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What Is a Co-op and Is It Right for Me? Here’s Everything You Need to Know

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You’ve finally decided to purchase your first home and you have your sights set on a place in the city! But as you’re contemplating a condo vs. a townhouse, you see a new affordable listing for a housing co-op. It sounds intriguing, but you wonder,  “what exactly is a co-op?” and, secondly, “there’s no way this type of home is even popular.”

It turns out over 1.5 million people in the United States live in a housing co-op, and the concept has been around since the 19th century. Housing co-ops, also known as housing cooperatives or cooperative housing, are an alternative to homebuying where residents own a share of their community-controlled complex instead of actual real estate. While it can provide affordable living and less maintenance, co-ops may be harder to get into, and they can come with quite a few rules and regulations.

So is that co-op right for you? We’ve talked with a veteran real estate agent near a co-op hot spot and scoured pages of research to bring you everything you need to know on the non-traditional process before you jump in.

A table of people discussing issues of the co-op.
Source: (Christina @ wocintechchat.com / Unsplash)

What is a housing co-op?

A housing co-op is a multi-unit tenement or complex where residents jointly own space and control the entire building. Instead of owning your unit outright, you own a share of stock or interest in your building and become a shareholder in the community. So, that means in lieu of a deed to your home — as you would have with a condo or single-family home — you have a membership contract or lease to occupy your dwelling.

Picture a multi-unit apartment building. Instead of all the residents paying rent to a landlord or management company, all the residents own the structure together as part of a corporation. They each own a share of the complex, which gives them the right to their individual unit and all the common areas. The number of shares you get is relative to the size of your unit. That’s essentially what a housing co-op is at a very basic level.

Depending on the co-op’s size, an elected board of directors (made up of residents) may run the complex and provide all the rules and regulations. They also handle all the financials and management operations. Or, if the building is small enough, the residents run the day-to-day activities themselves. Either way, there’s more of a community-centric focus and lifestyle compared to more traditional residences.

Sound confusing? It can be at first, but that’s why it’s essential to know all of your facts about co-ops, including the different types, before making any decisions.

Different types of co-ops

  • Market-rate: One of the more common types of co-op, the buying and selling of these units are just like any other property. You can purchase or sell shares at any price in the market, and you build equity (or make money off a sale) just like a normal transaction with a condo or single-family home.
  • Limited-equity: This is another popular type of co-op, and it’s geared for affordable living. There are more restrictions on the prices at which units are bought and sold. As the name suggests, you can still build equity in these co-ops, but there are more rules you need to follow to keep the prices low for yourself and future residents.
  • Zero equity/group equity/leasing co-ops: A housing cooperative in which the co-op leases (instead of owns) the building. Because the corporation is renting from whoever owns the building, there’s no equity to be built. However, these co-ops are usually still run the same way as the other types.

Where are co-ops found?

Housing co-ops are found throughout the U.S., but they are most commonly located in the Rust Belt; major cities, such as San Francisco and Fort Lauderdale; and the Northeast. In fact, New York City itself accounts for about half of all the housing co-ops in the country, according to Co-operative Housing International.

While most co-ops are mid-rise or high-rise building complexes, a housing cooperative can take any shape and form. Here’s a look at what you might find.

A board of directors interviewing a potential co-op member.
Source: (LinkedIn Sales Solutions / Unsplash)

What’s different about buying a co-op?

Like a co-op lifestyle may be different from other housing developments, so is the purchase process. The most significant difference is there’s usually an application required to get in. But before you have flashbacks to your college entrance process, let’s take a closer look at the timeline you can expect to see.

Home search and offer

This step is actually pretty standard, but it’s important to work with a real estate agent who has experience with co-ops. They will be invaluable during your home search, guiding you through what questions to ask and how different co-op boards of directors compare to each other. As for the offer, it’s similar to the process in condos and single-family homes as well. You’ll need a pre-approval letter if you’re getting a share loan (more on this in a minute), and you will gather all necessary documents (offer letter, purchase agreement, etc.) alongside your agent.

If your offer is accepted, be prepared to put together an extensive package of documents, including information on your financial and housing history, for board approval.

Co-op application

The exact process to get into a housing co-op will vary, depending on the cooperative itself and your location. However, there’s usually an extensive amount of paperwork where you’ll have to provide many personal details. After that, you’ll also be asked to interview with the co-op’s board of directors.

The interview could range from a simple formality to a lengthy back and forth, but remember, the board just wants to make sure you’ll be a good fit for the community, and you know exactly what’s required for the cooperative. Some example questions they might ask:

  • Why you want to live in the co-op or that location
  • What your employment history is and if your job is secure
  • What your finances and financial history look like
  • If you plan to have guests over frequently
  • If you plan to make any renovations to your unit
  • If any hobbies or lifestyle habits might cause issues in the building
  • Questions to make sure your application and interview line up

The board may have legal grounds to reject your application based on financial issues, employment troubles, or even an unwillingness to follow the rules and regulations. However, since the Fair Housing Act, they can’t reject you based on age, race, sex, familial status, disability, or other discriminatory factors.

Overall, the board of directors wants to make sure you’re going to mesh well with the other residents, and you’ll pull your own weight. Plus, this is a great opportunity for you to figure out if the co-op — and it’s management — is a good fit for your needs!

Financing a co-op

You’re through the application, and you have all green lights to purchase your shares in the co-op (woohoo!). Now there are a few things to know about financing.

It’s not much different from buying a conventional property. However, you’ll have to get a co-op mortgage loan, also known as a share loan. These allow the purchaser to buy shares of the cooperative instead of buying the property itself.

It’s important to note that not all lenders provide these loans. If they do, you might be limited to purchasing in a market-rate co-op. This is because it’s easier for the bank to base the value of the loan on your market-based purchase price (as opposed to limited-equity co-ops, where the purchase price is capped).

The initial steps to receive a share loan are pretty standard. The lender will look into the details of the co-op, including the building’s age, size, management, and recent sale prices. They’ll also dive into its finances, examining the co-op’s cash reserves as well as the underlying mortgage (if it has one).

For the purchaser there may be a little more work, says Ed Verdel, a New Jersey-based real estate agent with over 11 years of experience. He says some co-ops or loan providers may require a 20% or more down payment before a purchase, and you might have to prove you have more cash in savings. On top of that, there might be more strict requirements on your debt-to-income ratio.

“Financially, it’s a little bit harder to get in than it would be into any other sort of purchase,” Verdel says.

This is also a good time to look into the co-op’s monthly fee, usually known as a maintenance fee. This can be higher than traditional condo associations, says Verdel, and it may be a burden. However, the fee covers communal expenses (repairs, landscaping, taxes, etc.), so that means you won’t have to do any of the work outside of your unit.

There also might be an underlying mortgage on the building itself, which the cooperative takes care of. If so, you might be responsible for a share of the cost, which adds to the maintenance fee.

A mailroom inside of a co-op.
Source: (Natalie Runnerstrom / Unsplash)

Living in a co-op

A housing cooperative may be right up your alley, or it could be the farthest thing from what you’re looking for. To find out, let’s take a look at some of the advantages and disadvantages.

Advantages

Affordability

One of the most significant advantages of a co-op is its affordability, especially in limited-equity types. These co-ops provide affordable housing to low- or middle-income homebuyers and allow buyers to purchase in an area that might be out of reach going the conventional route.

Even outside limited-equity co-ops, the purchase price is usually lower for other types of co-ops since they might not have the amenities you find elsewhere. On top of that, you’ll save money on closing costs. You won’t need to pay for all the same fees as in a traditional transaction, like title insurance or a mortgage recording tax.

Another plus: You won’t have to pay expensive, individual real estate taxes like on a condo or single-family home. Since the building is owned by the co-op, the complex is taxed as a single unit; you’ll just have to pay a share of the bill, which is included in the maintenance fee.

Community-focused

When you purchase a co-op unit, you’re investing in a community. Everyone has a real stake in their building. That means you’ll get to know your neighbors well, and you’ll have a real say in the operations of the cooperative.

Plus, because the vetting process is so detailed and requirements are so strict, co-ops are usually more financially stable. If it’s well-run, the cooperative will most likely have a larger reserve fund, and their owners are less likely to go into default in down markets. That was the case in 2007, when the Great Recession didn’t hit co-ops as hard as other real estate properties.

Less maintenance

Since co-ops are so community-focused, everyone pitches in. Maintenance fees cover all the communal expenses, and you shouldn’t have to worry about repairs, security costs, landscaping, and other maintenance woes, at least in the common areas. That means one less thing for you to worry about in homeownership, which may be especially great for older buyers.

In smaller co-ops, you might still be responsible for some communal maintenance, but if so, your fees will be lower.

Disadvantages

Harder to get into

We’ve already mentioned the application process and interview necessary to buy into a co-op. This can not only put people off but also drastically limit the types of buyers able to get into a co-op. The financial requirements are strict, and everything from debt to employment history to your savings is looked at in detail.

There’s an estimated rejection rate of about 3% to 5% in co-ops, according to The New York Times. That might not seem like a lot, but, remember, that’s already after the seller accepted your offer.

More restrictions

Just like an HOA comes with rules and regulations, a co-op comes with them too — and then some. Many housing cooperatives have strict rules and bylaws to ensure everyone is comfortable and the co-op operates without issues.

Verdel says the exact restrictions depend on the co-op, but it could range from the inability to rent your unit to board approval for renovations to approval for certain pets. It’s essential to carefully review the bylaws and regulations before completing your purchase to make sure it won’t affect your day-to-day living too much.

High fees

Verdel says he gets clients all the time who are excited about a low-priced co-op they’ve seen. However, he cautions them to take a hard look at the maintenance fees. This fee might include communal expenses, management costs, taxes on the building, utilities, and any other board-approved costs.

