Should I Do As The Dentists Do?

It's funny where you get your best thoughts—sometimes while I'm shaving I get an inspiration, or maybe when I'm driving somewhere and just letting my mind wander, I'll get an idea that I want to persue. Ansd so it was this week. I was all leaned back in the Dentist's chair, looking up into the eyes of a woman whose name I didn't even know. She was busy cleaning my teeth when a fascinating concept hit me.

What if Realtors used the same business model that Dentists use?

What if I told all my clients that they needed to make an appointment with me every 6 months, or more frequently if they were hard on their homes. And what if I (as the dentist/Realtor) sent a technician over to make sure the home was all clean before I showed up.

My technician would go through the house and gardens, take photos (not xrays, of course) and check all the rooms for any change since the last visit. Then my technician would go over the photos with the homeowner, and suggest which areas needed more cleaning and “watching”. The tech would suggest better cleaning tools and cleansers, and would suggest—at an additional fee, of course--certain whitening and brightening regimines that could be applied to the walls or floors. And then, putting on a plastic eye protector and rubber gloves, would get down to business.

The next step would be going through the basement and attic checking for termites or rot. The weapon of mass distruction (WMD) the tech would use would not be the dentist's picks, but rather a more traditional ice-pick or sharpened screwdriver (probably these tools don't need the autoclave sanitation program, but it would be nice if they at least looked clean) which is always good for poking into wet or darkened wood, then as my friends at “BUG” do, tapping here there and everywhere with a golfclub with a golf ball tightly affixed to the business end. Tap, tap, tap—nobody wants to hear a “thunk”.

And after an hour of this sort of home inspection, my tech would see if the homeowner had any complaints—and creaks or funny noises in the night, any soft spots or concerns? And of course, if there were issues, the tech would address them and somehow enter them into an iPad so that once I came—still some time away—I would know what was what.

Then, when the tech was all finished, and the homeowner was tired out and not wanting this to go on much longer, I would arrive, signaling that we were almost done.

I would quickly ask about the kids and then say, “I see it's been about 6 months since your last appointment. Have you noticed any changes?” And then I would look into my iPad and see what the tech had noted.

I kind of like the idea that I would then walk around the house, going, “Hmmm, and uh huh, and Oh my.” This would upset the homeowner and prepare them for the worst.

Then I would suggest that they paint a couple of the rooms and clean out the bramble in the garden. Any rust would need a treatment, and if necessary, I would take out my Swiss Army knife or possibly my Leatherman, and poke here and there where the tech had poked earlier. But—and here's the most important statement—I would then say,

“Overall things look pretty good. We're going to watch that drip in the bathroom and keep an eye on the Geraniums out front, but if you handle the painting and use the cleansers that the technician suggested, I'm sure things will be just fine. And I want to give you a free dustpan and brush with my name on them. Which do you like, blue or pink?

“So let's plan to get together again in six months”, I would say and I would then have one of my minions call him to set up the next appointment and then in 5 months and 3 weeks, call again to remind him my army was prepared to come again and do all this once more.

What if I did that? Well I can tell you that the house would be like new when it came time to sell. And I can tell you that while there is no accounting for bad taste in paint color, at least the homeowner would not be surprised—when it came to sell—that purple bedrooms and glossy red kitchens do not assist in finding a buyer.

Before you call me to set up your first appointment for this kind of thing, let me suggest that my technician is off this month, and so I'm not taking appointments just now.

Dane Hahn is a real estate professional at Tarpon Coast Realty in Englewood, Sarasota and Boca Grande. You can reach him at dane.hahn@gmail.com or 941-681-0312. See him on the web at http://www.danesellsflorida.com/

Credit Issues to Avoid

This week I spent some time helping three families who are trying to buy a property from foreclosure. The property is a vacant lot and listed for sale by a Realtor. What makes it attractive is it provides each of them a water view, so it's in each of their best interests to keep the property vacant, and their best course of action to control this is to own the lot. As we gathered on the deck of one of the families, and discussed what the right amount to offer was, I quickly began to see that financing would be an issue.

