion. The concept of "bodily heirs" is language that was used many years ago, but has fallen out of favor because it has caused confusion in a number of courts. Oversimplified, it refers to "lineal descendants." According to the legal dictionaries, a "lineal descendant" is a person who is in direct line to an ancestor, such as a child, grandchild, great-grandchild, etc. This is distinguished from a "collateral descendant," which is a husband, wife, brother, sister, uncle or aunt. In your case, your mother is the lineal descendant. I am assuming that your grandmother is deceased, based on the age of your mother. If my assumption is correct, then your mother is now the property owner. If your mother has a last will, then the property will be distributed pursuant to the terms of that document. If there is no will, then the laws in your state (called "intestacy") will control. Presumably, on your mother's death -- unless there is something to the contrary in her will -- you will get half of the property. The other half will have to be decided either by your mother's will or the laws in your state. Because there are many parties now involved, it's too complicated to explain in this column. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com. Copyright 2012 Benny L. Kass
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4 factors to consider before buying a home
Mood of the Market
Tara-Nicholle Nelson
Inman News®
It's tax time, so those who don't own homes are seriously thinking about whether they should. And those who do are busy trying to collect up and cash in all of their deductions. To boot, the real estate market is in year six (!) of what those who can't agree on a precise economic term can all agree to call the doldrums. Those who haven't lost or walked away from their homes are very focused on how much theirs are worth, how much value they've lost, how much they're paying for them, and whether they can refinance. Given these financial fixations, one would think that homes were simply a financial instrument, like stock shares or options or something. But I recently watched a film that poignantly highlighted a number of ways in which the real estate decisions we make are very often driven by values, priorities and motivations that have little or nothing to do with money. In "The Descendants," George Clooney is the patriarch of a family that owns a massive land trust in Hawaii. The primary plotline focuses on Clooney's character's discovery that his wife was having an affair before the accident that left her comatose (an affair with a real estate agent, no less). But I also noticed a second, real estate-related storyline. I won't spoil it, as the film is a must-see portrait of an American family. But the upshot is that Clooney and a boardroom full of his aging cousins are facing some decisions about whether and to whom to sell thousands of acres of pristine Hawaiian beachfront that have been in their family for hundreds of years. The biggest dollar offer is the underdog from the beginning, and, ultimately, money completely fails to trump history and relationship complexities as the decision-driving factor. (Enough said -- go see the film.) Inspired by "The Descendants," here are four common motivators and drivers of real estate decisions -- and the decision to own a home, in particular -- that fall entirely outside of the financial realm: 1. Family. When you own your home, you have the possibility of eventually owning it free and clear -- and with that, the possibility of passing it on to your children. Homeownership also gives children stability of place, school and community that can be difficult (though not impossible) to give them while renting. Last year, I wrote a review of a book that mentioned family legacy as one thing homeowners valued, and almost instantly after my review went live, I received a reader note saying that no one cares about legacy or passing homes down to their children anymore -- especially in the wake of the recession. Then, interestingly enough, I received another half dozen notes from readers about how essential this was to their real estate decisions, and the New York Times published a piece about how the recession was allowing, even prompting, parents to buy homes as gifts for their children. This has all bolstered my belief that, yes, family legacy is still a valid and widely held driver for homeownership and real estate decision-making. 2. and 3. Comfort and control. They say comfort is a core human desire; certainty is also on the list. The ability to control your location, to customize your home's comforts for your own personal preferences and needs, to control your noise levels and your proximity to (or distance from) neighbors -- all these powers to dial up your own comfort levels and have control over your living situation are critical motivators for our real estate decisions. I see comfort and control as largely overlapping factors that impact many people's decision whether to rent or to own, but they are not identical. Comfort highlights the fact that, in some areas and school districts, it is tough to find high-quality housing or larger homes for rent. On the other hand, the control elements of homeownership also include the certainty of knowing what your housing costs will be for a very long period of time, and the power to stay put as long as you want, without being forced to move if and when your landlord wants to sell or move into the place. 4. Career. Our real estate decisions and career choices are tightly intertwined. Many people choose their home in large part based on a desire to make it easier and more comfortable to get to and from work, or even to work at home. On the flip side, committing to homeownership in this market climate may also limit your ability to move around freely for career opportunities. And having a mortgage certainly puts some boundaries around the decisions you make about how much you work, what work you do, and who you work for. It's tough (though not impossible) to quit your day job as an attorney and start your lifelong dream to be a full-time artist when you have a bulky bottom line to meet. You don't have to be a land baron or a patriarch to understand that owning a home -- or opting out of homeownership, for that matter -- is not all about the Benjamins. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com. Copyright 2012 Tara-Nicholle Nelson
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Pros and cons of 9 bathtub materials
Some keep water hot for longer, but convenience comes at a price
Paul Bianchina
Inman News®
Last month, we discussed some of the many options available when replacing a bathtub or a tub/shower combo. But what we didn't look at were the many different material choices you have, and since that time I've gotten several questions from homeowners looking change out their bathtub, all with a similar dilemma -- "I'm not sure what material it should be constructed of." Let's look at some of the different choices, and try to clear up a bit of the confusion. To begin with, you might be surprised to find that you have more options than you would have thought. Which one you ultimately choose is going to come down to a combination of looks, comfort, ease of maintenance, and, of course, cost. Let's start with some of the more common options: Fiberglass Also known as FRP, or fiberglass-reinforced plastic, this is typically going to be the least expensive bathtub material. A fiberglass bathtub is made by forming layers of fiberglass into the desired shape, then coating it with Gelcoat resin. The advantages are low cost, light weight, ease of installation, and a finish that can be repaired. On the negative side, fiberglass tubs are thin; they flex and don't have a stable feel; they're not very durable; and the finish is prone to fading, scratching and cracking. Personally, it's one of my least favorite materials. Porcelain on steel Also sometimes called enameled steel, this is another inexpensive and very common bathtub material. The tub is stamped from a thin sheet of steel, then finished with a layer of porcelain enamel. These tubs are durable and easy to clean. The finish is resistant to most common chemicals, and retains its gloss for a long time. They're also especially useful when replacing fiberglass or acrylic tub/shower units, as they fit in the same 5-foot opening and can be finished off nicely with a ceramic tile surround. On the downside, they're heavier than fiberglass or acrylic; the surface can rust and chip under impact; and you're very limited in the number of shapes and sizes available. Acrylic Acrylic tubs use fiberglass sheets for reinforcement underneath vacuum-formed sheets of colored acrylic. The advantages are pretty much the same as for fiberglass, although acrylic tubs are more expensive. Disadvantages are that the finish can scratch or discolor