It can get expensive, too. For example, the average maintenance fee for a co-op in New York City is $1,500 a month. Multiply that by 12, and you’re looking at $18,000 a year in maintenance costs. That’s more than double the typical annual costs for conventional home maintenance.

A bed in a co-op building that you can buy.
Source: (Andrea Davis / Unsplash)

Before you purchase

As with any purchase, it’s important to ask the right questions before investing your money in a co-op. After all, they’ll most likely interrogate you before you’re accepted, so it’s only fair to ask them for some information.

Verdel says it’s good to ask what precisely the monthly fee is (and what it includes) and what the sale history looks like in the community.

“[You’ll] want to know that upfront just to see if it’s been increasing in value over time or if they’ve been depreciating in value over time,” Verdel says.

Some other important questions to get answered:

  • How is the cooperative managed?
  • How active is the board of directors, and do its members have the relevant experience to manage a co-op?
  • Is there an underlying mortgage? If so, what does each shareholder pay toward it?
  • What are the rules and regulations?
  • Are there other additional fees to be aware of?
  • Are there renovation restrictions?
  • Are there pet restrictions?
  • What is the community/resident engagement like?

These are only a few of the questions you might ask during your co-op search, and each process is different. After getting all the relevant information, you might find more traditional housing is a better fit for you. Or you’ll learn a housing co-op is the type of living situation you never knew you needed.

Header Image Source: (Jimmy Chang / Unsplash)

Who Pays for the Appraisal and Why This Key Homebuying Step Is Worth Every Penny

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You’ve just made an offer on a house that checks off everything on your list: location, number of bedrooms, that je ne sais quoi. To your delight, the seller accepted your offer.

Now it’s all about preparing for your closing. If you’re taking out a mortgage, your lender will arrange something called a home appraisal. But who pays for the appraisal? Why is it considered a key part of the homebuying process? And what happens if your contract falls through?

To find out, we talked to experts like Barrett Spray, a real estate agent based in central Florida who has 27 years of experience helping clients navigate the homebuying process, chatted with two appraisers about the ins and outs of home appraisals, and tapped into HomeLight’s extensive homebuying resource database.

Let’s get you some answers. This guide will help you understand who pays for the home appraisal and why it’s important.

An image of a house with trees to demonstrate who pays for the home appraisal.
Source: (Erik Mclean / Unsplash)

What is a home appraisal?

According to the National Association of Realtors®, only 22% of residential sales are cash sales, so it’s likely that you’re taking out a mortgage to finance your home purchase. That means that between the time your offer is accepted and the day you close on your home, you and your lender will be in frequent contact as they review your finances and prepare your loan.

One piece of information your lender will look at closely is the home appraisal. This is a professional assessment of a property’s value, based on a thorough review of the house and property by an independent appraiser.

The Appraisal Institute, a global professional association of real estate appraisers, calls an appraisal “the act or process of developing an opinion of value.”

Why is the appraisal so important to your lender? Simply put, they want to make sure your new home is worth the loan they’re providing. This due diligence protects the lender in case you default and they need to recover their costs. Importantly, it also protects you, by validating that you’re not overpaying.

“What it really is supposed to do is give [the buyer’s] bank a feeling that the asset that they’re purchasing is worth the amount that they’re purchasing it for,” says Spray. “That is what it’s supposed to do for the buyer as well.”

The difference between a home appraisal and a home inspection

In some ways, buying a house is like learning a new language. You’ll learn jargon you’ve never heard before, like earnest money, escrow, and title search.

Let’s brush up on the difference between two important terms: home appraisal and home inspection. Although they might sound similar, they are distinct steps that most buyers will encounter as they move through the homebuying process.

A home appraisal: 

  • Assesses the property’s value, specific to the unique characteristics and location of the home
  • Gathers information to protect the home buyer and the lender’s investment by comparing the value to others in the market and what is being offered to purchase the home

A home inspection: 

  • Gathers information to protect the buyer’s investment
  • Seeks to identify issues that could reduce the home’s value or cause significant costs for the owner, such as a leaky roof, mold, electrical problems or structural integrity
  • Assesses the property’s condition

Who pays for a home appraisal?

It’s the buyer’s responsibility to pay for the home appraisal. Typically the lender requires the payment upfront, but in some cases the fee may be included in your closing costs. In rare cases, the seller may cover the appraisal cost to sweeten your deal.

According to Spray, appraisals typically range from $400 to $600 for his central Florida clients. Nationally, the average home appraisal is about $340.

The exact cost will vary based on the home’s location, square footage, and condition. If your desired home has characteristics that require the appraiser to be on site for longer than usual, the cost may go up.

If your contract falls through (and more on that later), you shouldn’t expect a refund on your appraisal, unfortunately.

An image of hands to demonstrate who pays for a home appraisal.
Source: (Shopify Partners / Burst)

Who conducts a home appraisal?

Your home appraisal is conducted by a person called an appraiser. This is a third-party certified or licensed contractor, hired by your lender (often through an appraisal management company). Appraisers must meet congressionally authorized standards and qualifications, plus any qualifications set by the state in which they are based.

Appraisers are well-versed in the real estate field and understand the different factors that must be weighed to evaluate a property, such as neighborhood growth, housing trends and market conditions.

In conducting your appraisal, the appraiser will typically walk through the house to look at your home-to-be’s structural condition, the size of the property, the layout, recent upgrades, amenities, and any necessary repairs.

Lisa Meinczinger, an appraiser in Greenfield, Indiana, says she spends about 15 to 20 minutes walking through a well-cared-for house taking pictures and measurements. But that’s just the tip of the iceberg when it comes to each of her appraisals.

“When I get back to the office is when the work begins,” she says.

An instructor for the Appraisal Institute, Meinczinger has worked as an appraiser since 1998. Last year, she was particularly busy, conducting 310 appraisals.

To finalize her appraisals, she looks at market conditions, checks tax records, and compares recent home sales of similar properties. She’ll also check her measurements against those provided in the listing, making sure there aren’t any discrepancies.

“[Real estate agents] will say this is a 6,000-square-foot home, but 3,000 of it is in the basement,” says Meinczinger. And since below-ground basements cannot be added to the calculation of a home’s living space, she has to make that correction on the appraisal.

The appraiser will fill out a standard home appraisement form, often Fannie Mae’s or Freddie Mac’s Uniform Residential Appraisal Report, to share with the lender. Your lender should provide you with a copy of the appraisal within about seven business days (possibly longer if your market is particularly busy).

Be your best advocate

While the lender is responsible for arranging the appraisal, the buyer can insist on a highly qualified appraiser. In fact, that’s advice straight from Daniel Crehin, owner of Crossland Appraisal Service, which provides commercial and residential appraisal services on the West Coast.

“Get a good, reputable appraiser,” he says. His recommendation is that once your lender has scheduled your appraisal, make sure your appraiser is a member of the Appraisal Institute.

Another way to inspect an appraiser’s credentials is to see if they have any professional designations. Crehin, for example, has an MAI (Member Appraisal Institute) designation, while Meinczinger’s credentials include the SRA (Senior Residential Appraiser) and AI-RSS (Appraisal Institute, Residential Review Specialist) designations. These indicate additional education and experience.

You can examine your appraiser’s credentials by visiting the National Registry of Appraisers and by looking at the Appraisal Institute’s database.

An image of a man on a computer to demonstrate who pays for a home appraisal.
Source: (Sarah Pflug / Burst)

Understanding your appraisal

You’ve just received a copy of the appraisal from your lender. One step nearer to closing day and moving into your new home! Let’s talk about the different scenarios that accompany your appraisal outcome.

Did the appraisal come in higher than the offer the seller accepted? That’s good news for the buyer, says Spray.

“It means congratulations to the buyer because you bought a house that has built-in equity in it, according to the appraiser,” he says.

What if the appraisal comes in lower than the amount you told the seller — and your lender — that you would pay? This isn’t uncommon.

In fact, according to the February 2021 Realtors® Confidence Index Survey from the National Association of Realtors®, 23% of the problems encountered for delayed home sale contracts were related to appraisal issues. For terminated contracts, appraisal issues accounted for 11% — a higher percentage than any other issue.

You’re certainly not alone if this happens to you, but this can be a stressful situation for a buyer.

There are a few different paths forward.

You can ask the seller to match the appraisal price, which they may be willing to do. Alternatively, if you have more money you can throw toward a down payment, you can make up the difference between the appraisal and the offer price.

You can also agree to split the difference with the seller. For example, if the appraisal is $10,000 off from the offer price, the seller can accept an offer that’s $5,000 lower while you add $5,000 to your down payment.

You can also push back. Let’s say you think the appraiser got it wrong. You (or the seller, for that matter) can dispute the appraisal — though that may mean it’s you who pays for a second appraisal. You can also find another lender and get a new appraisal, which you’ll need to pay for.

If your contract included an appraisal contingency, you may choose to walk away and try your luck with a different house.

Factor the appraisal into your home ownership journey

When you’re buying a home, costs can quickly add up. There’s the down payment, of course, and the home inspection. Maybe you’ve also opted to conduct a survey? And we haven’t even talked about moving costs or the startup charges that can accompany getting your utilities up and running.

The home appraisal is one more expense you’ll need to prepare for to achieve your goal of homeownership. Ultimately, the appraisal is a worthwhile investment; you want to make sure that you’re getting your money’s worth and paying the fair market value of the property.

An experienced real estate agent can walk you through the process. Get in touch today and connect with a top HomeLight agent.

Header Image Source: (DC Studio / Shutterstock)

How to Buy a House With No Money Upfront: 9 Ways To Make It Happen

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For first-time homebuyers, the down payment is often the biggest barrier to homeownership. A lot of us went through the post-college days where we ate ramen every night, shopped the clearance bins, and went to the dollar theater while getting on our feet. But even if you pinch pennies, it’s often not enough to save up for a home.