In spite of each of their willingness to take on additional debt, the real question is, will the lenders allow each of them to acquire a 1/3 interest in a vacant lot. Oh, did I mention that the lot was waterfront and offered for $250,000? How to finance a vacant lot (with equal ownership of three families) becomes an issue. Most banks and mortgage companies want real “skin in the game”, more than they would if you were considering purchasing a house that would be your principle residence.

We are in the midst of interviewing lenders as I write this, but I believe these folks will have to come up with 50% down and finance the balance. And we are looking at setting up an LLC to actually hold the property, with an exit strategy for dissolving the LLC or at least buying out the “partner” who wants out first.

But as with any real estate deal, the bottom line is going to be financing. And this gets back to your credit “worthiness”. And so the lenders look directly at your credit score, from about 350 (poor) to 800+ (excellent) is a numerical rendition of your credit report. The higher your score, the more likely you'll get approved for credit and the more likely you'll get the best rate and terms. Conversly negative actions posted to your credit report, can ruin your credit score.

Here's my list of no-nos if you ever want to get a mortgage in the future. Remember these “dings” will stay with you for from seven to ten years, so if you want bad luck do yourself a favor and just break a mirror—don't do these:

Don't be a deadbeat. Any late payments; 30, 60, 90 days late will brand you as a deadbeat. Even one 30-day-late payment, while it may not ruin your credit, will appear on your report and can remain on your report for years.

Respond immediately if they're bringing in a collection agency. When the lender gets tired of your deadbeat behavior it will call a third-party collection agency. The collection agency will report this to the credit bureaus and again, seven years of bad luck.

Don't let them give up on you. Discuss partial payments, keep the account open. If the lender gives up on your collection case, acknowledging you'll never pay the bill, it charges off the debt and puts your credit report on notice for seven years.

Avoid a bankruptcy if you can. Tax liens, judgments and bankruptcies are killers for your credit rating. Judgments against you will fade in seven years, even if you pay them off. Bankruptcies can dog your credit report for 10 years and unpaid tax liens never go away.

A settlement is better than a bankruptcy. If you pay a portion of your debt to your lender in a settlement, for example if you have a short sale and most of the mortgage is covered, you can get a settlement notice on your credit report, and while it lasts for seven years there are millions of other folks like you, so I am of the opinion that issue will be forgiven.

Nobody wants a foreclosure. If you can't or won't pay your mortgage the lender will eventually foreclose and relieve you of your home. Another seven year negative notification will drag down your score. The same applies when you give the home to the lender to avoid a foreclosure. Lenders call this “jingle mail” where instead of the monthly payment, the envelope sent in by the borrower contains the house keys.

Dane Hahn is a real estate professional with Tarpon Coast Realty in Englewood, Sarasota and Boca Grande. He will answer your questions and can be reached at 941-681-0312 or at dane.hahn@gmail.com You can see him on the web at www.danesellsflorida.com.

Lipstick on a Pig

You only get one chance to make a first-impression.

I try to tell that to my clients and friends all the time.  So many people feel that if the price is right, the house will sell, and they don’t need to do anything to make the house nice.  But in reality, even the worst house on the street will sell faster than the others if the first impression is that the house has value.

I took a new listing just this week.  It’s in my own neighborhood, it has everything that a house in that neighborhood should have and it’s about $100,000 less expensive than other homes on the street. I should preface these comments by pointing out the house is vacant and has been for a year or more.

We installed the sign on Friday and on Saturday the phone started ringing. That’s a good sign.  But the unkempt yard and the “Palmetto” bugs here and there throughout the house just totally upset the first people who came through—they were Canadians--and although the price was right, the first impressions were wrong and so I am almost certain they will not be my buyers.

As I write this, I am thinking of what I have to do to make sure the first impression is a good one.  The owner has moved to another part of Florida and is depending on me to handle this sale.  There’s little I can do to change out the rugs or turn the pool from a nice earthy green to sparkling blue, but I will be spending some time with a garbage bag or two to straighten out the mess.

My client is not alone in offering a home that is not quite move-in ready.  He’s in a situation where his asking price is not going to net him anything, as his is a short sale.  So he is unwilling to put any money into fixing or upgrading his house.  Other homes for sale that I have seen lately are equally messy, and these homes do sell—usually to investors who will handle the fix-up and resell the properties for a profit.