over time, although the better grades of tub finishes have now reduced that problem to a minimum. You also have a lot of choices of shapes, sizes and colors. Acrylic is a good all-around choice, although it may lack a certain high-end appeal for some people. Cast iron If you're looking for a material that will last, this would be it. Cast iron tubs are made by pouring molten iron into a mold of the desired shape, then smoothing it and coating it with a thick layer of enamel. It's probably the most durable tub available, and the finish is resistant to chipping, scratching and denting, as well as most types of chemicals. There are a number of different colors available, and there's a richness to cast iron that's hard to match. The heavy material also tends to retain the water's heat. On the downside, these tubs are extremely heavy and require extra labor -- and often extra floor reinforcement -- to install. They're also typically going to be among the most expensive tubs on the market. And now for some less common material options: Solid-surface materials Solid-surface materials are relative newcomers to the bathtub market. They're durable; they retain heat well; there are a variety of subtle, natural-looking colors available; and the finish can be repaired if needed. They can also be made in a variety of shapes and sizes. On the downside, they're somewhat heavy and relatively expensive, and may require a long lead time to get. Cultured marble These tubs are made from crushed limestone mixed with resin, then finished with Gelcoat. You have a lot of options for color, size and style, and the Gelcoat finish used with cultured marble is more durable than that used with fiberglass. The cost typically falls somewhere between acrylic and cast iron. Ceramic tile Ceramic tile tubs can be made on site to whatever size and shape you desire. You have more design options with this material than any other. However, you'll have to deal with the maintenance of all that grout, and the irregular interior surface may not be the most comfortable to relax on with bare skin. Stone and wood You can custom order a bathtub from a variety of natural stone materials, including granite, marble, onyx, travertine, basalt, sandstone and other materials. These tubs are extremely heavy, and require special structural framing to support their weight. You can also custom-order a bathtub made from teak and certain other woods. As you'd imagine, with any of these true one-of-a-kind pieces you get an unbeatable "wow factor," but it comes with a pretty high price tag. And, in the case of wood and some of the stones, it's going to require a lot of maintenance in order to retain the tub's original beauty. Remodeling and repair questions? Email Paul at paulbianchina@inman.com. All product reviews are based on the author's actual testing of free review samples provided by the manufacturers. Copyright 2012 Paul Bianchina
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'Turnkey model' for bulk REO sales a win-win for contractors, community
Tennessee firm manages rehab and renting for hundreds of homes
Steve Bergsman
Inman News®
In a number of cities, especially those hard hit by the recession, investor groups have swooped in, buying up hundreds of REO properties as quickly as they can be located. To some observers, this appears to be problematic, because the new owners won't be living in those houses and renters can destabilize a neighborhood. Then there is the issue of whether investors are simply being predatory, stealing away these busted residences before anyone else might consider a purchase because they have raised the capital and pretty much can call the shots. I'm not going to say the critics are wrong, but I will make the case that investor groups are doing a service to the lenders by putting the homes back into private ownership. They are resurrecting neighborhoods, because when investors purchase they reinvest in the homes (some of which have been trashed), making them market-ready. There is a third argument in favor of the investors. Thousands of contractors who have lost their jobs or are suffering reduced income because of the collapse of the homebuilding industry are being employed by home investors, as there is millions of dollars in rehab work to be done. To illustrate this last point, I'm going to spotlight just one investment company that, through a tremendous amount of contractual business, has become a major economic stabilizer in its local marketplace. Memphis Invest GP is, as the name implies, a Memphis, Tenn.-based real estate investment company. It's also one of the largest, if not the largest, companies involved in what is sometimes called the "turnkey model" of investment in single-family residences. What that means is, the company buys single-family homes, rehabs the properties, finds long-term renters, manages the rental program, and then sells that home-plus-rental package to individual investors. In other words, investors who want to own single-family homes but don't want to bother with the hassle of being a landlord will turn to companies like Memphis Invest. "They buy a passive investment from us," said Chris Clothier, a principal and head of sales and marketing. "The investors will realize some appreciation, but this is much more about purchasing at such a price point that the rents not only allow the property to be paid down, but earn a cash flow, basically a dividend on the investment." In 2009, Memphis Invest acquired 221 properties locally; in 2010, 196 properties; and last year, 317 single-family residences. The average cost to renovate all the acquisitions now stands at $16,700, and that includes new flooring, painting, fixtures, updating the electrical, and replacing or upgrading all systems -- furnaces, water heaters, air conditioning coils and blowers. "This year we replaced more roofs than at any time in the past," Clothier said. That's a lot of work and because Memphis Invest has only four project managers and no on-site workers, it outsources all that work -- and that's a lot of money flowing through to small businesses. In 2010, the combination of maintenance costs for acquired homes and rehab expenses for new purchases came to $4 million. In 2011, the company spent $774,000 on maintenance for about 1,000 units, while the rehab expenses for more than 300 acquisitions came to $5.35 million. In 2011, Memphis Invest handed out paychecks to 80 different contractors, mostly mom-and-pop shops, although Clothier noted that "about 45 contractors are really the stalwarts that we do business with all the time." Some of Clothier's stories are heartwarming. "One gentleman that used to rent from us had lost his job and was looking for work as a handyman," Clothier said. "He said to us, 'I've got a truck, I've got a trailer and I'm willing to work.' We used him to do cleanups and trash-outs, paying him $10,000 on the renovation side and $28,000 from the property management side." Almost 50 percent of Memphis Invest's contractors are minority firms. And, with so much work needed, some contractors are making major money. One locksmith did more than $140,000 in business with the company. Even that pales with a heating and air conditioning contractor that billed more than $450,000 with Memphis Invest. I spoke with two of Memphis Invest contractors. One, Tony Scott, owns with his wife The Lock Man in Cordova, Tenn. They and two technicians are the company's only employees. "Plenty of work? That's an understatement. It's a tremendous amount of work. They are the biggest company I work for," Scott said. "And they are the best company I work for because of their integrity, the way they treat vendors and the way they pay on time." Steve Matlock, president of Southern Comfort Air, Heating and Plumbing in Memphis, has worked with Memphis Invest for about six years. "They provide a lot of work and always pay on time. You turn your invoices in on Wednesday and you get paid on Friday. That kind of certainty is unheard of in this industry." Memphis Invest plans a huge increase in acquisitions this year, to somewhere around 450 to 480 properties. That will mean a huge amount of renovation work, and Scott and Matlock are gearing up. Scott's company runs two vans, but as he told me, "I'm in a position to buy a new van." Matlock has his eye on two more trucks. "Memphis Invest said it is going to do a lot more work than it has in the past, so we are ready to gear up," he said. "We are like the engine at the front of the train," said Clothier. "As our business has grown, everyone that comes along has grown. If they provide good service, quality work and stand behind their work, we can do a lot of business together." Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "Growing Up Levittown: In a Time of Conformity, Controversy and Cultural Crisis," is now available for sale on Amazon.com.