In many parts of the country, saving a large sum while also paying rent can be difficult. But if you’ve been stuck on that 20% down payment amount, there’s good news!

Chiquita Pittman is an experienced agent in New Jersey who works with 7 more townhomes and 21 more condos each year than the average agent in her area. She also conducts monthly webinars for first-time homebuyers with the New Jersey Housing and Mortgage Finance Agency and the Puerto Rican Action Board.

She says that through combining state programs and with the seller paying closing costs, she had one buyer who “only had to bring $3,500 to the table.”

If buying a house with little to no money sounds good to you, read on for our nine tips on how to get it done.

Cash used to buy a house.
Source: (Live Richer / Unsplash)

How do you buy a house with no money?

For most borrowers, you’ll need money for the down payment and closing costs. To lenders, this demonstrates that you’re willing to invest in the home, making you a key stakeholder. It also reassures them that you are less likely to stop making payments on the loan, sending the home into foreclosure.

However, for many homebuyers, 20% down on hundreds of thousands of dollars is out of reach. While some mortgages allow you to put between 3% and 5% down, you need to know where to look.

There are also some zero-down programs that exist, plus other creative ways you can buy a house without having a lot of money in the bank.

Are you enlisted in the military, a veteran, or surviving spouse?

Then a Veterans Affairs loan is probably going to be your best bet.

The VA either guarantees the loan or lends directly so that you don’t have to put anything down on a house. There are two VA loan programs to help you buy a house:

  • Purchase Loan: No down payment as long as the loan isn’t higher than the appraised value of the home. You will pay a funding fee and closing costs.
  • Native American Direct Loan: If you’re a member of a tribe that has an agreement with the VA, you can borrow with no down payment and limited closing costs, at a rate of 2.75%, and only pay the funding fee.

The VA bases your funding fee upon both the percentage amount of your down payment and the loan amount. For example, if you put down less than 5%, you’ll pay a funding fee of 2.3% of the loan’s amount. If you’re borrowing $200,000, the funding fee will be $4,600.

Another big plus of a VA loan is that you don’t have to pay mortgage insurance. Mortgage insurance, or MI, protects the lender if you stop making payments on your mortgage loan. If you have less than a 20% down payment with a conventional loan, it’s likely that the lender will require MI. Because the VA guarantees a VA-backed mortgage, lenders waive this requirement.

Rates are competitive, but you must meet certain requirements. The VA-approved lender will set the credit score limits and maximum debt-to-income ratios. You will also need to obtain a Certificate of Eligibility or “COE” from Veterans Affairs, and don’t forget about the funding fee!

Do you make around a median income for your area?

The US Department of Agriculture offers loans for borrowers in rural areas. Before you assume that you have to buy a farm, check their coverage map for lending areas. Their coverage map can (and does!) overlap with some homes in the suburbs.

A USDA loan might be a good option for you if you don’t make significantly more than the median income for the county where the home is located (usually that’s no more than 115% of the county average). This limit varies by location, helping less affluent borrowers in expensive states afford a home. When modified by payment assistance, your interest rate could be as low as 1%.

You can put 0% down and not have to pay monthly mortgage insurance on these loans, either. Lenders place credit score and debt-to-income requirements on the loan, but the USDA also has the following requirements for the property you’re buying:

  • You must live full-time in the home.
  • The home’s square footage must be 2,000 square feet or less.
  • The home’s market value can’t exceed the applicable loan limit for your area.
  • Your debt-to-income ratio can’t exceed 45%.
  • The home can’t have an in-ground swimming pool.
  • The home can’t be designed for income-producing activities (such as a duplex).
A fire truck near a house you can buy with no money.
Source: (C. DLR / Unsplash)

Are you qualified as a ‘Good Neighbor’?

Firefighters, K-12 teachers, law enforcement professionals, and people in other specialized careers might be eligible for HUD’s Good Neighbor Next Door, or “GNND,” program.

When HUD acquires ownership of an eligible home in a revitalization area, they list those homes for 50% of the market-value price. However, they’re exclusively open to GNND borrowers for the first seven days, so you’ll have to stay on top of their listings to snag one. If more than one qualified borrower applies for a property, you’ll be entered into a random lottery, and HUD will pick the applicant who gets the house.

You can put down as little as $100 … so not exactly nothing, but pretty close! HUD requires that you sign a second mortgage for the amount of the 50% discount, but there’s no interest charged on this “silent note,” and you don’t have to make payments on it. After three years of living in the home as a primary residence and making on-time payments, they’ll forgive this second mortgage.

What are the requirements?

  • You have to be occupied in one of the approved careers (firefighter, K-12 teacher, or law enforcement professional) when you buy the house.
  • You have to live there as the owner-occupant for at least three years.
  • If you find a home you like, you have to submit your interest in purchasing it to HUD.
  • Lenders set debt-to-income and credit score limits.

Can you combine assistance programs?

If you qualify for multiple down payment assistance programs, you could combine them to make up a larger down payment. Many of these programs don’t have restrictions that prevent you from lumping the grants together. In Pittman’s work with the NJHMFA and PRAB, she frequently helps homebuyers combine programs.

“From the state, there’s a $10,000 grant,” she says.

“If they stay in the property for five years or more, they don’t have to pay it back.”

Buyers can then combine the state grant with a $5,000 grant to first-time homebuyers from the PRAB. That makes a total amount of $15,000 for a down payment. Keep in mind that some of these programs require you to bring some money to the table, which the grant will then match. You likely won’t have to pay the grant back, but you might have to put down an equal amount to the grant.

Talk to an agent to get a referral to a lender in your area who is experienced with combining assistance programs. If you are a member of a special group, see what nonprofits offer help to purchase a home. If you qualify for more than one program, it can be a great way to make up a larger down payment.

Do your loved ones have the resources to give you a monetary gift?

If you’re struggling to save up a down payment, a family member or loved one might be able to help. You can use gifts for down payments with many loan products, including both an FHA 3.5% down loan, or a conventional loan (3% minimum down).

In 2020, Pittman saw a first-time homebuyer’s kids give their mom their stimulus checks. With this gift, “they were able to buy a house for the first time with little money down,” she says. Pooling resources within the family is a great way to build a future for all family members.

Do you qualify for closing cost assistance?

Programs in different states can help with closing costs, so it’s worthwhile to explore that possibility before you write an offer on a house.

If you’re looking for what your state offers, try searching Google for “your state + department of housing and urban development + closing cost assistance.”

A conference room where you can buy a house with no money.
Source: (Brusk Dede / Unsplash)

Can you get the seller to help with closing costs?

In a buyer’s market, it’s not uncommon for sellers to pay for some or all of a buyer’s closing costs. Closing costs typically run between 2% to 5% of the purchase price, so you could save several thousand dollars. A good agent will help you negotiate closing costs during the offer period.

Pittman did a deal last year where the seller paid some of the closing costs, but she cautions that “If it’s a competitive market, it’s hard to get that done.” Since some government-sponsored loan programs limit the amount of closing costs that a seller can pay, check with your lender.

Would the seller consider financing the purchase?

Seller financing is an unusual solution, but it could work. With seller financing, the seller extends a private mortgage. It can be done through a rent-to-own agreement, or the seller might be able to work out a payment plan with you.

In some cases, you still have to put money down and could forfeit that deposit if you default on the agreement’s terms. Often, you’ll agree to a purchase price in the future. You’re taking the risk that if the property goes down in value, you still have to pay the agreed-upon price.

If you decide to go this route, make sure you get lots of good legal advice!

Kelly Springer, a partner at the firm Willenbring, Dahl, Wocken, & Zimmermann, has handled many contract-for-deed transactions. She says that they’re, “Really good for a buyer who can’t get traditional financing when they want to get a property.” But you’ll want to have a lawyer look over the rent-to-own contract to make sure it covers who pays for repairs, whether your monthly payment includes property taxes and insurance, and the interest rate you’ll pay.

She cautions that since these deals are more frequently done for buyers with poor credit, the seller is “going to charge a higher interest rate than what the market would do for a mortgage.” While this is one way to become a homeowner, you might be better off waiting to buy until you’ve improved your credit score and saved a larger down payment.

A welcome mat in front of a house bought with no money.
Source: (Andrew Neel / Unsplash)

Could you take over the seller’s mortgage?

In some cases, the seller might agree to sell the house “subject to” the terms of the current mortgage on the house. If they have an assumable mortgage, they can sign it over to another person.

This usually requires a small down payment. The mortgagor will still review your credit, and you must meet their income requirements.

With some creativity, most homebuyers can reach the day where they’re holding the keys to their first home in their hand. If you take some time to research programs in your state and work with an experienced agent and lender, your homeownership dreams can come true sooner than you think!

Header Image Source: (HiveBoxx / Unsplash)

I Want to Buy a House in 2021. How Much Should I Offer Over the Asking Price?

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Your budget is $300,000. You see a house you love, and it’s listed at $300,000. Perfect match, right?

Not so fast.

If you’re looking to buy in 2021, then you already know that the market is white-hot. Home sales have skyrocketed, and home inventory is historically low. That means it’s a prime seller’s market — and a potentially tough go for hopeful buyers.

Many would-be buyers around the country can expect to offer above asking price on a home in order to be serious contenders. And that means that buyer with a firm $300,000 budget may in fact be priced out of a home at the exact list price… one that’s destined to get 12 contingency-free offers and sell for $325,000.

Real estate is a highly local game, but these scenarios are playing out all over the country. What might a buyer expect to pay over asking?

“There are so many variables, but if they’re jumping into a beautiful, polished home with all the finishes in a hot market right now, they could expect 5% to 10% over asking price all day long,” explains James Strum, a Richmond-based agent who works with 86% more single-family homes and sells properties 16% faster than the average agent in the Richmond, Virginia area.

A hot market also means that homes go fast — and that’s a lot of pressure for buyers who know they’re racing against the clock when coming up with a competitive offer that also makes sense as an investment.