Sprucing up a home to sell it faster and for more money is a strategy frequently advocated by brokers and real estate agents—but it usually does not work in a short sale unless the bank is willing to help out. And banks are usually not willing to help out until the foreclosure has been completed and the ownership has moved over to the bank. (At that point the bank calls them Other Real Estate Owned, and the acronym is OREO or simply REO)

There are still plenty of dilapidated foreclosures on the market marred by water damage, mold, broken windows and missing appliances and plumbing fixtures, properties that hold little appeal except to investors and professional rehabbers.

But as we make our way through the sale of the “troubled” properties, the quality of foreclosures and the communities where they are located has improved, so, too, has interest in them by consumers. To entice those buyers and lessen their inventory of REO’s; banks are spending thousands of dollars on some foreclosures. It’s pretty ceap to paint every room white, and to clean or replace carpet.  In addition to new paint and carpet, wood floors are being refinished, old windows are being replaced, and leaky roofs are being repaired.

The strategy benefits the banks and homebuyers, who otherwise would have trouble securing mortgages on homes that a lender could term “uninhabitable” because of needed repairs. At the same time, it helps the real estate market because while the foreclosures still sell at a discount, it is not at the fire sale prices of unlivable properties. And the repairs (when done by the bank) can be added into the resale price.  But the real net value to the bank is the sales come more quickly.

For traditional home sellers, the trend of banks plowing money into foreclosures means they will have to be more realistic in their pricing, because the foreclosure for sale down the street may look a lot more inviting to prospective buyers.

There are over 1,500,000 vacant homes in Florida today! And Fannie Mae repossessed more than 262,000 single-family homes nationally last year, as of Dec. 31, its inventory of single-family REOs was almost 163,000.

Under its “first look” program that began in September 2009, Fannie Mae will only consider offers from owner-occupants or buyers like nonprofits during the first 15 days a home is on the market. Fannie sold nearly 29,000 homes to consumers under that program during its first year.

Buyers are jumping on the best REOs, and keen interest can lead to multiple offers, but the buyers are different now than they were at the beginning of the real estate down turn.  They have more to pick from and the prices are all pretty much the same, so they pick the nicest one.

My Grandmother used to say, “You can’t make a silk purse out of a sow’s ear.”  That was a little tough for a 4 year old (me) to understand at the time I first heard it, but I am seeing what she meant every day. I suppose the corollary to that concept is, "you can put lipstick on a pig."  And if lipstick makes a better first impression, bring it on.

Dane Hahn is a real estate professional with Tarpon Coast Realty in Englewood, Boca Grande and Sarasota.  He will answer your questions here, write to him at dane.hahn@gmail.com or call at 941-681-0312.  His web site is http://www.danesellsflorida.com/

Cash for Clunker Houses

Cash for Clunkers—was it a hit or a miss? Well I suppose that it depends on which end of the deal you were on. As I recall, the government would give you $4,000 if you owned your car, and wanted to buy another—and were willing to allow your car to be squashed into a ball of iron. This gave you a down payment on your next car, and took an older model used car off the road, meaning that there would be less old cars out there and so theoretically this would encourage the sales of new cars and make the used car inventory smaller.

Seems like a good plan—especially since the government had just bought General Motors and Chrysler.

So how can we use this marketing model to help sell houses—especially since the government is running the loan programs that have left millions of people without homes?

There has to be an answer. And the answer should be simple. I used to work at a company that said if you couldn't explain your idea in the boardroom in two typewritten pages, it was too complicated an idea to sell to the public. Sort of makes you wonder about the Health Plan that is in an easy to read 2,000 page format.

And of course the bigger issue here is that houses cost more than cars (in most cases) and so the down payment number that a Cash for Houses program would generate, might be too small to actually use.

Unless...unless some bright minds were put into the mix and evaluated the options that might be available. The problem in Florida is the 1,500,000 foreclosed and vacant houses. This inventory keeps showing it's ugly head. Just when it seems that things are getting better, another bunch of cheap houses come on the market and drives the average price of homes down AGAIN.

It's my opinion that once we get these homes off the market, things may not exactly return to normal as we know it, but at least they should approximate the new normal that we will have to live with for now and years to come.