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5 building permit issues you can't ignore
Don't get stuck with $20K bill when it's time to sell
Dian Hymer
Inman News®
It's a good idea to check the building permit record on a home you're planning to buy before you remove your inspection contingency. Although buyers are advised to take this important step, many don't. This can result in unpleasant consequences. Some planning departments won't allow you to take out a permit to do additional work on your home if there are outstanding or expired permits that never received final approval from a city building inspector. The buyer of a home in the hills above Oakland, Calif., had to clean up a lot of the previous owner's poorly done work before she could begin the work she wanted to have done on the home. In one instance, buyers received a copy of the permit record on the home they were purchasing before they removed their inspection contingency. It was loaded with expired permits for work that had been completed but had never received final approval from the building inspector. The buyers were concerned that they might incur unquantifiable charges if the permits weren't approved before closing, so they asked the seller to resolve this issue as a condition of the purchase. The seller of a Piedmont, Calif., home recently found herself in a similar situation. She bought her home long before unpermitted work was an issue. The buyers discovered during their inspections that the previous seller had done a lot of work incorrectly and without permits. To close the transaction, the seller had to agree to pay more than $20,000 to correct the problems. HOUSE HUNTING TIP: Not only is it a good idea for buyers to check the permit history on a home before they buy, but sellers are wise to check the permit history on their homes before putting them on the market. This way, they can correct any permit issues before the listing goes public. Homeowners often assume when they hire a contractor to do work that requires permits that the contractor will take responsibility for this. This may not happen, particularly if it is not specified in the work authorization contract. Sometimes there is miscommunication between a contractor and the homeowner. One thinks the other is going to call for a final inspection and meet the inspector, but neither does. It's a good idea to follow up on this because it will cost more renewing a permit if it expires before the final inspection is done. Another issue that can create problems is work done without building permits that adds living space to a home. In most cases, due to changes in mortgage lender requirements, appraisers can't count unpermitted work as livable square feet, even though it is used as such by the current homeowners. In older neighborhoods, there are often homes where an attic or basement has been converted to add living space. Until recently, if the work was done professionally by a contractor, the appraiser could usually count it as usable square feet. Today, underwriters may require copies of permits for all work that adds square footage in addition to what shows in the public record. The public record on a property is not always accurate. For example, an addition that was done with permits may not show up in the public record. In this case, the error should be corrected before the home goes on the market. Your real estate agent or assessor's office should be able to help you with this. Many homes have been renovated without the benefit of building permits and final inspections. In today's real estate market, this could have an effect on value. Even so, the last thing a seller should do is make representations that can't be substantiated. Sellers who had work done without a permit should let the buyer know, in writing. THE CLOSING: Sellers have been sued for misrepresenting square footage; it's wise to err on the side of caution. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide." Copyright 2012 Dian Hymer
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Don't overpay for title insurance
When refinancing your mortgage, ask about the 'reissue rate'
Jack Guttentag
Inman News®
Ten years ago, Kenneth Harney wrote an excellent series of articles on why many refinancing borrowers pay too much for title insurance. In one article, published on June 9, 2002, in the Baltimore Sun, Harney stated: "No one knows how much American homeowners lose annually by overpaying title premiums when they refinance their mortgages. Even title insurance industry officials admit the problem is substantial. They say some consumers could save 50 percent or more at refinancing if they'd simply memorize two words: 'reissue rate.' Use them as a mantra at your next refinance." Not much seems to have changed since then, as many refinancing borrowers continue to overpay because they don't know enough to ask. Not everyone is eligible, however. Cutoff dates In most states, insurers set a cutoff on how old a mortgage can be to be eligible for a reissue rate. The most common cutoff is 10 years, but in some states it is two years, and in others it is 15 years. There are also a few states in which there are no reissues and a few with no cutoffs! Don't look for an economic rationale for these differences; they appear to be as unconnected to the costs of providing insurance services as the premiums themselves. Documentation requirement A reissue is an extension of a current policy at a reduced premium, but, in order to qualify, borrowers must document that they have the policy that will be extended. The best way to do that is simply to produce the policy, but in many cases homebuyers didn't get a copy of the policy when they closed, and those that did may have lost it. If they don't have a copy of their policy but they did retain the HUD-1 closing document, the title policy will be identified there. Failing that, they may recall the closing agent who sold them the policy, or the lender, both of whom should have a copy. There is an obvious moral here for homebuyers: To avoid uncertainty and hassle, demand a copy of your title policy at closing, and place it in a secure place. The borrower who can't document an existing policy may still receive a reissue discount, but it will come out of the agency's pocket because the payment to the insurer must be based on the undiscounted premium. For example, assume the basic premium is $1,000, the reissue premium $600, and that the premium split between the agency and the insurer is 70/30, which is typical. If the reissue is documented, the split is $420 for the agency and $180 for the insurer. If it is not documented, it is $300 for the agency and $300 for the insurer. Rationale for reissue rates There was an obvious cost rationale for reissues when every title policy required a personal visit to a county office to search title records manually. Today, however, in all but a small number of counties, title records have been computerized and the time required to search 50 years is negligibly greater than the time needed to search three years. Reissue rates today seem to arise out of the need to meet a public perception that it is unfair to charge a homebuyer $800 for a title policy protecting the lender, and another $800 a few years later when he refinances. Charging $500 for the reissue may deflect attention from the larger question, which is why title insurance in general costs so much more than it should. Title insurance on my site I recently made an arrangement with Boston National Settlement Services, a leading title agency, to quote title insurance premiums on my site. Borrowers don't have to ask for a reissue rate; the quote they receive will automatically include any reissue discount to which they are entitled. If they have trouble documenting their existing policy, Boston National will help them. Borrowers can compare their premium with the one quoted by the agency recommended by their lender. I don't receive any of the premium borrowers pay to Boston National. The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com. Copyright 2012 Jack Guttentag
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Can tenants refuse a surprise police search?
