What Kind of Home Do You Want?

Some buyers set out to find a Complete and Total Disaster when they are shopping for a new home. Is that what you’re looking for? Because we come across them periodically and can point you in the right direction.

Houses that are for sale

Most buyers don’t want to do quite that much work on their new home, so they stick to the upper half of the quality chart shown above. The real challenge is knowing whether the home you like is actually move-in ready or if the seller has spiffed up the most visible areas to try to trick you.

My personal favorite home type is the Time Warp. These homes are often single-owner properties that have been loved for decades. The owners took extra good care of them – replacing the mechanical systems as needed and doing all the annual maintenance. But what they haven’t done is modernize. Everything is original, making it seem like you’re walking through the set of a TV show.

Most homes fall somewhere in the middle of the chart. Owners have done an okay job of maintaining the property, and maybe they updated the kitchen, or a bathroom, or whatever at some point along the way. Other parts of the home will need attention sooner rather than later. Buyers have to sort through the pros and cons to figure out if the place will work for them.

One of the first steps in a home search is figuring out what you hope to find. And for most, that involves trade-offs between size, price and the types of repairs you’re willing to take on.

January Contracts: Cool Start to the Year

The Hartford County single-family home market began 2014 with 519 contracts in January. The total was more than 4% lower than January of last year, though still higher than any other year since our data began in 2009.

Hartford County Single Family Contracts in January 2014

January was the longest cold stretch that we can remember in Greater Hartford. There have been brief deep freezes, but our experience in the area is that the temperature rarely falls below 20 degrees for long. This winter temperatures of less than 20 degrees have been a regular occurrence.

We believe that the cold weather is keeping the market from looking ahead to spring. The deal count is currently being limited by the low number of homes that are available for sale. Owners who are looking to move are delaying their listing decisions, which has a ripple effect on buyers. The inventory column in the bottom chart shows that the options for buyers are very limited. And many of the homes that are available have been on the market since last year.

Supply and demand dynamics favor sellers in many towns. The weather may be limiting the number of buyers actively searching for a home, but there are still enough buyers in the market to create opportunities for sellers. Homes that are in very good condition, and that are priced appropriately, are attracting the most attention. Our buyer clients have been involved in competitive situations for properties, and we’re hearing from other agents that they’re seeing bidding wars as well.

This may be a good opportunity for owners who are looking to move to get their property on the market. We’re happy to share our thoughts on the particulars of a home, and can also help out in other ways as part of our advisory services. Only time will tell when the spring market truly starts. Now that we’re in February there seems to be a snow storm each week … another winter challenge for the local real estate markets.

Hartford County Single Family Contracts in January 2014 by Town

I Don’t Hate It

Tulips at Elizabeth Park“I don’t hate it.”

I’ve been getting this line a lot recently from the male spouse in couples that are working with me to look for a home.

That’s not necessarily a rousing endorsement of a place. And I’ve been getting it from several different guys, not just one. Do you think a homeowner would like to get the feedback “The husband didn’t hate your house.” Probably not.

At times we do joke that it is the wife’s opinion of a place that matters most and the husband’s opinion is secondary. But really, I think I’d strive for a little more satisfaction than “I don’t hate it.” Also, I haven’t brought a buyer for any of the “I don’t hate it” houses I’ve showed, so I guess that means the husband’s opinion carries some weight.

An Offer’s Strength: Financing

How strong is the bid we just submitted for that property you love? Are you going to get the house?

Sellers are receiving multiple offers on a regular occasion this spring. Buyers are lined up, anxious to buy a home, and willing to submit offers on homes as soon as they hit the market. In many cases buyers know they need to write up their best offer immediately – there may not be an opportunity to negotiate.

Multi-FamilyBut how good is that “best” offer?

The first thing the seller is going to look at is the price. They’re going to line up all the bids and look to see who is paying the most money, and how much more the highest bid is over the next highest bid. Buyers can control how much they bid for a home, and pick a number that reflects the property’s value to them.

If more than one bid comes in at about the same price, then the other terms in the offer become more important in the seller’s decision making process. This can be the difficult part for buyers – it comes down to the type of financing and the other conditions proposed for the deal. Most buyers have no control over the type of financing they use, as their cash position and income determine how they can pay for their new home.

Here is how we see sellers rank the strength of competing bids with a similar offer price but different financing terms.