So how can you be prepared to pounce with the right offer over asking price when you see that dream home hit the market? Our expert-backed guide is here to help.

A woman researching how much she should offer over the asking price.
Source: (Jodie Cook / Unsplash)

How much should I offer over the asking price?

The answer to this question rests on many variables.

“It all depends on the pricing of the home and if it’s already appropriately priced or overpriced,” Strum says. “The second part is the buyer, who ends up determining how much they want to overpay for the property in this crazy elevated seller’s market.”

So while there’s no uniformly applicable answer to this question (sorry!), you must do your homework on both the market and your personal financials. All of that intel will guide you to the right offer. Here are 7 tips for getting there.

1. Know your budget backward and forward

When home shopping in a hot market, you have to do your legwork to be competitive. Know your budget — not just the ballpark, but the actual top end of your total possible spend, given your savings and other resources.

2. Get preapproved for a mortgage

In a hot market, a seller is unlikely to really consider your offer if you aren’t already preapproved for a loan.

A step up from pre-qualification, preapproval often means the lender gives conditional approval, stating the size of the mortgage you’ve been preapproved for (though what constitutes a “preapproval” can vary from lender to lender). Since sellers always want to choose the strongest offer possible, they want to feel confident the deal won’t fall through if the buyer can’t secure appropriate financing. (This is why sellers love to see all-cash offers.)

Strum says he’s actually working with buyers to get fully underwritten before even looking at homes.

“Therefore we’re giving them a leg up where they could compete against all-cash offers or the average agent that’s just getting the basic pre-qualification,” he says. “It propels them in contract negotiations” because the financial underwriting is complete. (If you’re looking for a lender that does pre-underwriting as part of the approval process, then we should inform you: HomeLight Home Loans is one of them!)

3. Talk to your agent about the market

Ask your agent about comparable recently sold homes (comps) that can be used to benchmark against the house that looks like a good fit for you.

Ask your agent specifically about list-to-sales-price for those comps — how much the house was listed for and how much it actually sold for in the end. All of this data will help point you to the right offer amount.

Again, real estate is a highly local enterprise. You’ll want to find an agent who’s highly experienced and well-versed in the specifics of your local market.

“We have more agents than we’ve ever seen in the marketplace — there are a lot of brand-new agents who will incorrectly coach their clients in this very tricky market,” Strum says.

“It’s very important in this market to have a seasoned agent who has local expertise and the experience to walk the client through everything, from top to bottom.”

He adds, “Any seasoned veteran agent would tell their clients when it’s time to stop pushing the envelope any further. The question that we pose to all of our buyers is: How much are you willing to overpay in this market?”

4. Shop under your maximum comfortable mortgage amount

Let’s go back to that example of the buyer with a $300,000 budget eyeing a home listed at $300,000.

If offers come in above the asking price for this home, then the buyer won’t have a chance to keep up.

That’s why you should shop for homes listed under your maximum comfortable mortgage amount. This strategy will ensure that if you do need to offer over the asking price, you’ll at least be preapproved for the full amount (though your lender still might balk after the appraisal — more on that later).

An image of a house to demonstrate how much buyers should offer over the asking price.
Source: (Cole Parrant / Unsplash)

5. Consider what else might sway a seller besides price

Yes, money is important. (Very important!) But it’s not the only factor that will set your offer apart.

Think about what else a seller might want as a way to sweeten the deal. Your agent can help you figure this out.

For instance, when sellers sell their home quickly, they might need a place to stay to bridge the time before finding a new place to live. If this is the case, you can offer a rent-back arrangement, allowing the seller to stay in the home as a renter for a specified timeframe after closing.

Beyond that, think about how much you can put down. Can you offer a larger down payment? Can you offer more earnest money — a good-faith deposit to show you’re a serious buyer — as a way to entice the seller? Can you even pay in cash?

Can you eliminate contingencies? These days, “the winning offers that we’re seeing in this market are doing an inspection for informational purposes only,” Strum says.

Remember, if you’re financing the purchase, you might not be able to eliminate some contingencies. At the very least, your lender will require an appraisal or financing contingency written into the purchase agreement.

6. Work with your agent to determine your offer price

With all this in mind, you’re ready to work with your agent to write your offer.

In some cases, you can set yourself up for success with an escalation clause. This means your offer price will automatically escalate higher than any competing offers, typically in pre-specified increments, up to a limit that you decide. While this can be a good tool in a hot market, it won’t always apply, Strum says.

“An escalation clause says, ‘I’m prepared to give you X number of dollars but you need to show me that next-highest offer in order for me to go that high,’” he explains.

“About 50% of the time, we’re seeing sellers who won’t allow escalation clauses. People are just going so far above the asking price, and it’s an emotional time. When agents specify, ‘no escalation clauses,’ it really gets that buyer thinking — and oftentimes, they’re offering higher than they probably would have if they were allowed an escalation clause.”

7. Be prepared for a possible low appraisal

An appraisal contingency is commonly found in real estate contracts. It allows the buyer to back out of the deal if the home doesn’t appraise at the purchase price. But in a particularly hot market, it may make sense to waive the appraisal contingency in an effort to get your offer accepted.

If you and your agent decide together to go this route, prepare yourself for a possible low appraisal — because it could mean you’ll have to pay more out of pocket to close the deal.

“Now you’re going to be bringing that much more to the table as far as cash to bridge the difference on the shortfall of the appraiser,” Strum says.

He cites this example: Let’s say you’re offering $550,000 for a house listed at $500,000. Your down payment is $110,000. If you waive the appraisal contingency, and the house appraises at $510,000, then you’ll most likely have to pay the $40,000 difference yourself. If you decide to divert some of your down payment money toward paying the appraisal gap, you could end up increasing your loan-to-value ratio. (That’s the ratio between the amount of your home loan and the property’s total value, typically expressed as a percentage.) The higher that percentage is, the higher the assumed risk by the lender — which means the conditions of your mortgage loan could change.

In this example, you might use some of the money you set aside for a 20% down payment to help you bridge that $40,000 difference, which means that your down payment is now $70,000, or 13.7% of the property value. Your loan-to-value ratio has increased, from 80% to 86.3%. As a result of the smaller down payment and higher loan-to-value ratio, you’ll now be paying mortgage insurance on the loan, and you may have to pay a higher rate while you’re at it.

If all of this sounds daunting… well, it is. Buying in a hot housing market can certainly be nerve-racking. But if you’ve done all of your homework and come in fully prepared to write a standout offer, you’re well on your way to scoring that home and building your personal wealth.

Header Image Source: (fizkes / Shutterstock)

The 35 Steps to Building a House: Your Start-to-Finish Guide

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This is it — you’re finally making the move to build your very own house, and you couldn’t be more excited! It’s a huge decision, and it’s not one you’ve taken lightly. But do you know what goes into building a house, start to finish?

If not, don’t worry — we’ve got you covered. We’re going to break down all of the steps of building a house and break down what percentage each job costs out of your budget.

We have a lot of ground to cover, so grab a snack!

A contractor saws through a wooden beam working on the steps to building a house.
(Source: Greyson Joralemon / Unsplash)

Step 1: Find and purchase the lot

The very first step to building a house is buying the ideal plot of land for your new dwelling.

Think about where you’d like to build. Do you want to live in the country with a large yard? Do you want to build a house in a growing development with a developer? Does the land already have access to utilities like water, sewer, and electricity?

Unfortunately, you can’t buy any old vacant lot — it must adhere to zoning ordinances where you want to build. Common zoning designations include:

  • Residential: Areas designated for single-family homes
  • Commercial: Areas designated for businesses like restaurants, retail shops, and so on
  • Industrial: Areas designated for factories
  • Rural: Areas designated for farming
  • Historical: Areas designated for the preservation of historical landmarks or buildings
  • Environmental: Areas designated for the protection of natural habitats
  • Aesthetic: Structures must adhere to a certain “look” as outlined by zoning codes

Step 2: Research the type of house you want

There are three types of builds available; spec homes, tract homes, or a fully custom home.

Spec (speculative) homes

Spec homes are single-family homes that are built in a development with no particular buyer in mind.

If you go under contract early enough on a spec home, you may be able to choose some features like flooring, paint, kitchen appliances, and other finishes.

Tract homes

Tract homes are when a developer buys a large plot of land and divides that land into individual lots. They’ll then construct homes from specific architectural options planned for that community.

Tract homes could include single-family homes, condos, or townhomes.

Custom homes

A custom home is where you have your own plot of land and hire a builder to build a house exactly the way you want it.

Russell Wing, a top-selling agent who has sold 83% more single-family homes than the average agent in Union County, North Carolina, shares insight on the benefits of a custom home.

“It’s easier to build a custom because you have more choices. You can build the house from the bottom up and in the way you want — you’ll have to pay accordingly. With a spec home, your options are limited. Contractors may only offer shades of white or certain cabinets. They’re basically cookie-cutter homes.”

Regardless of which type of home you want, you’ll want to look at the different floor plans available. Consider things like:

Step 3: Research and hire the building team

Building a home is a huge project, and the average build will involve 22 subcontractors working on the home.

The first person you’ll need to hire is the general contractor or a custom home builder. They will oversee the construction of your home from start to finish. Their duties include:

  • Getting estimates for labor and materials
  • Vetting and hiring subcontractors (some will have a team of subcontractors they generally work with and will hire an outside subcontractor for electrical and plumbing work)
  • Assigning tasks to subcontractors
  • Making sure the team meets deadlines

Note: Custom home builders and general contractors are not the same thing, but they are very similar. A custom home builder draws up blueprints for the home and specializes in custom homes, whereas a general contractor does not.

Step 4: Get the required permits from the township

Before construction can begin, your contractor will contact your municipal office and discuss your plans. They’ll know what permits are necessary and they might already have a relationship with the municipality, which could help speed up the process.