Rent it Right
Janet Portman
Inman News®
Q: I'm an apartment house manager. Last week, a couple of uniformed police officers came to the office and asked to be let into one of our residents' apartments. I agreed, and watched while they looked around. When my tenant found out, he was furious. Did I do something wrong? --Mike M. A: It sounds as if the police did not show you a search warrant -- a piece of paper, recently signed by a judge, that gave the police permission to enter a specific household and to search for specific items. Warrants are issued by judges after they receive information from police officers, often under oath and contained in affidavits. Police affidavits must establish more than that there's suspicious activity afoot, but they don't have to provide proof beyond a reasonable doubt. There are exceptions to the warrant requirement, but you don't give us any reason to think that any of them would apply here. For example, police can enter a home when they're in hot pursuit of someone suspected of a serious crime, and to prevent the imminent destruction of evidence. Absent an exception to the warrant requirement, the police cannot enter and search. Your tenant, had he been asked directly, could have legally refused entry. The officers probably expected this, and may have deliberately waited until he was away to try their chances with you. Now the question is: Did you have the authority to let them in? The answer is no. You may enter for many legally recognized reasons, such as to deal with an emergency, to show the property and make repairs (with proper notice), or (in some states) after a tenant's extended absence. But entering your tenant's home in order to cooperate with police who themselves have no legal basis for entering is not among those reasons. Q: Recently, you answered a question from a tenant whose lease specified that each tenant pay his own water bill, as measured by submeters. The landlord wanted to abandon the meters and charge tenants using an allocation system, which you thought he couldn't do. But what if the lease doesn't mention submeters -- (and) that's how water usage has been measured and paid? My landlord wants to switch to a flat rate, which ends up being about $20 higher than my average bill under the meter system. Can she do this? --Al F. A: You've posed an interesting variation on the earlier question. In that one, the landlord was obligated to maintain the meters because the lease itself specified that the tenants would pay for water as shown on their individual meters. Disregarding this system, which is a term or condition of the tenancy, isn't an option for the landlord, just as deciding that you'll have a dog isn't an option for you if your lease says "no pets." Your situation is different, and how it's resolved may have a lot to do with the precise language of the lease. Suppose it says, "Tenant will pay for the following utilities: water ... and so on." That's no promise that you'll pay only for the water you use. "But," you say, "all along I have been paying for just that, courtesy of the meter." This may be your best argument. Legally, your landlord may be held to the practice she's adopted in fulfilling her obligations under the lease. If you have lived there for years, with the same lease clause and with submeters, you may be able to convince a judge that the landlord's own practice over time makes it reasonable for you to conclude that the clause meant personal water consumption, which can be measured only by meters. If the landlord wanted to give herself the option of using different billing methods during the lease term, she could have done so when drafting her lease. Keep in mind that this argument will work only as long as the lease runs. At the end of the lease (or with proper notice, if you're month-to-month), this billing issue is up for negotiation. You landlord will be free to impose a flat charge ... and might lose you in the process. It's odd to learn of a landlord going from submetering to a flat fee; submetering is the way of the future because it encourages frugality and it's fair. Most landlords would forgo the chance to make a few bucks by way of flat fees in order to attract and keep good tenants. Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at janet@inman.com. Copyright 2012 Janet Portman
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3 seller responses to canceled home purchase
REThink Real Estate
Tara-Nicholle Nelson
Inman News®
Q: What is the best route to go if the buyers lose their jobs prior to closing and cannot qualify for the mortgage? The people who were planning to buy our home put down a substantial amount of earnest money, and also began maintaining our yard. They spent $2,500 to clear trees downed by Hurricane Irene. Then, they backed out of the deal three days before closing! We don't feel obligated to return any of that money. What rights do we have? --Mary, North Carolina A: I'm so sorry you're having to go through this. If it helps at all to know that you're not alone, a survey just released by the National Association of Realtors revealed that 33 percent of the trade group's members reported transactions in which the contracts had been canceled, most often because the seller's bank doesn't approve the short sale, the home doesn't appraise at the purchase price, or the buyer's financing falls through. What the numbers don't show is the emotional and lifestyle chaos that is caused when a buyer backs out just a matter of hours before escrow closes, as you've experienced. Chances are good that your belongings were packed or even already moved, and your next home already bought or rented. That only makes the idea of now having to go through the whole ordeal of facing such a competitive listing market and reshowing and reselling your home even worse than it would have been if your buyer had backed out much earlier in the timeline. Fortunately, you do have some rights and resources available to you. Here is a short list of items you should be aware of as you put your action plan in place for responding to the situation you find yourself in: 1. Keep the earnest money deposit. The entire point of the buyer placing an earnest money deposit is to assure the seller that the buyer is "in earnest" about doing the transaction, justifying the seller's work and investment in pulling the place off the market, and forgoing other buyers. You will need to consult with your real estate broker and local attorney to be certain, but chances are very good that you will be able to retain the buyers' deposit funds to offset your damages. Many states' real estate contracts expressly provide for this, although most states' liquidated damages clauses also cap the amount that a buyer is required to forfeit in such a case at 3 percent of the purchase price. If the buyers' deposit was greater than the amount specified in a liquidated damages clause, if one did in fact apply to your contract, you might be limited to keeping that 3 percent. And to be clear, you are not required to retain the buyers' deposit money, in any event. I have known sellers who were able to score a better price, quickly, and found it in their hearts to help the newly unemployed former buyer out by refunding his deposit even though they were not legally responsible to do so. 2. You don't owe them anything for the trees. I can't think of a situation -- barring you having agreed in writing to refund the buyers for the money they spent on your yard -- in which you would be liable to pay the buyers back for the tree clearing they paid for. In fact, your situation illustrates one of several reasons buyer's agents so often caution buyers not to begin maintaining or improving or even moving into homes before closing. 3. Get your home back on the market, as soon as possible. Once your agent notifies the buyers and the escrow company that you plan to retain the earnest money deposit, the buyers will either authorize the escrow holder to release it or refuse to do so, and you'll have to either initiate a legal proceeding or other form of alternative dispute resolution (depending on the terms of your contract) to go about getting that cash in your hands. But don't let that distract you from what is really important, which is getting your home on the market, with no further ado. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com. Copyright 2012 Tara-Nicholle Nelson
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Master basic home repairs
Why pay for fixes that you can do yourself?