So how would “Cash for clunker Houses” work? As I see the bare bones structure of the program, if you were the deed holder of a property that appraised for less than $100,000, and were current or behind on your mortgage by less than 3 months, the government would take the house off your hands and give you $10,000 for the deed, that cash would have to be used as a down payment to buy a different house worth $100,000 or more. The feds could square up with the lender, and either bulldoze the house, burn it down or otherwise take it out of circulation.

Nobody who had more than $10,000 of equity would want to be involved in this concept, because they could sell the house for more than the government would give them. The lower end of the real estate market has a bunch of homes that probably should be removed from the general population anyway, and without casting any dispersion on any style of home, I would suggest that in general the cheaper homes that this would tend to affect may also be in need of cleanup fixup and maybe new windows and roofs.

But even more-so, the homes that are removed from the inventory of potential sale items will assist in stabilizing the prices of all homes that are offered for sale, and give the government a number of fine lots they can sell now or at some future time.

Obviously this needs some bright minds to offer input, and I would be happy to receive input from my readers that I could incorporate into this concept and shoot it off to the elected representatives that have a say in this sort of thing in Washington.

Dane Hahn is a real estate professional affiliated with Tarpon Coast Realty in Englewood, Sarasota and Boca Grande. You can reach him at dane.hahn@gmail.com or call him at 941-681-0312.

Housing Affordability Highest in 20 Years

Behind every cloud there is a silver lining—so they say. That may not give folks a warm fuzzy who have recently lost their homes or who are still negotiating with their lenders to stay in houses that have been their homes for years. But for folks who have been hoping to buy a home and hoping to get a deal—come on down!

According to , the National Association of Home Builders which keeps track of these things on a global—or at least country-wide aspect--home affordability rose to its highest level in at least 20 years in the last quarter of 2010.

Their “Housing Opportunity Index” (HOI) found that 73.9 percent of new and existing homes sold in the fourth quarter were affordable to families earning the national median income of $64,400 -- surpassing the previous high, 72.5 percent, recorded in the first quarter of 2009.

Statistically, “affordable” means that the median cost of “housing” in a particular area is offered for about three times the annual earnings of the people who live in that area. So if the median (family) income was $70,000; an affordable house would cost $210,000. Meaning that “affordable” house would close at $210,000—so the asking price might have been $225,000 or even more.

This, of course merges both new and “used” homes into the same statistical pot. Usually we see new homes costing more dollars per square foot than used homes. But not always, and not so much today. Last Fall John Cannon Homes offered a marketing strategy—to get some sales—in which they offered some of their homes at $99 per square foot. This price which could grow higher with upgrades, includes to cost of the structure and the value of the underlying land.

Our old rule of thumb—when the market was strong—was that a structure would cost three times the cost of the lot, and so the structure was 75% of the final cost. This gave us a sense that if a lot was for sale at $50,000, we could build a house that would cost the builder $150,000 and sell the home to a consumer for $200,000. Those were the old days.

Today there are land bargains for the builders—and therefore there are bargains for the buyers when they buy a new home. Gibraltar Homes has recently been offering new homes at $98 per square foot. I recently saw that a number of lots were sold in Englewood with a final price to the builder of $14,000. Don't use my old rule of thumb today—if you did you would look for $56,000 finished homes on those lots—and that just is not going to happen.

The Gibraltar homes start at $203,300—which from the advertising I have seen means the homes are just over 2000 square feet. This is a huge value for a new home, even if there have been some corners modified. I would expect these homes to be beautiful and have a big “Gee-whiz” factor. The builder will have compromised his profit for a few immediate sales and cash-flow; and may have delivered a home with all the “goods” less some of the highest cost items. Think mid-range cabinets, maybe a mid-range HVAC, and impressive porcelain tiles not marble or granite.

And keep an eye out for the unseen costs that are attached to homes that may seem too good to be true. I refer to costs to finish the home in your own taste—curtains and other window treatments, landscaping, security, lighting insurance and taxes plus the ever popular Home Owner Association fees, which are not negotiable and which may or may not include cable, assessment for common areas and the like. In other words, $99 per square foot probably is a good deal, even a terrific deal, but may wind up costing a good deal more when you factor in the monthly coasts of living there.