Permits you will need could include:

  • Building permit ($1,200 to $2,000)
  • Electrical permit ($10 to $500)
  • Plumbing permit ($50 to $500)
  • HVAC permit ($250 to $400)
  • If a grading permit is needed ($100 to $1,000)

If you’re on a budget, you could get the permits yourself, but then you’ll be considered the contractor, and you would be liable if there’s a problem during construction or inspections.

Warning: Do not, under any circumstances, begin construction before obtaining permits! If the city learns that you do not have a permit, you could face increased fees to obtain the proper permits, and you could have to shut down construction until the permits are obtained, or even tear down work you’ve already completed.

Step 5: Clear the property

During this step, a professional land-clearing team will remove any debris, vegetation, trees, brush, and rocks within the intended build site.

When trees, shrubs, and bushes are removed, the team will also begin removing stump and root systems to prevent re-growth.

Note: If there are a lot of trees that need to be removed, you may have the option of selling the trees to a commercial logging company so they can be repurposed and turned into lumber.

Step 6: Level the site

Once the land is cleared, the clearing team will fill in any holes and level the ground. Then, the team will put up wooden stakes to market out where the foundation should be poured.

If the land has dips or hills, these will be graded to make sure there’s a flat surface to accommodate the house and driveway.

Step 7: Prepare the land for the foundation or basement

Using the wooden stakes as a guide, the team will dig holes and trenches for the foundation, utilities, and septic system if applicable.

Step 8: Install footings

Footings can be made from concrete or brick masonry and are most commonly used with shallow foundations because it distributes the weight of vertical loads directly to the soil.  Footings are generally wider than the foundation itself and sit one foot below the frost line (the typical depth at which the soil freezes in your climate).

Footing drains will be constructed so that water drains away from the house and protects the drains from damage.

Step 9: Pour the foundation

With the footings in place, your home will have either a slab foundation, a crawlspace, or a full basement poured or constructed.

The concrete will go through a curing process to reach maximum strength. This can take anywhere from 28 to 60 days, but depending on weather conditions, the building can resume after one week.

Regardless of the type of foundation your home will have, it will have to be waterproofed.

A builder measures the gaps between beams as part of the steps to building a house.
(Source: Callum Hill / Unsplash)

Step 10: Install drains, sewers, taps

Once the foundation has cured, drains, sewer lines, water taps, and other plumbing that is needed on the first floor will be installed. Then, the contractors will fill in the trenches surrounding the foundation with excavated dirt.

Step 11: Have an inspection done on the foundation

After the footings, foundation, plumbing, and electrical basics have been laid, there will be an inspection to make sure the foundation was done correctly and follows local code requirements.

Some things the inspector will look at typically include:

  • The footing’s width, depth, and condition
  • Waterproofing
  • Grading
  • Reinforced bars

Step 12: Build the frame of the house

Once the inspector gives the project the green light, next comes the framing.

This is where you’ll finally see your home take shape. The framing crew will erect lumber for the walls, flooring, ceiling, and roof trusses. This step could take between one and two weeks to complete.

Step 13: The sheathing is applied to exterior walls

The sheathing is the large sheets of wood, oriented strand board, wafer board, or exterior gypsum that’s nailed to the frame. It’s recommended to use half-inch panels to give the structure more strength.

In some cases, insulation sheathing (rigid foam or cellulose-fiber panels) may be used to improve insulation. This type can be attached directly to the studs, below the wood sheathing. It could also be attached on top of the wood sheathing.

Next, the sheathing is covered with house wrap, a protective cover that prevents moisture from seeping into the underlying wood, preventing mold and wood rot.

Step 14: Install windows and exterior doors

With the sheathing attached to the bones of the house, the windows and doors can be installed.

When you’re shopping for windows and doors, look for energy-efficient windows with the Energy Star label. Energy-efficient windows and doors will help lower energy costs by keeping the temperature indoors consistent, no matter the temperature outdoors.

Step 15: Install HVAC system

The HVAC technician will come in to install ductwork throughout the house. The air handler, condenser, and trim work will be installed as well.

Step 16: Rough plumbing

A plumber will come in and run pipes to the bathrooms, kitchen, and laundry room. They will also install sewer lines, vents, and bathtubs.

This step can be done while the doors and windows are being installed.

Step 17: Have an inspector evaluate the new plumbing

Although a licensed plumber may have done the work, an inspector will have to come in and inspect the work to make sure everything is done correctly.

The inspector will look for leaks and will ensure that the drains, sewage, and vent pipes pass a pressure test.

Step 18: Install electrical wires and panels

This stage is when all of the electrical work is done.

The wires are run through the walls and ceilings. The HVAC is hooked up (including the thermostat), and the fans, lights, electrical outlets, external electrical work, and the circuit breaker are also hooked up and ready to go.

Step. 19: Get an HVAC and electrical inspection

Once the HVAC and electrical work are complete, an inspector will come out and make sure these systems work properly and are completed to code.

A builder constructs the framing, which is one of the steps to building a house.
(Source: Josh Olalde / Unsplash)

Step 20: The roof is put on the home

The sheathing for the roof is generally done when the exterior sheathing is attached to the walls.

During this stage, the roof will be completed. Roofers will install the flashings and asphalt shingles — but other materials may be used, such as clay or concrete tile, slate, metal, or wood.

Step 21: Insulation is installed

The type of insulation your home will need is going to depend on your location.

Usually, insulation is applied to interior walls, the attic, basement, crawl space, and exterior walls (if it wasn’t applied before the sheathing).

The most common types of insulation are fiberglass, cellulose, or foam spray insulation.

Fiberglass insulation is used in unfinished walls, floors and ceilings. It comes in rolls and is installed in-between studs, joists, and beams. The average cost for fiberglass insulation is between $0.64 to $1.19 per square foot.

Cellulose insulation is used in existing and enclosed walls, or new open cavities in the wall. This insulation can be used in unfinished attic floors and other hard to reach places. This type of insulation can be poured, but is usually blown into place using special equipment. The average cost of cellulose insulation is between $1.00 to $1.50 per square foot.

Foam spray insulation is much like cellulose insulation, as it can be applied in enclosed, existing walls, new wall cavities, and unfinished attic floors. It is applied using a spray container (for smaller areas) or a pressure spray product (for larger areas). The average cost of foam spray insulation is between $1.50 to $4.90 per square foot.

Step 22: Drywall is hung

Drywall is hung throughout the interior of the house, as well as on the ceiling.

Step 22b: The walls and ceiling are textured

After the drywall is hung, a texture may be sprayed on the drywall. Then the walls are primed so they can be painted.

Step 23: Walls are painted

We’re nearing the final steps to building a house!

At this stage, the walls will be painted, and it’ll start feeling a little more like your home.

If you’re going with a spec or tract home, you may not have many choices in paint color, but if it’s a custom home, you could have your choice of colors, or even have wallpaper put on the walls.

Step 24: Exterior finishes are installed

There are different types of siding that can be applied to your home.

Vinyl siding is the cheapest siding material ($4.50 to $12.50 per square foot) and the most common material used for spec and tract homes. However, if you’re going custom, other options include:

  • Wood ($8.50 to $14.50 per square foot)
  • Fiber cement ($8.50 to $14.50 per square foot)
  • Stucco ($7.50 to $14.00 per square foot)
  • Brick ($10.00 to $20.00 per square foot)
  • Metal ($7.50 to $25.00 per square foot)
  • Stone ($11.00 to $35.00 per square foot)

Step 25: Flooring is laid throughout the house

Once the paint has dried, flooring is laid throughout the house.

Sometimes you won’t have a choice what type of flooring you’ll get if you’re going with a spec or tract home; however, with a custom home, the sky’s the limit!

Step 26: Window sills and trim are completed

When the flooring has been laid, next comes the trim.

Trim will be installed around the windows and doors, along the floor, and if you choose, around the ceiling, too (that’s called crown molding and can add a sophisticated look to any room).

Step 27: Cabinets and vanities are installed

Vanities and cabinets are the next things to be installed in your home.

Spec and tract homes typically come with builder-grade cabinetry, which is the most basic (and affordable) type of cabinetry you can get that still looks good.

You can opt for higher quality cabinets and vanities, but that will affect your budget. Custom cabinets can cost between $500 to $1,200 per linear foot!

Step 28: Light fixtures, outlets, and switches are installed

After the electrical work is finished, light fixtures, outlets, and switches are hooked up.

These features can be customized to match your personal style, but you can also opt for plain white ones and upgrade down the road if you choose.

Step 29: Countertops and appliances are installed in the kitchen

Countertops and appliances are the next things to go in. There are a variety of countertops you can choose from, but the most popular include:

Tile is installed in the kitchen, one of the steps to building a house.
(Source: Charles Deluvio / Unsplash)

Step 30: Bathroom fixtures are installed

Bathroom fixtures such as faucets, showerheads, toilets, heat register covers, and other features are added during this phase.

Step 31: Mirrors are hung

Along with bathroom fixtures, mirrors are hung in the bathroom and other spaces, including walk-in closets, bedrooms, and workout rooms (if in a custom home).

Step 32: Landscaping and hardscaping is completed

You took so much care into what goes in the house; you can’t forget about the exterior!

A professional landscaper can come in and lay down sod, plant trees, or flowers. They’ll install walkways, build decks or patios, create garden walls, and so much more.

This is your chance to make your yard an oasis that leaves your neighbors green with envy!

Step 33: Final home inspection

The final home inspection is where a home inspector looks over everything.

They’ll double-check the plumbing, electrical, and HVAC systems. They’ll inspect doors, windows, the foundation, the roof, and more. If the structure passes the inspection, they’ll give you a certificate of occupancy, which means it’s inhabitable and safe to live in.

If there are any issues, another inspection may be required after those problems have been fixed.

Step 34: Final walkthrough

The final walkthrough is your opportunity to go through the house and make sure everything is as you requested.

