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What Home Sellers Don't Tell Buyers

by /posted by Desi Sowers

As buyers ease back into the battered real-estate market, they're often hitting a stumbling block: fibbing by home sellers.

Eager to unload their abodes, some sellers exaggerate the size of their lots or their houses. Others minimize their property-tax or utility bills, conveniently forget about pests, or play down flooding problems or noise.

Real-estate experts say that while such misrepresentations aren't new, the tough market of the past few years has made buyers more wary, partly because they can't expect rising home prices to bail them out of costly mistakes. As a result, deals are taking longer, and more of them are falling apart as buyers find properties sometimes aren't all they're supposed to be.

More than 30 states have disclosure laws requiring sellers to tell prospective buyers and agents about leaky roofs and other problems, according to the National Association of Realtors. But there's often a gray area involving the disclosure of problems the seller may not know about, such as a long-ago flood or hidden mold.

States are also increasingly passing laws requiring homeowners to disclose environmental issues, such as the presence of radon gas, a contaminant linked to lung cancer, and underground fuel tanks. In California, the checklist of required disclosures is so long that a cottage industry has sprung up of firms that help sellers prepare the forms.

Given the complexity of disclosure laws, it's not surprising that potential buyers don't hear about every problem in a house. Besides the issue of fibbing, sellers may genuinely not know about problems. And even if they do, the laws generally don't apply to bank-owned homes transferred in foreclosures, which now constitute a larger share of sales.

Buyers need to do their own due diligence and not rely exclusively on what sellers and agents say. They should hire an independent home inspector or home-inspection engineer, one not referred by the seller—and be aware that real-estate agents typically represent the seller.

Here are some of the common misrepresentations and white lies that buyers may hear as they shop for a house, according to real-estate experts and state regulators:

• "This house is on two acres." Disputes about property dimensions—how many square feet in a house or condo, or its exact boundaries—are common. Sometimes buyers don't learn the exact dimensions until the lender's appraisal.

Listing agents usually accept a seller's word on property dimensions, says Diane Saatchi, a senior vice president at Saunders & Associates, a real-estate firm in Bridgehampton, N.Y. "We tell everyone to verify," she says. Smaller dimensions also can cause an appraisal to come in lower than the agreed-upon purchase price. Low appraisals are a leading cause of ruined deals in today's market. A properly worded appraisal contingency in the purchase contract would allow you to scuttle the deal or find other financing if the appraisal comes in low, says New York real-estate attorney Michael Xylas.

• "We don't have pests." A basic home inspection generally doesn't include a peek inside walls or underground for termites and mold, which are among the top complaints. Inspections for mold and radon gas also generally aren't included; usually buyers must order these inspections separately. Other inside-the-wall problems include faulty wiring and old plumbing, which also may require specialists.

James Holtzman, a financial adviser at Legend Financial Advisors Inc. in Pittsburgh, says sellers of the 1901 house he bought in August 2006 said its electrical wiring was completely upgraded, yet an electrical inspection revealed only one of three floors had been totally upgraded. The seller then knocked $6,000 off the sales price before they went to contract so Mr. Holtzman, 35 years old, could pay for the necessary work.

• "This place never floods." Even arid states such as Arizona and New Mexico have occasional flash floods, and water and drainage problems aren't always obvious. June Walbert, 52, a certified financial planner at USAA, a financial-services company, says her San Antonio house received a clean bill of health from a home inspector before she bought it six years ago. But 10 days after she moved in, the sewer backed up, flooding the house, and she had to fork over $2,800 for repairs. "It was a rude surprise," says Ms. Walbert, who adds she asked her home inspector and the seller for compensation, but didn't get it.

Bill Richardson, outgoing president of the American Society of Home Inspectors, says a general home inspection wouldn't catch that unless the sewer line was visible from the basement or water backed up into sinks and tubs or toilets.

• "Taxes and maintenance costs are low." Home buyers often gripe about tax and utilities bills that are higher than sellers said they were. Homeowner association and condo dues and assessments are also common complaints. Sometimes sellers simply underestimate the bills, or forget to include recent or expected increases, agents and brokers say. Taxes can also be deceptively low because of unrecorded improvements like decks and finished basements. Ask to see recent bills, and check with the tax assessor's office for up-to-date information.

• "This is a quiet neighborhood." Sellers may play down distractions that could drive you crazy, such as barking dogs or idling buses. A charming park by day could be a teen hangout at night. Your best bet is to view a property at different times of the day. "I can't tell you how many times in my career buyers didn't go there in the night time, even though I told them to. You spend more time in the house at night than during the day," says Ms. Saatchi, the New York real-estate agent. Talk to neighbors and peruse the local newspapers and blogs to get a feel for a place, and check with police for crime.

• "There's going to be a golf course, a pool and a party room." Builders of many developments that broke ground during the housing boom ran out of money before the project was completed. Many homeowner and condo associations also are strapped because of delinquencies and defaults. Some states require upfront disclosures about this, but you should also ask neighbors, not just sellers, about any promised facilities. Also, check titles to be sure that specific parking spaces, storage units or other facilities are included in a property sale.

Printed in The Wall Street Journal, page D2  Written By M.P. MCQUEEN

Real Estate Outlook: 2010 Stark Contrast to 2009

by Desi Sowers

Real Estate Outlook: 2010 Stark Contrast to 2009

Even the grumpiest, grinchiest economist would have to admit that New Year's 2010 looks a whole lot more positive for real estate and housing than things did last year at the same time.