Used homes, on the other hand, cost whatever you can negotiate, and the costs of maintaining the home should be pretty well known to the potential buyer—and disclosed—by the seller. There are dozens of homes in the Sarasota/Charlotte County area that are selling for far less than $98 per square foot. Some of them come with less than 10,000 square feet or land—some come with an acre or two. Larger parcels of land are not something the new home builders are “throwing in”to attract buyers. As a matter of simple economics, builders include the minimum they can which will still make an acceptable and attractive home.

Is today the best time to buy a home, new or used? My opinion: it is if you are in the market to buy one. If you need or want to buy right now, you will find a smorgasbord of affordable homes available, from $70,000 duplexes which might allow you to live in one side and rent out the other for some passive income to cover the taxes and maintenance; to million dollar beach front homes that used to be multimillion dollar beach homes.

So affordability today is its highest level since we started computing the HOI," said Bob Nielsen, NAHB's chairman, in a statement. "However, while this is good news for consumers, both home buyers and builders continue to confront extremely tight credit conditions, and this remains a significant obstacle to many potential home sales."

Dane Hahn is a real estate professional with Tarpon Coast Realty in Englewood, Sarasota and Boca Grande. He will answer your questions and you can reach him at dane.hahn@gmail.com or by phone at 941-681-0312. See his web site at http://www.danesellsflorida.com/.

It Really Is Cheaper to Buy than to Rent

It is cheaper to buy a home than to rent one in 39 of the nation's 50 largest cities, according to a quarterly report released this week. Trulia's rent vs. buy index compared the median list price with the median rent on two-bedroom apartments, condominiums and townhomes listed on Trulia.com as of April 1, 2011, in the 50 most populous cities in the U.S. While 72 percent of the cities favored buying in the previous quarter's report, 78 percent favored buying in this latest report.

My own search of the multiple listed properties here in SW Florida and specifically in Englewood show pretty much the same thing. In Englewood, the average rental per month—per square foot—is $1.33. The average size of a home that is for rent is 1,345 square feet; the average rental therefore is $1,777 per month.
Also in Englewood, the average house offered for sale has an asking price of $283,769
Suppose you wanted to buy a house and had a budget of no more than $1,777 per month, (which is the amount it would cost you to rent “the average” house in Englewood), what would your expenses be, and how far would that rental budget go in supporting a mortgage?

First things first, you will probably have little luck in getting a mortgage unless you have: A.) Good Credit and B.) A meaningful down payment. Gone are the days where if you could exhale on a mirror and make a vapor trail, you got the loan. Gone are the days where you borrowed your down payment. But OK, let's say you have the down payment and it's 20 % of the cost of the property.

For those of you who have forgotten your high school percentages, if we were looking at the “average house for sale in Englewood” at $283,769, your down payment would need to be $56,754.
There are ways to get the down payment into more like a 3% range, but there's not room here to explain that and I would suggest that if you would like to try a smaller down payment, cultivate a friendship with a mortgage broker and see what comes of that.

Meantime, if you have your down payment at the ready, it will only take a few weeks to have yo in that new home. And with your down payment credited against the sale price, your mortgage will be $227,016. (That is the amount the principle and interest will be computed against) And at 5% which is a nice round number, your monthly payment for a 30 year fixed mortgage would be $1,219.08.

OK, as they say on late night TV, there's more. Your mortgage lender will demand that you carry insurance, which may run in the 2500 to 3000 range (per year). So your monthly charge there would be about $225, and your monthly taxes I am estimating at $350.

So the Grand Total (We call this the PITI, or principle, interest, taxes and insurance) would be $1794.
Close to the target of $1,777 you would say, but not an actual cigar? Well don't forget the last step in the computation. And this is a huge deal. For those of us who itemize our taxes, you can deduct all the interest you pay on your mortgage from your income—it actually reduces the amount of money the government says you made, call it your homeowners bonus. But because the interest amount you pay changes each year, based on what you've paid so far and what you still owe, the first six or seven years are about 95% interest, and so all of that is deductible.

Here's how we look at that, your monthly interest payment is very close to $1,100. So over a 12 month cycle, you are paying $13,200 in interest and if you are in the 25% tax bracket, this will lower your taxes by nearly $4,000. Save you that much, get you a return of all of that plus what you were expecting too. See what I mean? It's a huge deal.