You’ll want to pay close attention to the details and take note of anything that isn’t what you discussed or approved with your contractor. You’ll also want to look for any signs of damage that may have occurred during the final stages of construction, such as gouges in countertops, dented or scratched appliances, deep scratches on the hardwood floors, or damaged walls.

Step 35: Closing

If everything passes inspection and you don’t find any problems that need to be addressed during the final walkthrough, you can begin the closing process on the home. Hurray!

The framework of a new home, which is one of many steps to building a new house.
(Source: Avel Chuklanov / Unsplash)

Don’t be overwhelmed by the steps to build a house

The average homebuyer looks at at least 10 houses in 10 weeks before submitting an offer on a house. There are times when they can’t find a house they want to buy and they’ll go with a new build. Why, new construction homes are in such high demand that authorization for new residential construction building permits increased by 30.2% from March 2020 to March 2021. Within that same time frame, 1,739,000 homes began construction, and 1,580,000 houses were completed.

If you decide that new construction is right for you, but you’re uncertain about what type of new build you’d like to go with, look at your budget and try to decide the level of customization you want and how much house your budget will allow for.

“You can go to a tract home and get a lot more square footage for the money than you could with a custom build. It’s a cookie-cutter home, and the quality may not be as good as a custom build, but building custom is harder today because the price of materials has skyrocketed,” Wing advises.

If customization isn’t high on your list, a tract home or spec home is a great option. However, if you want a house that reflects your personality from the moment you sign the closing papers, then a custom home is the way to go!

Header Image Source: (Jens Behrmann / Unsplash)

7 Mistakes Buyers Make During the Final Walkthrough (And What to Do Instead!)

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You’ve found the perfect house, made your way through the whole homebuying process, and now it’s almost time to close on your new home. All that’s left to do before closing is the final walkthrough, and you’re probably very excited! So excited, in fact, you might think about arriving early to the walkthrough. So, should you arrive early? Well…no, actually, you shouldn’t.

Arriving early is just one of the mistakes buyers often make when it comes to the final walkthrough. And while it might not seem like a big deal to go through the house one last time before you sign the final paperwork, it’s actually a very important part of the homebuying process — it’s your last chance to identify any issues before they become your problem entirely.

We’ll talk about why arriving early is a mistake and share other stumbles buyers make in the final walkthrough, with insight from top real estate professionals, as well as tips on all the things you should do as a buyer.

A homebuyer arriving early to their final walkthrough.
Source: (Alex Otto / Unsplash)

Mistake: Arriving early

We get it. It’s so exciting to be at the final stages of your home purchase, you might be tempted to show up for that final walkthrough hours before you’re actually supposed to be there. But there are good reasons to avoid showing up too early.

Why is it a mistake?

Sellers sometimes have last-minute cleaning or moving to do, and showing up early isn’t appreciated, as the house might not be quite ready yet.

You’ll also want to remember that the final walkthrough is intentionally scheduled as close to the actual closing as possible, so showing up early kind of defeats the purpose.

What to do instead

Arrive at the scheduled time — or maybe five minutes early, which is perfectly acceptable.

Mistake: Not bringing your agent

Showing up without an agent to guide you through the walkthrough is a big no-no on many levels, and not just because you need their expertise.

Why is it a mistake?

Buyers, especially first-time buyers, can sometimes get a little starry-eyed in their eagerness to get settled in their new home. Your agent is there to keep you on track, and they can help you make sure that all agreed-upon repairs are taken care of and the home is in good order.

In some states, there are also potential legal repercussions for not bringing your agent with you. California real estate agent Mark Moskowitz, who has nearly 30 years’ experience in the business, says that bringing your agent isn’t just crucial for buyers — it’s required.

“Buyers cannot show up to the final walkthrough by themselves in California,” he says. “Their agent must be with them.”

What to do instead

Bring your agent!

You’ll appreciate having a professional with you who knows what to look for during that final walkthrough, and you won’t have to worry that you might’ve missed something.

an outlet that should be checked during your final walkthrough.
Source: ( Kelly Sikkema / Unsplash)

Mistake: Forgetting to bring an outlet-checker

There’s nothing worse than moving into a house after closing and realizing that several of the electrical outlets don’t work. Once you sign your closing documents, you won’t have a lot of options insofar as addressing these kinds of issues.

Why is it a mistake?

If you don’t bring something to check the electrical outlets in the house, there’s really no way for you to know if they work properly. And if part of any repair agreements includes specifics on electrical issues, it’s important to be able to check outlets.

What to do instead

You don’t have to bring a fancy piece of equipment to check outlets. A hair dryer, your phone charger, anything that plugs into an outlet will work just fine.

Take your time during the walkthrough to make sure all outlets are working, and talk to your agent about options for getting them repaired prior to closing if any don’t work.

Mistake: Planning furniture layout instead of paying attention to home condition

Will that new couch fit in the living room? Should you bring a tape measure so you can figure out where it should go?

Probably not. This isn’t the time for mentally arranging furniture.

Why is it a mistake?

The final walkthrough is your last chance to make sure the home’s condition is the same as it was when you first looked at it. After closing takes place, any problems are your responsibility. You have all the time in the world to rearrange the furniture.

What to do instead

Follow your agent’s lead and pay attention to what kind of shape the house is in, making sure that any repairs were completed and there has been no new damage to the home.

Remember, it isn’t your house until you sign off at closing, so try to remain a little detached when you do your walkthrough, and concentrate on the real reasons why you’re there.

Mistake: Forgetting to bring the purchase agreement and/or request for repairs agreement

When you get your home inspection, there are usually at least a few items that you’ll negotiate to have repaired prior to closing.

But wait…was it the second bedroom closet door that needed fixing? Did you want that dripping faucet repaired? Do you remember everything you negotiated?

Why is it a mistake?

You may want to refer to either the purchase agreement or the request for repairs during the inspection, and if you don’t have them with you, you won’t be able to verify which repairs were supposed to be completed, or double-check any other stipulations that might have been part of the purchase agreement.

What to do instead

Bring copies of all pertinent documentation with you. You or your agent should have received proof (usually in the form of receipts) of any repairs that were completed, and you’ll want to check that against the repair agreement, purchase agreement, and the actual repairs.

Wood floors that you should check for damage during the final walkthrough.
Source: (Francisco Galarza / Unsplash)

Mistake: Neglecting to check for moving damage

Whether they’ve hired movers or are doing it themselves, occasionally a seller move-out can leave behind items that require repair.

Sometimes buyers get so caught up in making sure any agreed-upon repairs are complete, they don’t take the time to look for new damage.

Why is it a mistake?

While a scratched floor or ding in the wall might seem minimal, it is damage that you will be responsible for fixing if you don’t discover it during the final walkthrough. If you don’t want to have to take care of fixing things that got broken or scratched during the seller’s move-out, you need to look for these things prior to closing.

What to do instead

Again, this is where having an experienced real estate professional makes all the difference because they know exactly what to look for and how to resolve it.

“If there’s a legitimate problem, I wouldn’t close until it’s resolved, either by having it repaired, or putting funds in escrow to cover the damage,” says Moskowitz.

Mistake: Thinking this is the time to seek out new repairs needed on the home

According to Moskowitz, one of the biggest mistakes buyers make during the final walkthrough is thinking that they can fully re-inspect the home and potentially find new repairs that need to be done.

Why is it a mistake?

“This isn’t a time to renegotiate repairs,” he says.

“Your opportunity to request repairs comes after the initial home inspection. During the walkthrough, you’re simply checking to make sure the home is in the agreed-upon condition, and that there isn’t new damage.”

Moskowitz says that contractually, buyers can’t stop the closing just because they see something they don’t like during the final walkthrough. This is especially true in a seller’s market, where a seller might have several back-up offers on the table. “Trying to delay closing over something that wasn’t ever part of the repair agreement might end up backfiring on the buyer,” he says.

What to do instead

If you find new damage, or if there is existing damage that wasn’t disclosed during the inspection, you do have some recourse.

The key, says Moskowitz, is understanding that this is a business negotiation. “You don’t want to have an emotional reaction to things,” he says. “Communicate, don’t get upset, and you’ll likely be able to come to some kind of agreement.”

The final walkthrough is definitely an exciting time, and it should be! This is the culmination of hours of house-hunting, making sure your credit is in order, finding a mortgage lender, and jumping through all the hoops that come with purchasing a home. Not letting yourself get overwhelmed with worries about new repairs that might need to be addressed, as well as not letting yourself get too caught up in dreaming about kitchen paint colors and missing things during the walkthrough, is really the key to a productive final walkthrough.

Most importantly, however, having a professional real estate agent who not only helps you find your new home, but also takes you all the way through to that final walkthrough, can help you feel secure about your investment. Then you can arrive at the closing table with confidence!

Header Image Source: ( Roger Starnes Sr / Unsplash)

How Do Open Houses Work in 2021? Your Guide to In-Person & Virtual Viewings

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Traditional open houses follow an age-old pattern that you’ll recognize from popular media, even if you’ve never planned or attended one yourself before.

Before an open house can occur, the seller and listing agent will choose the dates and times for the open house. These dates and times are usually on the weekends when more people are free to attend. There might be only one open house for a property, or there might be several.

As a buyer, you can find open houses through your agent, the multiple listing service (MLS), or sometimes through luck (driving around, happening across posted notices, and so on.)

There may be a lot of open houses on a given weekend, so you’ll want to be strategic about which ones to attend and in what order to minimize running around.

Open really does mean open, so there might be other people (perhaps a lot of them) there when you go. To attend, you don’t have to book time with the agent or make any other special preparations.

… And that means that when you arrive, you can walk right in! You don’t have to ring the doorbell or wait for admission.

The seller might ask you to follow certain health, safety, or cleanliness guidelines (and you should comply.) This holds true even during normal times, as homeowners are often still living there and don’t want to come home to a messy or damaged house.