Bill and Kevin Burnett
Inman News®
Q: I'm a new condo owner. I'm not handy at all, but I figured I'd better learn some of the basics or get ready to shell out the bucks for a contractor to do what I should do myself. I've got two questions for you guys: - How do I learn the basics of home repair?
- What tools should I buy?
A: Congratulations. We applaud your desire to do the work yourself. There's a lot you can do to save time and aggravation, not to mention money, by not hiring work out. To start your education we suggest that you do two things. First, read. Go to the library and borrow some books on basic construction. Flip through them and focus on what strikes your fancy. Don't forget magazines. Especially check out Fine Homebuilding magazine. Although advanced, it's a good place to get tips on some basic skills. Second, watch television. We've said many times that we cut our building teeth watching "This Old House." We learned a ton about carpentry from Norm Abrams and Tom Silva, plumbing from Rich Trethewey, and other tricks of the trades from master builders over the years. "Holmes on Homes" is also a good show to check out. In the same vein, check out YouTube on the Internet. We've seen a number of excellent tutorials from hanging pictures to building the walls they hang on. Then it's time to apply what you've learned. Start with the simple stuff. If a door sticks, adjust the hinges. If a faucet leaks, replace the washer. If your laundry room needs shelves, build them. You'll make mistakes, but they can be fixed. Pretty soon you'll be comfortable. That's how we started, and we ended up designing and building a house. This leads to the answer to your second question: our suggestion for a basic set of tools. Our beginner set has only one power tool: an 18-amp cordless drill with bits and nut drivers. The rest are hand tools. Buy quality and they'll serve you for a lifetime. Kevin still uses some of our grandfather's tools. Here's our list of must-have hand tools: Hammer: The 16-ounce rip model is the hammer we'd have if we were limited to one. It's a good all-purpose hammer. The claw is straight, allowing for pulling nails or ripping into walls. Buy one that feels well balanced in your hand. Make sure the one you choose is heavy enough to drive a nail efficiently but light enough to control. Retractable utility knife: This all-purpose cutting tool has any number of uses. Speed square: The square (really an aluminum triangle) is used for marking 45- and 90-degree lines. Get the 7-inch version because it fits easily in a tool pouch. Tape measure: A 25-footer with a 1-inch-wide blade is the most useful. It's long enough to measure pretty much anything and the 1-inch width allows the blade to extend up to 8 feet without buckling. Level (or spirit level): This is a must-have for hanging pictures or for marking a plumb line as a guide to hanging wallpaper. The longer the level, the more accurate the line. We've found a 4-foot level to be a good size, with 3 feet being the minimum. Crosscut handsaw: Before power saws there were handsaws. When you want to make a cut with optimum control, the handsaw is the tool. Channel-lock pliers: To be used for loosening drains under the sink, among other things. Four-in-one screwdriver: This versatile tool is a large and small flat head and Phillips head tool in one. Adjustable crescent wrenches (6- and 14-inch): Crescent wrenches adjust to fit most nuts and bolts. The larger size gives more leverage and the smaller size fits more easily into tight places. Basin wrench: Sooner or later you will have to change a water faucet in the kitchen or bath. When you do, this inexpensive specialty tool is used for detaching water supplies from underneath a sink. Voltage tester: We suggest that most home electrical work be left to the pros. But the homeowner may try some very small fixes. Before working on any electrical circuit, make sure the power is off and test it with this tool. Copyright 2012 Bill and Kevin Burnett
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Rent your garage, driveway for extra income
Parkatmyhouse.com matches homeowners with drivers desperate to find affordable parking
Tom Kelly
Inman News®
My father was a physician in a two-man shop. He was also a baseball fan. When he was "on call" and felt things were calm enough to attend a game, he went to great lengths to make sure he could get out of his parking place and, if need be, race to the hospital. For example, when the Dodgers left Brooklyn and moved to the Los Angeles Coliseum, my dad paid a homeowner using his backyard as a parking lot an extra buck for allowing my dad to park his Chevy in the front yard next to the street. Their relationship lasted for four years -- until the team moved to Dodger Stadium in time for the 1962 season. I took the experience to heart, knowing there would be at least some demand for parking convenience at the smallest of venues. As teenagers, we even set up an unofficial valet service in front of a Hollywood tennis club, promising drivers their cars within 90 seconds of handing us the keys. Since then, I've known friends and acquaintances who have used or rented out yards and driveways to churchgoers; ferry commuters; bus, plane and train riders; and sporting events of every kind. I've also known friends who have spontaneously knocked on doors to offer homeowners a parking proposal. In one case, a friend not only rented a parking space for a golf tournament, but ended up renting the entire house in subsequent years for the weeklong event. Some people have not only anticipated a parking demand in their neighborhood but they've taken it to another level. If you've ever seen Chicago Cubs' games in person or on television, know that some of the folks sitting in rooftop seats also rent a nearby parking spot below. So it came as no surprise when I learned that the entrepreneur trying to help consumers locate more consumer-run parking spaces while