HOA - Whoa!

What the heck is an HOA?

It is an abbreviation for Home Owner’s Assocation, which Wikipedia defines as “the legal entity created by a real estate developer for the purpose of developing, managing and selling a community of homes.”

But what is it, really?

I’ve never lived in a place where I was under the auspices of an HOA, so I cannot speak with direct experience. I can only relate what I have learned through experience, both good and bad, on behalf of my clients over the years.

On the good side…

An HOA can protect the value of your property by establishing and maintaining a uniform set of property conditions for your neighborhood. That’s good, in case you get a neighbor who does something with their property which reduces the value of the surrounding properties. For example, if your neighbor wanted to put up a really tall antenna for their amateur radio operations, many HOAs would preclude that. Who wants to look out their back window and see a tall tower, and the associated guide wires to keep it standing straight?

And, many HOAs have terms in them which would make it difficult to run a home-based business when you have many visitors each day. Who wants a “commercial” operation right next door in their own neighborhood? This doesn’t mean you cannot have a home-based business, only that you have to be careful about the volume of traffic it will generate at your home.

On the bad side…

An HOA can sometimes prevent you from doing something which is otherwise good. For example, many HOAs preclude the use of clotheslines or clothespoles in your back yard. Given the concern over energy usage these days, the ability to save some electricity by hanging your washed clothes out to dry makes sense. It’s good for the environment, and it leaves your clothes with a great “fresh” smell! So, why not allow it?

Many HOAs also have terms in them which prevent the use of fences in your yard, (unless required by governmental ordinances, such as around a built-in pool). When it comes to pets, the only option seems to be with the “electronic” fences, which many pet owners see as cruel to their pets. In such a case, a small fenced-in dog run may be a good option, but how to bring it about?

How do you change things?

In many cases, an HOA is run by a board of directors made up of your neighbors. Most HOAs have terms in them which define how changes can be made to the rules and regulations. With sufficient “yea” votes from your neighbors, you can bring about a change in the rules.

If you’re ever in question about your HOA, I’m happy to help understand a situation. I’m not an attorney, so I cannot give legal advice. If it involves any legal interpretation, I would be happy to refer you to a local real estate attorney for advice.

A Car Wash Tale

Back in November, a blog auther (Doug Quance) whom I follow posted a fascinating piece about a car wash. So how does this relate to selling a home in today’s market? Read it here to find out:

There’s a lesson in all this, I promise you.

In a transitional part of Atlanta, there now stands a brand spankin’ new car wash. It used to be a Burger King, but that closed years ago… and after demolition, this lot sat vacant for several years.

Fast forward a few years, and a sign went up announcing the construction of the car wash. That sign was up for at least a year in advance of the car wash actually being built… so on this busy street - there was NO question that EVERYONE in the area knew a car wash was coming.

So a few weeks ago, they opened for business - all bright and shiny - and offered a grand opening special of $5.99 to wash a car. They had a guy holding the sign out at the street to make sure everyone knew they were open and that a car wash was only $5.99.

Then, the following week, the sign guy was still out on the street - waving the public in - but this time, his sign stated “$4.99″ - instead of the previous week’s “$5.99″. Hmm… maybe they’re making it up on volume, who knows?

Another week goes by, and now the sign guy is holding a sign stating “$3.99″. Do you see a pattern here? Good. You’re paying attention. Because there is one.

The car wash still does not really have any customers that I can see. And I’d be willing to guess that the owners are starting to panic. After all, they probably spent a million dollars building this place.

So here’s my analysis and how it relates to real estate:

The car wash owners obviously realized that the market did not accept their initial price - no matter how much promotion they had done… and they responded with price adjustments.

Home sellers should take note of this market economics fundamental.

However, what the car wash owners have failed to realize is that two miles down the road is a well-established car wash that has been there for over ten years… and they have a $3.00 car wash. So - unless they add more value to their proposition - the public will continue to reject their offer.

And home sellers should not miss this message, either.

As long as your home does not compete in the marketplace, you will not get any takers. And why should you? There’s a ton of competition out there.

So it will be interesting to see what the car wash owners are going to do next. I am sure that they feel like they “need” to get a certain price (just like some home sellers) but whether or not the market agrees with that price is another thing.

So maybe the guy down at the car wash gets it…

Or maybe not.

Folks, if you’re looking to sell your home in this marketplace, realize from the outset that it will not be easy. Gone are the days when buyers will “at least take a look”, and even further gone are the days when “they can at least make an offer”. No, in today’s market, if your home doesn’t offer some incredibly compelling reason for a buyer to even take a look, you have no chance.