The open house will be hosted by a real estate agent, not the seller — so unfortunately, you won’t be able to ask the current homeowners any questions about the neighborhood or their neighbors. This is because many buyers find it easier to imagine living in the house without the current residents hovering around.

You’ll be expected to sign in so the agent can record visitor numbers and determine how popular the open house was. You may also be asked for details, such as your approved price range, your ideal home size (two bed, three bed, and so on), and if you’re working with another agent.

You’ll be able to walk through the house and take notes about features you like or don’t like. It’s common to take measurements and peek inside cabinets and closets to see what storage is like (bring a measuring tape with you if you like). If you feel uncomfortable, you can always confirm with the listing agent that it’s okay to do all these things.

Marla Alt, CEO, Founder, and Owner of 123organize advises you to “Look for rugs, throws, art, and wall decor.  If the placement on the floor or wall seems off, it might be covering something.  Of course there is general wear and tear in houses, especially on floors, but it’s always good to know for sure what’s being covered.”

One critical piece of open house etiquette is to try not to crowd other visitors — wait for other groups to leave a room before you enter.

You can ask the agent questions about the house. While you won’t have access to the homeowners insights, the listing agent will be able to answer most of your questions at the open house.

The listing agent might also ask you questions to help you determine if the home you’re looking at is a fit for your needs. Don’t feel nervous or like there are bad or wrong answers — generally the listing agent is looking for your insights and may have other houses to suggest that would also fit your criteria.

There might be fliers or informational handouts for you to take home so you don’t forget the relevant details of the house you just visited. Some agents create these for popular homes as they can help buyers keep track when they’re visiting several houses on the same day or weekend. Using a house-hunting checklist can also help you keep properties straight.

While some open houses include refreshments, you shouldn’t expect them. If you’re hungry or thirsty, stop on your way for drinks or a snack.

A woman doing a virtual tour of an open house.
Source: (LinkedIn Sales Solutions / Unsplash)

How do virtual open houses work?

Much like traditional open houses, the first step to a virtual open house is for the seller and listing agent to choose the days and times for the open house. Then they pick the hosting platform(s).

You can find virtual open houses through social media, your real estate agent, and possibly the local MLS. While some MLSs include virtual open house information as part of the listings, that may change once the pandemic ends (or not), depending on their popularity.

If you are attending a virtual open house, Kevin Bartlett, a MoveSafe certified agent in Estero, Florida, recommends “If you’re on Zoom, be a good access point to get on a computer or an iPad.”

You’ll also want to make sure your internet connection is strong and you won’t be distracted by packages arriving or other day-to-day things when you should be focused on checking out your potential new home.

Some virtual open houses are recorded, so if you can’t make the live version, ask the listing agent if you can have access to the recording. If enough interested buyers are asking for recordings, it could nudge listing agents into recording open houses they may not have otherwise.

You might have to register in advance to attend a virtual open house. This could be due to the hosting platforms’ attendee limits, or an agent’s desire to be able to answer questions without moving so slowly as to bore attendees.

The agent will host the open house and will walk viewers through the home, stopping to show features in more detail or answer questions.

Alt advises that “During the virtual open house or virtual walk-through, ask the RealtorⓇ to do all of the small tests you would do in person, such as checking water pressure in faucets and checking underneath for leaks, and turning on and off overhead lighting.”

Be sure to ask the RealtorⓇ to show you the floors and walls that may need to be refinished or repainted so you can factor them into your budget.

During a virtual open house, you can ask to view areas that weren’t included in the listing photos. These can include the garage, the entire basement, the pantry, linen closets and bedroom closets so you can assess storage space.

If you’re interested but can’t request an in-person showing, then you may be able to ask for a personal virtual tour of the house instead.

Two people checking out an open house.
Source: (Maxime / Unsplash)

Can you book a private showing?

While private showings were harder to come by before the pandemic, more agents are offering them now as a way to show a home while adhering to the rules around coronavirus safety.

They are usually only offered to very interested and serious buyers, so attending a virtual open house might be a good idea before asking for a private showing. This is partially due to the extra work required to sanitize the house after each and every showing.

Bartlett explains, “It does create more work because we sanitize the house after showings. We professionally get the house cleaned and disinfected. We take preventative measures with face masks and gloves, and booties to keep people as safe as possible.”

A couple deciding on an open house to attend.
Source: (DocuSign / Unsplash)

How do buyers use open houses?

As a source of information

Most buyers use open houses as a source of information during their home search. Open houses are an opportunity to get a better sense of the home in a more engaging way than static pictures can provide, and to allow buyers to learn more from the listing agent.

The National Association of Realtors (NAR) 2021 Home Buyer and Seller Generational Trends Report reveals that buyers aged 75 to 95 are twice as likely to visit an open house as part of their buying process than home buyers aged 22 to 30.

However, only around 20% of those aged 75 to 95 attend virtual open houses, compared to 54% of buyers aged 22 to 30. Attendance at virtual open houses diminishes with age.

If you’re on the younger side and house hunting in an area with an older population, attending virtual open houses may give you access to more information and inventory than other buyers in your area.

To find an agent to represent them

While this is rarer, the same NAR report indicates that a small percentage of buyers do find their agents by attending open houses. As many as 5% to 8% of homebuyers find their real estate agent as a result of visiting an open house.

To launch their home search journey

A very small number of people each year begin their home search journey by attending open houses. This is usually done by those who need help deciding what details are important to them in their next home, and the strategy can result in a slower buying process overall.

If you aren’t sure what type of open houses are available in your area, ask your real estate agent. And if you don’t have one of those yet, you can easily find one through the HomeLight buyers agent directory.

Header Image Source: (Roger Starnes Sr / Unsplash)

Your Ultimate Home Appraisal Checklist for Homebuyers

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Typically, when we talk about keeping track of a home appraisal, the seller has more ability to stay on top of what’s happening. Sellers have done research on the market before they set a home price, and because it’s their house, reading the appraisal results won’t take as much hand-holding from the agent. There are countless tips for sellers on prepping for an appraisal, what to expect during the appraisal, and even a seller’s home appraisal checklist!

But what about the buyers? Shouldn’t the buyers be kept in the loop about the home appraisal process and have a checklist of their own?

Yes, they should — although lenders are the ones who require the appraisal. Understandably, they want to make sure the house is worth the amount of money the buyer is applying for. Buyers should be kept in the loop because they can use that information to negotiate the terms of the deal or back out completely, providing they have an appraisal contingency in the contract.

Get Your Free Home Appraisal Checklist!

We’ve put together a home appraisal checklist to help you keep track of everything you need to know as a buyer.

As you read through this guide, you’ll learn more about the home appraisal process from the buyer’s point of view. And we’ll give you a home appraisal checklist so you’ll know what’s going on when your potential home is being appraised.

Buyers and agents reviewing their home appraisal checklist.
Source: (Icons8 Team / Unsplash)

Breaking down the home appraisal checklist for buyers

1. Discuss the sales price with your real estate agent

A home appraiser will research comparable properties, or comps (properties that sold recently and that are similar to the one you’re interested in) when they are trying to figure out the fair market value of the home. They will look at the house’s condition, neighborhood characteristics, upgrades and renovations, square footage, and so on.

You can do your research and review recent home sales to get an idea of how much you’re likely to pay for a similar home. However, we highly recommend discussing the sales price with your agent because they have tools at their disposal that will allow them to create a full comparative market analysis (CMA).

The agent can show you how to use the CMA to determine if the house is worth the asking price, even before the appraiser comes in.

2. Make an offer on the house

After discussing the sales price and the CMA with your agent, you’ll need to decide whether or not you’d like to make an offer on the house. If you choose to make an offer, you’ll want to ask the agent whether they think you should offer to pay the asking price, or offer above or below it.

In 2021, your agent’s opinion about what makes a strong offer could mean the difference between getting a house … or not. Mike Nemecek, a top-selling agent in the Green Bay Area with 16 years of experience, says he’s seen many offers going above the asking price.

“We haven’t had a lot of appraisal issues, but if the home you want to put an offer on is appraised at $200,000 and you offered $220,000, you have to decide what you want to do. We could approach the seller and tell them the house didn’t appraise for the price they want, and we no longer want to pay $220,000. We want to purchase it at the appraised value.”

After your offer is given to the seller, the fun begins! It’s time for negotiations.

The seller could accept your offer, or they could respond with a counter-offer — or reject it altogether. This is where your real estate agent can flex their negotiating skills and try to get everyone to come to an agreement where neither party feels like they’re on the short end of the stick.

A person getting ready to sign off on their appraisal via their phone.
Source: ( Kelly Sikkema / Unsplash)

3. Don’t forget the appraisal contingency!

Keep in mind that when you’re submitting an offer, you will likely need to put up good-faith money, also known as earnest money. This deposit shows the seller that you seriously intend to buy the property. By including an appraisal contingency in your offer, you’re protecting yourself and your deposit. If the home appraised lower than your offer, you’re able to walk away with your deposit intact.

Although the lender requires the appraisal and an appraisal contingency, they usually aren’t the ones footing the bill for the appraisal — the buyer is. The cost of an appraisal ranges between $300 and $1,500, but the cost will depend on location, size, condition, and so on. Don’t worry too much about the expense; the national average is between $312 and $407, according to HomeAdvisor. With that said, there are some financial options where you can skip the home appraisal altogether.

If you are applying for a conventional loan there’s a chance you might qualify for an appraisal waiver. That said, it’s hard to know who will actually qualify for an appraisal waiver because neither organization has guidelines available to the public.

There are a few factors that are most likely to get you approved for an appraisal waiver, and they include your credit score, what assets you have, and the loan-to-value ratio. If you’re borrowing 70% or less than the property’s total value in a home below the conforming loan limits, your chances of being approved are higher.