offering how-to suggestions and forms decided to put the concept in motion after an experience near a baseball stadium. Anthony Eskinazi, a former student at University of California, Berkeley, founded ParkatmyHouse.com in the United Kingdom in 2006 and recently launched in the U.S. The genesis came as result of his inability to find a parking spot near the San Francisco Giants' AT&T Park before a game. When he saw an empty driveway a stone's throw away from the stadium, he realized that there was a great opportunity for both homeowners and attendees -- if only they could find a way of making contact. "What I felt was missing and greatly needed is something that brings drivers and their vehicles together with property owners and their empty garages," Eskinazi said. "Think about it as a matchmaking service where we help get the people started but then they take over." ParkatmyHouse.com provides space owners guidelines on how to price spaces from recent bookings in their area, the price of other spaces listed on the website, and through a partnership with Parkopedia, a huge parking information database and another operation co-founded by Eskinazi. The site does not own or operate its own spots or offer incentives to visit a specific location. "We do not manage any garages," Eskinazi said. "We simply help drivers find and compare commercial, street and private parking on their computer or a mobile phone." The mobile aspect probably holds the most potential, as consumers circle and compare parking prices near ballparks, arenas, museums and theatres. Visitors to the site and users of the service say that price is as big a draw as location, safety and convenience. At some sporting events, the cost to park in a stadium lot is greater than the cost of a ticket. Commuters also are discovering that the constant increase in parking fees add significantly to monthly household costs. And, fewer employers are providing parking stipends. The price difference between commercial and private spots can be significant. For example, some commuters can pay twice as much to park in a commercial lot than in a private property lot. What has been Eskinazi's prime example of a success story? "A minister who runs a church near a major train station in the U.K. has earned over $180,000 from renting out eight spots over the last few years, contributing over half of the church's annual income," Eskinazi reported. "The spaces are more than 50 percent cheaper than the commercial parking lot close by, and drivers also have the good feeling of contributing to their local community." I'm sure priests with a church anywhere near a ballpark are already dialed in to the idea. Tom Kelly's new e-book, "Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico's Lower Cost of Living Can Avert a Tearful Retirement," is available online at Apple's iBookstore, Amazon.com, Sony's Reader Store, Barnes & Noble, Kobo, Diesel eBook Store, and Google Editions.
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Beware of 'force-placed' hazard insurance
Miscommunication between insurer, lender leaves homeowner with overpriced coverage
Benny Kass
Inman News®
DEAR BENNY: My wife and I closed on a short-sale house in Florida back in 2010. We paid "in full" the homeowners and flood insurance even before we took title to the property. Once we became the owner of the property, confusion started when the insurance agent apparently (and incorrectly) advised the lender that we did not have the necessary insurance coverage. As a result, the lender advised us that it force-placed an insurance policy at a premium cost that was considerably higher than what normal insurance costs. We are trying to resolve this amicably, but may have to file suit if it can't be resolved. --George DEAR GEORGE: First, when dealing with national lenders (such as the one you have) I have often found that a letter to the Office of the Comptroller of the Currency assists in getting the lender to be more responsive. I am not sure how I can respond to your situation, as you may choose to file a lawsuit to resolve your issues. You may have a good case against the insurance agent for negligence, but your lawyer will have to make that decision. However, I wanted to use your issue to discuss "force-placed" insurance. Oversimplified, every mortgage lender requires its borrowers to maintain hazard insurance. If, for example, the property burns down -- or is hit with a tornado -- the lender wants to make sure that the insurance coverage will pay off the existing loan. There is an interesting issue as to the amount of coverage that lenders can legally require. For example, if your home is worth $500,000 but your loan is only $250,000, one would think that all you need to satisfy the lender is $250,000 (although that may be a long-run foolish decision should your house burn down). Apparently, different states have different legal requirements, so discuss this issue with your attorney. However, at the very least, you need full replacement insurance coverage. Back to force-placed coverage: If you do not continue to carry your own hazard insurance, your lender will obtain it for you -- i.e., it will "force" insurance on your home at your expense. And, be warned: The cost of this coverage will be considerably more expensive than if you purchased it on the open market. There are many abuses by lenders in this area. In fact, I have just learned that agencies in New York state have started investigating companies that underwrite and sell forced-place insurance. Bottom line: Make absolutely sure that you do not let your home (hazard) insurance lapse. DEAR BENNY: My mother is 89 and has been in a nursing home for almost five years. I am contributing to the cost of her care. I have two questions: - How do I transfer the title at her death? I have her old will done in the 1960s naming me as the heir.
- Can the money that I have contributed over the years be deducted from the sale of her house?
