Sunday, October 27, 2013

Rule #47

Every Realtor has a war story or two- stories about that buyer who for one reason or another became a memorable experience for the agent who helped them find the home of their dreams. I have a few. But two of my favorite stories are about a young couple who was buying their very first home. One of the stories is about him. The other one is about her.
We had found a house they both loved in a gated community in south Tulsa. The owners had been transferred and we would be dealing with a relocation company. That’s important to know for later. But before we got to the negotiations we made several trips to the house to look it over. Notes were taken. Rooms were measured. Questions were asked. And asked. And asked again. It was mainly because the husband was nervous. This was a big decision and he was desperate to make sure he wasn’t making a bad one. 

In the master bath we encountered an “issue”. There were stains all along the top of the walls at the ceiling. We would later be told by a contractor that the stains were caused by the repeated presence of steam from the shower that would drift up and condense on the wall at ceiling level. Over time it had caused the oil based sealer on the crown molding to bleach through the water based paint that covered it.  The solution was to repaint  and all would be well. This was enough for the wife but not enough for the husband. In each subsequent visit he would always drift back to the master bath and stare at the stains on the crown molding. He finally convinced himself that the contractor was wrong. There must be a leak in the roof.

On the next visit to the house after this epiphany he brought a flashlight. He headed upstairs to a bedroom closet that had an access doorway into the attic. Before it dawned on me what was happening he was in the attic making his way across the joists toward the area above the master bathroom. And before he had taken four steps across the joists his foot slipped and he fell through the ceiling into the bedroom below.

He didn’t actually fall all the way through. It was exactly like you see in the movies. His arms caught him on the way down so that the upper half of him was still in the attic while the lower half of him was dangling from the bedroom ceiling. It’s funny to think about now; not so much when it happened.

We got him out and only his ego was hurt. But now there were several hundred dollars worth of damage done to a house that wasn’t his and he decided that he didn’t want to go any further with the purchase. It seemed that to him falling through the bedroom ceiling was a bad omen. Nothing good could come from this situation now that the house had shown its true colors to him.

So we stood in the master bathroom with the stains and I explained that he was liable for the damage anyway and that what we needed to do immediately was fix the hole. Then we would back up, take a deep breath, and look at it again later. He agreed to do this and as we walked out of the bathroom the wife looked over and whispered a quick “thank you” under her breath. She really wanted that house.

Now on to her story. Once it was decided that they would make an offer we discussed the price. It was a relocation home that they needed to sell quickly and it had already sat on the market longer than it should have. They weren’t willing to make any repairs (that included painting the master bathroom molding) so we took that into consideration in our offer. The relocation company danced back and forth with us verbally  about what they would be willing to do with the price and from my viewpoint it was already priced competitively for the area. As I and the husband discussed our final offer the wife sat quietly. We added and subtracted this and that and worked out an offer that took into consideration the cosmetics that needed to be addressed. I was proud of the final number because I felt like we could get the sellers down to our level on the price. After the husband and I agreed the wife spoke up. “Go five thousand lower,” she said.

I looked over at her. She said it again. “Go five thousand lower.”  I looked at him. He looked at me. “Okay, ” I said. “Five thousand lower.” I didn’t believe for a moment that we would get that to work. But we did. Three days later we had a signed contract at the wife’s price. It just goes to show that you never really know until you ask.

That was five years ago. To this day every time I see a water stain on an interior wall I think of my friend and his flashlight saying, ‘there is a leak.” And every time a client wants to try to negotiate just a little bit more I think of his wife. It’s a fun business that teaches you something new every day.

Today, it’s a hard and fast rule that I never let a buyer with a flashlight walk into an attic.

Tuesday, October 15, 2013

Saving money by DIY

Not long ago a client told me they wanted to build a house and to save a little money they decided that instead of having the house completely finished upon move-in, they would leave portions of it unfinished and do the work themselves. I’ve heard this thought process before. And while there would have been a time when I might have thought it was a good idea, today I can honestly say it’s not a good idea. And there are three reasons why.
First of all it limits your choice of builders. Most of the good ones won’t agree to it. They look at it like it’s their house even though you’re paying for it. Since their name is on it as the builder the finished product either adds to or subtracts from their reputation. If you don’t do such a good job on the finish work it might reflect on them later. And chances are pretty good they’re right. Unless you hire someone to come in and do the work it will probably be amateur hour at the home improvement store when you get around to doing it. It would be like going to the assembly plant at Ford and asking to paint your own car. That’s never going to happen.