You may remember that dark and scary time. We had just come through the Wall Street financial panic, but it wasn't yet clear what the federal government could - or would - be able to do to prevent a total collapse.

The outlook right now is a complete contrast: Home sales have been rising for months, thanks in part to the federal tax credit programs; new home starts and permits are up in most parts of the country; and prices generally are trending up in most of the markets that got shell-shocked in the bust.

Now new market data from last week point to continued growth just ahead, but with an ominous warning sign as well.

The latest pricing numbers released by the Federal Housing Finance Agency found home values nationwide up modestly in the latest month -- by six tenths of a percent. That sounds really small, but annualized it comes to more than seven percent, which is not bad at all.

And recent sales results from key local markets also are encouraging. For example, in November, every major metropolitan area in Florida saw sales of houses and condos up compared with the year before for the second straight month.

Overall, according to the Florida Association of Realtors, sales of houses were 61 percent higher than November of 2008. Condo sales were up by an amazing 111 percent!!

Plus consumer confidence has been trending upward nationally, by 7.5 percent during December, according to the University of Michigan's bellwether survey.

But now to a sobering subject: Mortgage money is getting more expensive, week after week. At least one big player in the market -- Freddie Mac -- is projecting rates to move from just over five percent today for 30-year loans to 6 percent or higher later in 2010.

Freddie Mac's deputy chief economist, Amy Crews Cutts, says the Federal Reserve's scheduled phase-down of its multi-billion dollar purchases of mortgage backed securities, plus expected moderate growth in the economy, will force rates at least a percentage point higher.

Mark Zandi, chief economist for Moody's Economy.com, agrees. He said last week that six percent for mortgages "sounds about right. I don't think there's any question rates are headed up."

Bottom line here: If you or your clients care about rates, nail down financing sooner, not later. It could cost you if you wait.

Home Improvement Trends for the New Year

by /posted by Desi Sowers

Most homeowners are unlikely to be building, remodeling or decorating with abandon in 2010, given the slow recovery from the recession. But if you do plan to update your home or garden, here are some trends to keep in mind.

Home decor. The sleek, sophisticated but comfortable style known as “soft contemporary” will be a key look for the New Year, said Kris Kolar, vice president of interior design at Robb & Stucky Interiors. Instead of the eclectic clutter that has been popular for a while, there will be a move toward using just one or two eye-catching accents. These “punctuation-mark pieces,” featuring hand-worked techniques that give a custom look, may include special materials such as mother-of-pearl, flame mahogany and stainless steel.

Furniture. The environmental movement is getting stronger, said Jackie Hirschhaut, spokeswoman for the American Home Furnishings Alliance. Increasingly, furniture is being built using natural-fiber fabrics, recycled metals and sustainable woods. Red will be the trendiest accent color for furniture, she predicted. And home offices will continue to boom as growing numbers of Americans work from their residences.

Color. Classic neutrals and pops of exotic brights are the key shades at Pittsburgh Paints, which recently announced four color palettes for 2010.

The “Canvas” palette includes deep gray-browns and gray-blues, muted beige and chalky white. “Pink City” offers vibrant pinks, spicy oranges, grays and chocolate-brown. “Grace” includes elegant hues such as pale butter, bronze-gold and sea foam. And “Zest” reinvents the style of Palm Springs circa 1950, mixing high-energy yellows with gray, white and black.

Landscaping. Organic vegetable gardens, like the one installed at the White House are likely to be a huge trend in 2010, said Orlando, Fla., horticulture expert Tom MacCubbin. Community gardens are a growing trend, especially those that involve children. Of all vegetables, he predicts tomatoes will be especially popular. In the landscape, perennial plants that last longer than annuals and need less care are a strong trend, he added. Trendy plants include gold mound duranta, a shrub with acid-green foliage, and perennial bulbine, which sports spikes of yellow blooms.

New-home construction. The era of the extravagant McMansion is over, said Nathan Cross of NWC Construction in Orlando. When building new homes, people are increasingly budget-conscious. “It’s back to basics. Even the pool is a no-frills deal,” he said. About the only area where homeowners may be prepared to splurge a little is the master suite. Energy-efficiency will be important. So will going green: “So long as it’s a green trend that doesn’t cost too much.” Outdoors, some homeowners will be installing fireplaces, fire pits and summer kitchens.

Remodeling. The trend toward making minor improvements to home exteriors is likely to extend into next year—for good reason. It gives homeowners the biggest bang for their bucks when it comes to selling their homes. In terms of costs recouped, eight out of the top 10 home-improvement projects this year were exterior upgrades that cost less than $14,000, according to Realtors Report’s annual Remodeling Cost vs. Value Report. A steel entry-door replacement topped the list, recouping 128.9% of costs, followed by upscale fiber-cement siding replacements (83.6%), wood deck additions (80.6%), and several types of window replacements (more than 70%). The two interior projects that landed on the top-10 list were attic-bedroom additions (83.1% recouped) and minor kitchen remodels (78.3%). The least profitable remodeling projects in terms of resale, and therefore not likely to be popular in 2010, were home-office remodels and sunroom additions.


Written by Jean Patteson

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