This is the only asset she has. --Ruth DEAR RUTH: Let me answer your second question first. You are still not the owner of the property and accordingly, you cannot take any deductions for the moneys you spent -- even if they significantly improved the house. If the house were sold to a third party, you would be able to recover some of your investments. There is a statute of limitations in your state that would limit how far back you can claim reimbursement. You will also need adequate proof such as receipts and invoices. But if you will intend to keep the house after your mother dies, your question would be irrelevant. You will be able to take advantage of what is known as the "stepped-up basis." This means that the value of the property on the date of death becomes your tax basis. Let me explain: Even if your mother paid $100,000 for the house many years ago, it is valued at $500,000 on the day of death. Thus, $500,000 is your tax basis. Should you decide to sell for that amount, you would not have to pay any capital gains tax. So, in my opinion, it really is unnecessary to be concerned about the moneys you have invested. Turning to your first question, the answer depends on the laws in your state. If probate is required, the person appointed as the personal representative (called executor in some states) will prepare and record a deed into your name after probate is closed. You have to discuss your situation with an attorney in your state. DEAR BENNY: I would like to know if it is possible to add my name on my mother's house title. She is 89 and I am 69, and we want the house to go to my grandson when we both pass away, but meanwhile she wants my name on the house. Can this be done without complications? --Maria DEAR MARIA: It's very easy to add your name on title with your mother, but there may be tax complications. In order to determine capital gains tax, we use the concept of "tax basis," which means the original price of the property. If you have made major improvements over the years, that is called the "adjusted tax basis." Let me give you this example: Your mother and father bought the house many years ago for $50,000. Assume for this discussion that no improvements were made. Your parents each had a tax basis of $25,000. Your father died when the house was worth $100,000. Your mother received a "step up" in basis on your father's half of the property, which means that her basis is now $75,000 (i.e., $25,000 for her half and now $50,000 for her husband's half). If your mother puts you on title to the house, that is considered a gift. And the basis of the person giving a gift becomes the basis of the gift receiver. So if she gives you half of the house, your basis will now be $37,500. Let's further assume that the house will be worth $500,000 on your mother's death. Once again, you get the stepped-up basis, or $250,000 on her half of the property. Add that to your basis, and your tax basis is now $287,500. If you decide to sell but have not owned and lived in the property for two out of the five years before sale, you will have to pay capital gains tax. Even if you sell it for $500,000, ignoring selling costs such as real estate commissions, you will have made a profit of $212,500 ($500,000 minus $287,500). The current federal tax rate for capital gains is 15 percent, so you will have to pay the IRS $31,875, plus any applicable state and local tax. But if you inherited the property on your mother's death, and sold it for the value at the time she died, you would not have to pay any tax at all. In other words, your tax basis is increased by the "step-up" concept -- i.e., the value of the property on the date of death. In your case, because you want the property to go to your grandson, and assuming your mother is competent to know what she is doing, why not just have a last will and testament drawn up for your mother, whereby she specifically designates him to inherit the property? I see no value in adding your name to title; it merely complicates matters. Talk with an attorney to get specific information relating to your own state laws. DEAR BENNY: My daughter is half owner of a home with her boyfriend. She currently resides in the home with him. Their relationship has ended and she would like to sell the home and move to a place of her own. However, he refuses. She needs the money from the sale of the home for a down payment on another place. The home is not fully paid off and there is a mortgage. This is an unhealthy living arrangement and she needs to move. What options are available to her? --Brian DEAR BRIAN: First, I have to give advice to my readers so hopefully they can avoid the situation your daughter is in. When two unmarried people decide to buy property (whether they are gay or straight makes no difference) they must have a partnership agreement, spelling out in writing such items as: - Who pays what?
- What happens if one partner cannot pay his/her fair share of the monthly payment?
- What happens if one partner wants out of the transaction?
Each partnership should consult an attorney, so that a final written agreement can be signed. Yes, there will be legal fees involved in negotiating and preparing the agreement, but I can assure my readers that such legal fees will be cheaper than my reader's daughter may have to pay now. Brian, your daughter should talk with an attorney. If her former boyfriend is unwilling to reach an amicable settlement, her only option (in my opinion) is to file what is known as a "partition" lawsuit. Basically, the courts throughout this country have made it clear that if two or more property owners cannot agree when one wants out, the courts will force a sale. From my experience, the only winners in such a lawsuit are the attorneys, the trustees who sell the property pursuant to a court order, and the speculators who end up with a good deal. Hopefully, if your daughter threatens to file such a suit, her former boyfriend will get the message that litigation makes no sense. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com. Copyright 2012 Benny L. Kass
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Know home-inspection red flags
What looks benign now may require costly repairs after purchase
Barry Stone
Inman News®
DEAR BARRY: We hired a home inspector before buying our home, but he dismissed a defect that has now become a problem. In the room below the master bathroom, there were water stains on the wall around a drain cleanout. We asked the inspector about it, and he said it wasn't a problem. At the time, the stains were dry because the house had been vacant for months. But he didn't even run water in the shower or sink and didn't even mention the stains in his report. After we moved in and began taking showers, the wall surface became wet. The inspector now says that it was not his responsibility to figure out if the leaking would continue in the future. Besides this, the seller says that she never had a leak while she lived in the home. This seems unreasonable and unfair. What can we do? --John DEAR JOHN: If the seller denies having known about the leak, she may or may not be telling the truth. There is probably no way to prove or disprove her position, so that issue may be a stalemate. The problem with the home inspector, however, is another story and involves three main issues: 1. It is understandable that an inspector might fail to notice a leak or evidence of a past leak, but to dismiss an issue that is specifically pointed out by a buyer is inexcusable. If your inspector didn't want to test for leaks, he should have recommended in his report "further evaluation by a licensed plumber." 2. Testing showers, tubs and sinks with running water is normal operating procedure for a home inspector. The idea that a home inspection would not include a routine test of the plumbing fixtures is outrageous. An inspector who won't turn on faucets or test for leaks should find another line of work. 3. Now that the leak has been affirmed, the inspector needs to be accountable for his failure to provide disclosure. All inspectors miss some defects, regardless of their levels of competency. But an inspector who will dismiss this kind of situation, without assuming some degree of responsibility, is not a true professional. Hopefully, the repair is not an expensive one. Have it evaluated by a licensed plumber. It is possible that this is a minor defect that will not require legal action against the home inspector. It would also be wise to hire another home inspector for a second evaluation of the property. Additional defects will most likely be discovered. DEAR BARRY: During heavy rains, the gutters and downspouts from my roof work just fine, but puddles form on the ground and gradually dissipate in about an hour. Do you think I should be concerned about this? --Steve DEAR STEVE: The soil on your property absorbs water more slowly than the rate of roof drainage. If the puddles dissipate in a short time, and if there is no water intrusion or water damage in the building, this is probably not a significant issue. However, it would be advisable to extend the downspouts away from the building. To write to Barry Stone, please visit him on the Web at www.housedetective.com. Copyright 2012 Barry Stone