Listen to your Realtor. The car wash guy gets it!

About Home Inspections

Once your offer to purchase has been accepted, a few things must happen relatively quickly, including the home inspection by an inspector hired by the buyer. A home buyer has a period of time, as outlined in the purchase and sales agreement and generally 7-10 days, to have the home inspection performed and then notify the seller of any unsatisfactory results.

There can be several parts to a home inspection, including the general home inspection, well, septic, radon and environmental testing. Depending on the property, the market and your experience in home buying, you may want all or none. I always recommend home inspections, no matter the market or the buyer’s experience. These are the typical inspections:

General Home Inspection. The inspector will:

• Evaluate the physical condition: the structure, construction and mechanical systems.
• Identify items that should be repaired or replaced.
• Estimate the remaining useful life of the major systems (such as electrical, plumbing, heating, air conditioning), equipment, structure and finishes.
• The inspector may also test for radon in air, if you request.

Well Water. Homes may either be on public water or well water. If there is well water, the inspector will:

• Test for bacteria in your drinking water and the presence of radon in water, among other things.

Septic. Homes can either be on public sewer or an individual septic system. The inspection is performed by licensed septic inspector, rather than the general home inspector. A septic inspector will evaluate:

• The use of the current septic system.
• The condition and performance of the septic system.

Environmental Tests. A home buyer may elect to have a variety of environmental-related tests performed, including lead paint, mold, asbestos, and UFFI (Urea Formaldehyde Foam Insulation). Some home inspectors will test for these items but they may also refer you to other companies. Here are some things to consider if you are thinking about having these tests performed:

• Expect lead paint in a home built before 1978.
• Mold is present in every home but people with allergies or with diminished immune systems should be more cautious.
• Asbestos was a common material found in insulating products and is commonly found in wrapping on pipes and water heaters, in floor tiles, shingles, etc. It can be found in many older homes.

How Much Do Home Inspections Cost? Costs for home inspections vary, depending on the size and type of property as well as the number of tests being performed. Expect to pay somewhere around $300 -$500 and up.

Also keep in mind that the inspector(s) may suggest that you ”investigate” certain items further. For example, an inspector may note that there is a foundation crack. He/she will likely recommend that you have a structural engineer analyze the crack for you and determine if you should be concerned or not. This would be an additional expense.

How to select a home inspector

Check with your agent for referrals. While not all qualified inspectors belong to the American Society of Home Inspectors (ASHI), a national organization that enforces a code of conduct and practice standards, their website, www.ashi.org., has a referral service. Your inspector should be licensed to conduct home inspections and should have training and or experience in building and construction standards as well as experience as a home inspector. Here are some questions you should ask:

Ten Questions to Ask Your Home Inspector.

1. What does your inspection cover?

• The inspector should ensure that their inspection and inspection report will meet all applicable requirements in your state if applicable and will comply with a well-recognized standard of practice and code of ethics. You should be able to request and see a copy of these items ahead of time and ask any questions you may have. If there are any areas you want to make sure are inspected, be sure to identify them upfront.

2. How long have you been practicing in the home inspection profession and how many inspections have you completed? May I have some references?

• The inspector should be able to provide his or her history in the profession and perhaps even a few names as referrals. Newer inspectors can be very qualified, and many work with a partner or have access to more experienced inspectors to assist them in the inspection.

3. Are you specifically experienced in residential inspection?

• Related experience in construction or engineering is helpful, but is no substitute for training and experience in the unique discipline of home inspection. If the inspection is for a commercial property, then this should be asked about as well.

4. Do you offer to do repairs or improvements based on the inspection?

• Some inspector associations and state regulations allow the inspector to perform repair work on problems uncovered in the inspection. Other associations and regulations strictly forbid this as a conflict of interest.

5. How long will the inspection take?

• The average on-site inspection time for a single inspector is two to three hours for a typical single-family house; anything significantly less may not be enough time to perform a thorough inspection. Additional inspectors may be brought in for very large properties and buildings.

6. How much will it cost?

• Costs vary dramatically, depending on the region, size and age of the house, scope of services and other factors. A typical range might be $300-$500, but consider the value of the home inspection in terms of the investment being made. Cost does not necessarily reflect quality. HUD Does not regulate home inspection fees.

7. What type of inspection report do you provide and how long will it take to receive the report? May I see a sample report?

• Ask to see samples and determine whether or not you can understand the inspector's reporting style and if the time parameters fulfill your needs. Most inspectors provide their full report within 24 hours of the inspection.

8. Will I be able to attend the inspection?

• Being there during the inspection is a valuable educational opportunity, and an inspector's refusal to allow this should raise a red flag. Never pass up this opportunity to see your prospective home through the eyes of an expert.