Second, you might never get around to doing it at all. I had another client who owned a home that had been built in the late ’60s. It was a four bedroom two story house that had a completely unfinished upstairs. The floor plan called for two bedrooms and one full bath. The studs were up, A/C ducts were in, and electricity had been dropped in all of the rooms. There was even a bath tub. But now, 50 years later the house remains unfinished. Fifty years of wear and tear on the house has made the option of finishing it out financially unreasonable. And the value of the house is severely reduced.

Third, you’re probably not going to save as much money as you think you will. Builders are able to build houses at a certain price because they get contractor prices on their supplies. As a home owner you don’t have those connections. On average you’ll probably spend more for the materials because you have to buy them “one off”; or in other words, in very small quantities. And if you can’t do it yourself you’ll need to hire someone else to do it. Their charge for coming in after the fact and finishing the project is generally going to cost you more than if you had just let the builder do the job in the first place while he was constructing the house. The thought process for the home buyer is that if they’re able to reduce the cost of the house by, say, $3000.00 and finish the room later, it’s a savings. My suggestion would be to increase your down payment by the same amount and have it finished to start with.

The thing to consider is what you’re actually saving by trying to do some of the work yourself. How much will it actually shave off the cost of the house? What does that mean in terms of your monthly payment? If all you’re saving is $20 or $30 a month it may not be worth it. And if you’re at the point where that $30 a month really makes a difference in your budget you may be buying too much house in the first place.

Once you’re in your new finished home you’ll be happy that you aren’t staring at a project demanding your attention every time you walk by it. After you’ve lived there awhile you may want to do upgrades or improvements. But that’s a different story. For now, enjoy your new home.

Now about that new leather sectional that would look great in the family room…

Monday, October 7, 2013

Renting vs. Buying

I was talking to a client not long ago who was pleasantly surprised when she discovered that her home, which she had lived in for quite some time, was worth quite a bit more in today’s market than she had anticipated. When she shared this with a financial advisor friend of hers he was quick to remind her that she had spent a lot more money living in that house than only what showed up on her mortgage statement each month. Taxes, insurance, repairs and maintenance, when all factored in, he said, wiped out any gains she might have made as the value of her home rose over time. Talk about stealing the ornaments off a person’s Christmas tree. It left her wondering if owning her home was really worth it. Here’s my reply: you’ve got to live somewhere. And you have two choices: rent or buy.

Renting has an advantage. You are much more mobile. If you anticipate that you could be relocating soon or if your lifestyle is such that you know you need the ability to respond quickly to geographical changes, then renting is a good choice for you. If you’re just starting out renting may be your only option for the time being. But understand that just because you’re not responsible for the repairs if something breaks doesn’t mean you’re not paying for them anyway. And the insurance and taxes on the apartment are also factored into your monthly rental payment. And of course there’s the profit margin that the landlord figures in for his trouble. And it’s almost always true that the amount of your rental payment, if paid toward the purchase of a home, will buy you much more room to live in than your apartment. And no one lives on the other side of your wall, your car is in your garage, and you will never find someone else’s underwear in your washing machine.

But let’s go back to the costs. Currently, even though interest rates are rising, it’s still cheaper to buy your home than it is to rent your home in every one of the 100 largest metro areas of the US. And as we even consider this argument in some ways it’s rather comical. Today we’re talking about a national 30-year fixed rate of 4.8%, up from a historic low of 3.5% earlier this year. How quickly we forget that it wasn’t all that long ago that everyone was running to refinance when the rates fell from 7.5% to 5.5%. Personally, my first home loan back in 1979 had an interest rate of 13% (!). Those were the Carter years. We don’t talk about them now. Currently in Tulsa, according to Trulia’s Tara-Nicholle Nelson, the interest rates on a home loan would need to top 15% before renting would be less expensive. Rates are going up. But we can be reasonably sure they’re not going up that much. And what’s interesting about Nelson’s numbers is the fact that even if you don’t itemize your taxes and take your deductions for the interest paid on your home mortgage it’s still cheaper to own than rent by far.

A personal home is the only consumer item you can buy that increases in value over time. The basic reason is simple. We can’t make any more land. But we can make more people. That doesn’t mean there won’t be expenses involved in home ownership. But as I said before, you have to live somewhere. The expenses are going to be there. You should try to recapture as much as you can when you move. Only home ownership allows you to do that.

In the Tulsa area if I can help you buy or sell, please call me at 918-809-5199.

South Tulsa 918-392-0900 | Mid Town Tulsa 918-392-9900 | Broken Arrow 918-259-0000 | Owasso 918-392-9990

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