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4 strategies for smarter investing
Book Review: 'The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money'
Tara-Nicholle Nelson
Inman News®
Book Review
Title: "The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money"
Author: Carl Richards
Publisher: Portfolio Penguin, 2012; 192 pages; $24.95 The concept that individual economic behavior is not nearly so rational as economists once thought is not nearly so revolutionary as it once was. But understanding that our personal financial decision-making is flawed, and solving for that, are two different things. Financial planner and New York Times money blogger Carl Richards aims to help readers do the latter in his new book, "The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money." In Richards' system (and by system I mean series of bizarrely insightful and useful Sharpie sketches illustrating the equally bizarre ways individuals commonly think about their financial lives and investments on napkins), the behavior gap refers to that fundamental truth of the markets: that investor performance is significantly worse, on average, than investment performance. Investment portfolios that are actively traded do much worse in terms of long-term returns than if the funds had been allowed to simply sit idle for the same period of time in a single investment. Richards began using "the behavior gap" to apply to this specific issue, but over the years found himself creating numerous sketches of all sorts of behavior gaps, which he now shares in the book to "describe all kinds of situations where our behavior leads us to subpar results." In "The Behavior Gap," Richards aims to help us understand what is actually driving our actions in behavior-gap scenarios -- mostly fear and greed -- and then offers a number of simple, yet powerful, tweaks to the way we think and act about our personal finances to help us mind (and cure) the gap. Here's a sampling of some of the ways Richards suggests we rethink our approach to investment decision-making: 1. Lengthen your definition of the past. Richards devotes a fitting chunk of time to the truism that we tend to buy stocks, real estate, gold, etc., when they are at their most expensive, at the top of the market, and sell at or near the bottom, once they've already begun their decline. That's because, he says, our memories are entirely too short-term, so that we tend to make our investment moves based on the recollection of our brother's home selling for a massive profit or loss a couple of weeks ago, rather than on the longer-term memories of the time we went all in on tech stocks and lost scads of cash in the dot-com bust. 2. There is no "best investment" -- there are only "best decisions." Richards advises that life, the markets and specific stocks are largely uncertain and unpredictable. Their past performance had little or no relationship or predictive power of what will happen in the future, and it is not even possible to insure and protect ourselves from all the life crises and changes that might befall us, to the extent the financial services industry would have us believe we can. In fact, Richards vividly argues with examples from his own life, many of the events we might think of as calamitous can turn out to be very lucky and fortunate in retrospect (e.g., the time he got fired from his job for insisting on Sundays off, only to end up with a vastly better career, including a New York Times blog). Accordingly, Richards says we should do the sometimes daunting work of getting uber-clear about what matters to us, and what we want for our lives, then make a plan for creating that, only deciding at the end of the process which specific investments to leverage as part of that plan. Then, we should, he says, relax and be free of anxiety about the outcomes of our investments because, again, over time, they will perform better if we simply let them be. Our ultimate objective should be to make wise decisions in accordance with our plan, rather than to look for the next Apple or Microsoft (a fool's errand, at best). 3. Be an investor, not a collector. Those who scour those Fortune and Money magazine lists of the best stocks, funds, companies and so forth, in an effort to buy the "best" investment are, in Richards' taxonomy, "collectors," not investors. Collectors buy some shares of this and some of that, like baseball card aficionados, rather than being committed to a strategic, long-term plan. Additionally, collectors are wont, in Richards' experience, to focus on finding a winning investment, to the detriment of the overall plan, often ignoring the glaring holes and pitfalls in their personal finances, like high-interest credit card debt. 4. Plan your life, not your finances. In several brief, profound sections of the book, Richards proposes some holistic questions to consider as you try to set up a simple life plan -- a happiness plan, really -- which drives your financial decision-making. How would you live your life if you had financial security? What would you do if you were told you had only five years to live, but wouldn't feel sick for those years? Whether numbers make you nauseous or all tingly inside, "The Behavior Gap" is for you, especially if you want to limit the time and anxiety you expend on your personal finances while putting your money into service to help you create the life you really want to live. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com. Copyright 2012 Tara-Nicholle Nelson
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6 tips for selling in today's market
Buying after relocating may not be best financial move
Dian Hymer
Inman News®
Some homeowners have been waiting for years for a better housing market and a good time to sell. Is it better to wait a few more years and see if you can realize a higher sale price, or sell now and move on with your life? The motivation for selling is a key factor. Are you commuting to work several hours a day and the commute is killing you? Are your children grown and your home is now too big, in addition to being a burden to maintain? Is your home too small? Have you taken a job out of the area? Can you no longer afford to own your home? Or do you no longer want to pay the price it costs to own your home? These are all good reasons for considering making a move. Not only do current market conditions enter into the equation, but making a move like this is usually more complicated than it was the first time you bought a home. HOUSE HUNTING TIP: First, you need to find out the probable sale price of your home and access the state of the current home-sale market in your area. You also need to know what you can do to maximize the salability of your home. Then you should consider where you'll live next and how much that will cost. If you don't already have one, find an experienced real estate agent who specializes in your area. Friends whose opinion you trust are the best source of agent referrals. Meet with your agent at your home and ask for a comparative market analysis. This will give you information about what homes like yours have been selling for in the current market. You'll also want to know how long you can expect it to take to sell your home. How many homes like yours have sold recently? Are homes like yours in high demand? Or, is it located in a less desirable area that could mean a longer marketing time and, perhaps, a lower price than you were expecting? Ask your agent to walk through your home with you and point out what should be done to make your home marketable. Homes that sell today are priced right for the market and are in move-in condition. You want to make cost-effective improvements. If the kitchen and bathrooms are outdated, consider a cosmetic redo. Update paint, hardware, light fixtures and floor coverings, if necessary. Don't do a complete remodel unless you plan to stay in your home for years; otherwise, you won't recoup your investment. Deciding where to move -- and when -- can be difficult. Some buyers can afford to buy a new home before selling, and prefer to make the move that way. Most repeat buyers can't afford to buy first. Others who can won't buy first due to market uncertainty and the stress of owning two homes at once. The most prudent approach to making a move from one home to another is to sell first and rent if necessary until you find the right home to buy. By selling first, you will know exactly how much money you have to apply to a new home. Today's housing market is volatile. A dip in the market could shave tens of thousands of dollars, or more, off your selling price. The other benefit of renting before buying is that you're under no pressure to buy the first listing you see. Interest rates are low and are expected to stay low through 2012. Prices are also low and aren't expected to move up much for the next several years. THE CLOSING: This gives you time to find the home that will suit you for the long term. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide." Copyright 2012 Dian Hymer
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