9. Do you maintain membership in a professional home inspector association? Are you bonded and insured?

• There are many state and national associations for home inspectors. Request to see their membership ID, and perform whatever due diligence you feel is appropriate.

10. Do you participate in continuing education programs to keep your expertise up to date?

• One can never know it all, and the inspector's commitment to continuing education is a good measure of his or her professionalism and service to the consumer. This is especially important in cases where the home is much older or includes unique elements requiring additional or updated training.

Renegotiating the Contract. Many buyers attempt to use the inspection to renegotiate the purchase price, which aggravates many sellers. However, if a buyer did his/her due diligence when putting in an offer, then there shouldn’t be too many huge surprises at the inspection and the price should hold. If there are any big surprises, then it is perfectly acceptable for the buyer to request the seller repair the items, reduce the selling price or ask for money in lieu of repairs being made. Getting the seller to actually do the repairs is completely out of the buyer’s control.

As-is Sales and What if the Seller Refuses to Make Repairs? If you’re buying a house as-is, that means that the seller is not making any warranties about the condition of the property. However, that does not mean the seller will not necessarily make repairs or offer to reduce the sales price of the property if a problem is discovered that is unexpected.

For example, a buyer can see for himself/herself that a furnace is aged and that it may have to be replaced. However, if that furnace is only a few years old, the buyer could reasonably expect that furnace to be functioning. Upon inspection, the buyer discovers that the furnace was not installed properly and needs modifications. The buyer can certainly request that the seller make repairs, although the seller may still refuse.

If a seller refuses to make repairs you requested, you have three options:

1. Continue to negotiate and possibly give them an ultimatum - if you don’t do X, we’re walking. Only do this if you really are willing to walk away from the deal.
2. Accept the property as it is and buy it, knowing that you will have to make the repairs yourself.
3. Terminate the contract - you are within your rights to terminate the contract as long as it’s done within the time-frame specified in the contract.

I hope this information is useful to you in your home-buying and home-selling journey. If you have questions about anything in this post, please contact me.

Open House - Sunday, Jan. 27, 2008

Sunday, January 27, 2008
2-4pm
3177 Asher, Ann Arbor

You’re invited to visit this great condo in the Berkshire Creek development in Ann Arbor. Contemporary flair, designer décor, and inviting colors greet you upon your entry. The location is fabulous – walk to Panera Bread, Whole Foods, and Barnes & Noble. You’re only minutes to the UM and EMU campuses, the UM, VA, and St. Joseph medical centers, Gallup Park, and the Freeways. There are great views in all seasons, with a huge deck for summer entertaining. The garage is a 2-car in-line design. I look forward to seeing you there!

How To Decide When To Buy Or Sell

True or False: The media decide whether you buy or sell a home.

That sounds ridiculous, even insulting. But there’s no doubt that there is a psychological component to buying a house — and that a lot of negative publicity about the housing market can have an effect on whether you will buy, sell, or sit.

There has been some speculation that the media is usually responsible for the way the market goes. When people hear that the market is going to crash, they freak out and stop buying, which, in turn, causes the market to crash (imagine that!).

In my opinion, much of what happens in the national economy is shaped by the self-fulfilling prophecy of the national media headlines (USA Today, the New York Times, ABC, NBC, CBS, etc.) When you read, day after day, that we’re headed toward a recession, isn’t that what you’d do?

And yet, a review of history shows that the greatest fortunes are begun when “blood is running in the street”. Isn’t that what we have right now?

I’ve written previously about how our local market has fared these recent few years. Prices are down 15-25% from their peaks in 2003-2004. Has this ever happened before? Certainly not in our lifetimes – and, frankly, isn’t that all the history that most of us ever bother to know?

In the world of the major stock markets, when prices decline over 20%, it is what is described as a bear market.

Well, the bear has certainly been growling in our local area! (Either that, or a few ferocious Wolverines – who, by the way, have been known to chase away bears in the wild).

Back to the stock market: When prices decline by 20%, wise investors know that it’s time to take notice for buying opportunities. Wall Streeters use the term “contrarian investing”.

When the stock market value of a company falls below the underlying value of the assets of a company, wise investors swoop in and buy up all the stock they can handle. At worst, they will own assets of a company, which they could later sell off to recover their investment. That’s what’s known as a sure thing.

If ever there was a sure thing in the local real estate market, IT IS NOW!

Oh, sure, you can call me wacky, or a Pollyanna, or worse.

And that’s when I’ll show you how the current prices of homes in our local market have declined below their underlying value.

How so?