The Cash Offer
Cash buyers don’t have to go through the mortgage underwriting process, which is a big plus for the seller. They may also choose to waive the right to an appraisal, something required by any lender and therefore any buyer using mortgage financing. Since the buyer generally has to demonstrate they have the cash to complete the deal, there is little financing risk to the seller. Sellers might accept a slightly lower bid if it’s cash, but it’s unlikely that they’ll leave too much money on the table. The main risk with a cash buyer is that they may try to be pushy because they have a high opinion of themselves and/or their offer. Cash is attractive, but cash is not king.

Conventional Mortgage with Large Downpayment
Buyers can now get conventional mortgages with as little as a 5% down payment. But realize from a seller’s standpoint, the larger the down payment, the stronger your offer. The smaller the mortgage amount, the more likely it is that you’ll be approved for that mortgage. That lessens the risk to a seller. If you have cash available and know you’re in a multiple offer situation, you may want to increase the down payment component to improve the attractiveness of the offer.

Government Backed Mortgage (FHA, VA, CHFA, USDA)
Government backed mortgages require a small down payment from the buyer, typically 3.5%. These mortgages are also a little more stringent on the appraisal inspection. Sellers usually view them as somewhat more risky than conventional loans because of the low down payment amount and additional appraisal inspection requirement. This type of financing is typically fine if you’re the only bidder. However, if you’re competing against others and there is another buyer with a conventional mortgage, the seller would most likely favor that offer if the rest of the terms in the offer are acceptable to them.

Conventional Mortgage with a Hubbard Clause (House under Contract)
Some buyers already own a property and need to sell it in order to buy their next home. Not everyone can afford or wants to carry two mortgages at once. This is what we locally refer to as a Hubbard Clause – you need to sell your current house in order to buy the next house. Hubbard Clauses are typically viewed unfavorably. Even if your current property is under contract with a buyer, that deal could still blow up for a variety of reasons. The seller of the home you want to buy has no control over your home sale so it’s additional risk. The way to strengthen this type of offer is to come to a seller with most, if not all, of the contingencies on your sale cleared. In that respect, you would be viewed as similar to a buyer with a conventional mortgage with no property to sell.

Conventional Mortgage with a Hubbard Clause (House for Sale, But Not Under Contract)
Typically the only time you’ll find a seller who is willing to take your offer with a Hubbard Clause when your house is not under contract is if you’re the only game in town – when no one else is interested in their house. Otherwise you need to be willing to pay a lot more than others bidding on a property, and show that your house is likely to sell quickly, to capture the seller’s interest.

There are no absolute rules about which type of financing is the best. Each seller is different, and reflects on the different real estate experiences they have had when they evaluate offers.

This ranking captures what we have seen in the market with two caveats. First, money talks, so a high bid can win a home despite less than ideal financing. And second, there are other terms in an offer that could influence a seller’s decision. We’ll review them some other time, but they are almost always prioritized behind the offer price and the type of financing.

Radon Mitigation Systems

We’ve written about radon a couple times in the past. Once as an overview to the issue and once when we tested the radon levels in our home. But I don’t think we’ve ever written about the mitigation system itself.

Radon Mitigation SystemA radon mitigation system is just a white PVC tube starting under the foundation and exhausting outside. There is a fan inside the pipe that blows air from out from under the basement.

Radon is heavier than the other components of air, so it tends to collect in the lowest areas of a home. Blowing it out using a system like this has been found to be an effective way to reduce the indoor radon levels. Here is one of many EPA pages that talks about radon and real estate.

The photo shows the most interesting portion of the system. There is usually a label posted at eye level identifying the pipe as a radon mitigation system. And sometimes there is a liquid filled tube that tells you if your system’s fan is working.

Here’s what I recommend you do:

Test a home for radon before you buy it. It’s very likely that the seller will address any issues that are discovered. And if elevated radon is a dealbreaker for you, then you will have an opportunity to back out of the deal.

If you didn’t test your home when you bought, then test it now. I recommend a continuous monitoring test that will take about 2 days and cost less than $300. You want to know if there is elevated radon levels in your home, especially if you spend a lot of time in your property’s lowest level.

Retest your home after you do any major insulation projects. Blocking all the ways that cold air gets into your home may also be preventing radon from leaving. Do another test just to be safe.

Radon mitigation systems cost between $1,000 and $2,000 right now, so they’re not super expensive compared to other home repairs. They’re also very effective at reducing radon levels in a home.

Radon is dangerous. Do the test, you’re worth it.

PS – Radon can also be in water. But that risk generally limited to homeowners with wells since the public water utilities monitor the quality of their water. You can, and should, test for radon in water too. But that’s a very different situation and a story for another day.