“With home prices nearing a double dip and more foreclosures expected to flood the housing market over the next two years, the decision between renting and buying a home across most of the country has clearly moved in favor of buying," said a Trulia spokesperson.
As we head into the summer buying season, those looking to buy a home should be encouraged by improvements in the market and feel optimistic about their chances of finding an affordable home -- much more so than in previous years. My opinion: it is a good time to buy. And homes have really not been this inexpensive in five or six years.

Dane Hahn is a real estate professional with Tarpon Coast Realty in Englewood, Sarasota and Boca Grande. He can be reached at dane.hahn@gmail.com or by phone at 941-681-0312. You can check out his website at http://www.danesellsflorida.com/

Catistrophic Insurance Musings

Back in the day, financial institutions took pride in being “sound”. In old newspapers and magazines insurance companies would advertise their “ASSETS”. They would brag that they were conservatively managed, and should they have a loss—from whatever cause—they could withstand the loss and promptly pay their insured for the loss.

Check out some of the old line companies like Lloyds of London which made a name for itself insuring the cargoes of ships, and then grew to insure ships and vessels of all types. These were conservative businesses which evaluated risk, and underwrote the possibility of a loss. And from some of their losses, new methods of safety and loss mitigation were developed. I am reminded of a story about Lloyds reviewing shipments of dry rice which I understand swells when it gets wet. This was only a problem if the rice filled the vessel to the insides of the hull, and then if it swelled, it burst the hull. Lloyds determined that this type of cargo needed to be both kept dry and shipped in cargo holds that were not attached to the ribs of the ship.

And that kind of thinking saved the shipping companies, and the rice merchants and Lloyds from having to sustain losses. So what's wrong with our insurance companies today? Why can't they assist in mitigating our losses?

First of all, like the banks, today's insurance companies are not nearly as well financed as we might think. Insurance companies buy insurance to cover their losses—what's up with that? But if you want to follow that thread, look up “excess, surplus and re-insurance”. If a hurricane hits Florida this year with substantial losses, I'm told that our own Florida insurance company, Citizen's would be unable to pay it's insureds, because they DON'T HAVE THE MONEY.

One wag told me that the only reason he has insurance is to have a place to mail his extra money. But really we buy insurance so that if your house (or car, or whatever) becomes damaged, you'll be paid enough to fix it subject to certain deductibles. But what if they can't pay? What if the losses are so great (like they must be throughout the Midwest) that everything for 300 miles and a mile wide is just pick-up sticks? Who has that kind of money?

So that means everyone's policy costs will increase. Even here in SW Florida, you and I will pay to rebuild homes that are damaged in the Midwest—like they paid for our losses from Charlie and we all paid and still pay for Katrina.

Tornadoes seem to touch down anywhere the land is relatively flat but with no particular favorite locations—although we once lived in the Chicago metro area and the outlying counties—like McHenry County—seemed to magnetically attract these twisters. (Maybe people who live in the Rocky Mountains should get a “twister discount”.)

The Federal Government offers low cost “flood insurance” to people who live in flood zones. I like that they make this product available, I had it on a house I owned in NH, and we were flooded there. But I think it should only pay once. There are people up and down the major rivers who get flooded every year and clean up and fix up and pay their policy and get flooded again the next year. As I see it flood insurance is a plan to encourage people to continue to live in areas where their house is likely to be washed away. Maybe instead of paying your claim flood insurance should buy your wet house, knock it down and make a federal parkland of all flooded areas.

Homes and buildings in areas that have a 1% or greater chance of flooding in any given year, have a 26% chance of flooding during a 30-year mortgage—that's pretty much a sure thing, just like the 100 year storms that we get every 5 years or so. Flood maps are available on line and at most libraries if you want to see what the odds are of your house being submerged.

And given those odds, you probably should pick an insurance company that has the financial wherewithal to pay off your loss, and not just the one that costs the least. When I watch the lizard selling car insurance, or the progressive lady in her apron (what's up with that?) I'm amazed that somehow they can each sell their policy for $500 less than the other, I can see that the general public is not buying insurance any longer based on the soundness of the insurer.

Dane Hahn is a real estate professional with Tarpon Coast Realty in Englewood, Boca Grande and Sarasota. He will answer your questions at: dane.hahn@gmail.com or 941-681-0312. Check him out on line at http://www.danesellsflorida.com/