Talk to a builder (if you can find one who is still in business – is blood running in their streets? Hmmm…..?). Ask them if they can even build a home right now for less than $125 per square foot. They’ll say “No Way!” – not with the ever-increasing costs of concrete, lumber, copper wiring, drywall, asphalt shingles, and everything else that goes into a new home.

So, if a builder can’t build a new home today for less than the prices of some newer (3-5 year old) homes on the market, haven’t we hit our “underlying value”?

Contrarian investors are moving into our local markets in a big way. Shouldn’t you get on board?

Back in 1980, a local newspaper included a headline “Will the last person leaving Michigan please turn out the lights?” Those were pretty bleak times in Michigan – I know, I was there. Doesn’t it remind you of today?

The average price of a home in Ann Arbor in 1980 was in the $60,000s. Last year – 2007 – admittedly, a bleak year for our local real estate market – the average price of a home in Ann Arbor was in the $240,000s.

That’s a pretty healthy increase, huh?

Trust me on this. Five years from now, a few wise people will be chuckling all the way to the bank when they sell off the investment properties they bought in 2008.

Will you be one of them?

Friday photos

Well, it's been a while since I've posted any Friday photos, so here goes:

This first photo was taken mid-morning following a super-cold night. We had some fog the night before, so the fog froze to the trees. I believe it's called "hoar frost". The whole area was covered in this frost - it was beautiful!

This next photo is from the same morning, before the sun burned through the low clouds. This decorative grass sits just off the edge of my back-yard deck.

This next photo was taken on the morning following a big snowstorm (January 2, 2008), and shows a scene looking up my neighbor's driveway. The snow started out really heavy and wet, then lightened up into powdery snow. There was no wind in the morning, so the snow stuck to all the trees for a while.

The one really good thing about a heavy, wet snow is that it's great for packing and making things. So, we made a sledslide in our front yard, complete with iced-down walls (to keep the sled on course) and a nice jump in the road-side ditch. Sadly, though, the sledslide lasted only a few days, as temps climbed into the 50s and the whole thing melted! Oh, well! It was a lot of fun for the kids, while it lasted!

Of course, you couldn't have a winter photo without a snowman!

Keep smiling!

It's the BIG SALE!

Now that the Holidays are past, retailers everywhere are fretting about how to get customers into their stores. In every newspaper around the country, there are full-color advertisements from retailers of every sort, exhorting us to visit their “Big Sale”.

A review of our market conditions here in January, 2008, reveals that the same thing is occurring in the Real Estate market, as well. Only, you’re just not seeing the big headlines.
So, let me be among the first in this area to trumpet the following headline:

It’s The Big Sale!

Seriously, never before in our history has there been such a big sale in the Real Estate market. When has there ever been this many homes available for sale? Never!

Just like in the retail business (when a retailer orders too many of a particular item, they have to lower prices to “move the goods”), the Real Estate market has been experiencing the same thing in our area.

There are many indications that overall prices of homes have come down 15-25% in our region since their peaks of 2003-2004. This is consistent with the retailers’ approach, as we Realtors are trying to “move the goods” for our clients. How? By offering some of the best homes at the best prices we’ve seen in many, many years!

On top of all of this, interest rates continue to be incredibly low, on a historical basis. Just this week, you could get a 30-year, fixed-rate mortgage, for an INCREDIBLE 5.75%.

So, never in our history have we had such a confluence of positives for the Real Estate market – plenty of homes to choose from, fabulous prices, and rock-bottom interest rates.

So, WHAT ARE YOU WAITING FOR?

I know, I know. It’s the economy, stupid (to quote a past President of the United States).

But, back to the matter at hand:

Here’s a chart of the market conditions for Saline, as of mid-January, 2008:

The top line on the chart shows the number of homes available for sale in the Saline area, going back to 1996. The number of homes for sale began to climb in 2004, and is only now showing some signs of a retreat. So, act fast to be sure to get the home you really want, while it’s on the market now.

The lower, blue line on the chart shows the number of homes which actually have sold each month, again going back to 1996. There is a remarkable resiliency in our market, which means that you can’t go wrong buying a home in the Saline market.

I’ve got many other charts like these, including areas like Ann Arbor, and the entire Washtenaw County marketplace. Let me know if you’re interested in a particular area, and we’ll talk.

By the way, I’ll be hosting an open house this coming Sunday, January 19, from 2-4pm, at 1513 White Street in Ann Arbor. It’s an affordable home in the Burns Park school district, priced at $225,000, with 3 bedrooms and 2 full baths. There’s also a walk-up basement, and a 2-car garage. You are welcome to visit!