Another way you can avoid needing a home appraisal is if you’re a cash buyer. In some markets, you could go through HomeLight Cash Offer to make an all-cash offer and waive the appraisal contingency in the initial offer, save the appraisal for when it’s time to close on your mortgage.

4. The lender orders the appraisal

Unless you’re a cash buyer, you’re going to need to take out a sizable loan from a lender. The lender will almost always order a home appraisal before they issue a final approval on a mortgage — they need to protect their investment! Should the borrower default on their mortgage payments, the lender can’t sell the property for enough money to cover the loan if the house is actually worth less than the market value.

The lender will hire an independent appraiser (often, they’ll use appraisal management companies, who in turn choose the appraiser) because they are an unbiased third party, which means they’ll come back with a fair report.

5. Appraisal day

Once the lender places an order for an appraisal, the appraiser will usually respond within 48 hours. Depending on the size and condition of the property, an appraisal could take anywhere between 15 minutes and 3 full hours, and the lender may receive the report in two to seven days. If you have an FHA or VA loan, the appraisal timeline is about the same as one for a conventional loan, but the appraisal will be more detailed.

Unlike a home inspection, where the buyer can tag along (and that’s recommended!), the appraiser usually goes it alone; however, the seller or their agent could be present to answer any questions or provide extra information to the appraiser.

At this point, buyers just have to sit and wait.

6. Review the appraisal

After the appraisal is finished, you’ll receive the report. The appraisal report will go over everything the appraiser looked at to come to their decision about the home’s value.

Most appraisals come in right at (or even above) market value. With that said, Fannie Mae published a study using appraisal data, which shows that appraisals below asking price happen about ~8% of the time. In the study, for every percentage point that the appraisal value comes in below the asking price, the relative chance of renegotiating the price increases by 70%.

If the value of the house is lower than asking, the lender could deny the loan.

Fortunately, buyers do have the option of negotiating with the seller to make up the difference between their offer price and assessed value.

You’ll want to review the report with your agent, especially if the appraisal came in lower than your purchase price. The first thing to look for are any discrepancies, which could include miscalculated square footage, incorrect zoning, or even a mismatch in the number of rooms. When you point out these mistakes, make sure you have documentation to back them up.

If you feel the assessed value is lower than the fair-market value, and you can back this up with comps your agent showed you, then you may be able to order another appraisal.

“We have buyers saying they’ll make up the difference between the asking price and assessed value. We have buyers agreeing to make up the difference, or they’re willing to meet the seller halfway,” Nemecek explains.

“If there’s a significant difference between the appraisal and asking price, you could have a discussion about having a second appraisal done.” Your agent can help you discuss this option with your lender.

a person reviewing the results of their home appraisal.
Source: (Aleksandra Sapozhnikova / Unsplash)

Decide what you want to do

You’ve come so far and you’re so close to closing; it can be a huge let-down when you realize the appraisal is lower than the asking price and the seller isn’t willing to budge. If the lender isn’t willing to approve your loan, you’ll have to decide what to do.

Do you want to try to make up the difference between your offer and the assessed value?

Do you want to try finding a new lender? Note, this could cause significant closing delays, so may not be an option if your closing date is approaching.

No matter what you want to do, you need to take the time and think about both your lifestyle needs and what you can afford. Sometimes it’s best to cut your losses and back out of the deal — as long as you didn’t forget to include that appraisal contingency!

Header Image Source: (Mathilde Langevin / Unsplash)

How to Increase Home Value for Appraisals: A Buyer’s Guide

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Our homes aren’t just where we lay our heads down at night or store all of our belongings — they’re also an opportunity to build wealth through home equity. As your home’s value appreciates, you’re earning money just by owning it. It’s a simple way to build personal wealth, providing you maintain the home and keep it in good condition. For example, people who sold their homes in 2018 were able to sell at a median of $55,000 more than their initial purchase price!

On the down side, it’s hard to pinpoint how much a home will appreciate over time. There are many factors at play that contribute to a property’s market value, such as market temperature (is it a buyer’s market or seller’s market?), market inventory (are there enough houses to meet demand?), and inflation. On top of this, you may not even be ready to buy or sell a house when the market is in your favor!

If we lived in a perfect world, we’d buy a new house when the market is on our side … but, that’s the thing about the real estate market — it doesn’t wait for anyone. Don’t worry, though, because that doesn’t mean you’ll get the short end of the stick. You could buy a cheaper house that needs some work and make plans to fix it up. In which case, it helps to know a little bit about what goes into home value, and how you can increase that value for the appraisal when the time comes to sell.

A roller brush in a pan of white interior paint being used by a homeowner working on how to increase home value for appraisal.
(Source: KJ Styles / Unsplash)

How to increase home value for an appraisal

The trick to buying a fixer-upper (or even an investment property) is determining how to increase home value for appraisal. Even though you may not intend to sell your home for a while, it’s still beneficial to know what you can do to improve your home so you can get the top dollar when you do decide to sell.

First things first, you’ll want to understand how a home appraiser calculates a property’s value.

How do appraisers calculate value?

An appraiser doesn’t just look at the house when they are figuring out the market value. They’re also looking at the bigger picture. They’ll consider external factors such as:

  • What are the sales prices and appraisal values of recently sold comparable homes?
  • How developed is the neighborhood?
  • Are there any notable market trends?
  • How large is the lot, and what is its zoning classification?
  • What is the driveway made of and is there a garage or car storage?
  • What does the home’s curb appeal look like?

For the property itself, an appraiser is going to look at:

  • The square footage of the home
  • Number of bedrooms and bathrooms
  • Materials used for flooring, windows, countertops, and so on
  • The overall condition of the home
  • Have the bathrooms or kitchen been upgraded?
  • Does it have a full or partial basement, a crawlspace, or attic?
  • Have other home improvements and upgrades been done?
  • Are there other desirable features?
    • Fireplace
    • Waterfront view
    • Close to public transport
    • Swimming pools
    • And so on
Three people planting flowers in front of a house while working on how to increase home value for appraisal.
(Source : NeONBRAND / Unsplash)

Improvements that should be made first

You’ll want to tackle the projects that will give you the highest return on investment — which refers to how much money you’ll get back from the project when you sell.

Do keep in mind that unless you’re working on a fixer-upper, you aren’t going to get 100% or more of your investment back. You’ll just get a percentage back. Fortunately, some improvements will net you a higher return on your investment if that particular feature is in high demand in your neighborhood.

If you intend on living in the home (or even renting it out) for a while, it’s a good idea to do the improvements sooner rather than later. By doing them early on, your family (or tenants) can enjoy the new amenities and features, thus maximizing the value of your investment.

When you’re trying to come up with a plan to figure out how to increase home value for an appraisal, you first need to consider the purpose of the home: Will it be a rental property, your primary residence, or do you want to flip it?

Janet Anderson, a top-selling agent from California with 15 years of experience selling single-family homes, weighs in:

“There’s a difference between renting and selling. For renting, you’re going to do minimal renovations. If you’re going to sell, curb appeal is your biggest thing, followed by the kitchen.”

Best curb appeal improvements

A great curb appeal project you can do that’ll give you the return on investment is to replace the garage door. You may spend close to $4,000 on the project, but you’ll get about a 94% return when you decide to put your house on the market.

Another outdoor improvement that would give you a decent return on investment is to do a manufactured stone veneer project. If you remove the bottom third of existing vinyl siding from the front facade of your home and replace it with manufactured stone veneer, you could spend $10,300, and this improvement would net a 92% return.

Other curb appeal ideas to increase the value of your home include:

  • Investing in flowering plants native to the region
  • Replacing and updating vinyl siding
  • Refinishing the driveway
  • Re-staining or refreshing the deck
  • Updating light fixtures and house numbers

Best kitchen improvements

You don’t have to go broke when you’re doing improvements to increase your home’s value, but you also don’t want to use the cheapest materials you can find, either. Ideally, you should opt for mid-range materials.

For example, if you wanted to install a granite countertop, there are four or five (depending on manufacturer) grades to choose from:

  • Grade 1 granite is your builder’s grade option and is often found at your local big-box home improvement store. The average cost for this grade is usually between $39 to $51 per square foot.
  • Grade 2 granite is a good mid-range option because the material offers more unique colors, uniformed patterns, and is about three quarters of an inch thick. The average cost for this grade is usually between $52 to $63 per square foot.
  • Grade 3 granite is a higher-end granite that offers rarer colors and patterns than grade 2. The average cost for this grade is usually between $75 to $110 per square foot.
  • Grade 4 (or 5) granite is the most exotic, hard-to-find granite, and it is not cheap. The average cost for this grade is usually between $180 to $200 per square foot.

A minor kitchen remodel using mid-range materials can cost $26,000, but it could net a 72% return. This renovation might include:

  • Shaker-style wood panels and drawer fronts on existing cabinets with new hardware
  • Energy-efficient range, refrigerator, and dishwasher replacements
  • Granite countertops
  • New sink and faucet
  • New flooring
  • New paint and trim

If you did a major kitchen remodel with mid-range materials, you could spend $75,000 and could see a 57% return. This renovation might include:

  • Semi-custom wood cabinets
  • A three-by-five-foot island
  • Granite countertops
  • Double-tub stainless steel sink with single-lever faucet
  • Energy-efficient range
  • Vented hood
  • Built-in microwave, dishwasher, and garbage disposal
  • Custom lighting
  • New flooring
  • New paint and trim

With these lower returns on investment, if you want to remodel your kitchen, it’s smart to do it as early as possible so that you can maximize your enjoyment of it before you sell your house.

A person upgrading a kitchen as one of the ways how to increase home value for appraisal.
(Source: Charles Deluvio / Unsplash)

Choosing a property with the highest potential to increase value

As of spring 2021, 91% of real estate agents who participated in our Top Agent Insights Q1 survey say that housing inventory in their market is lower than expected, especially if you’re looking for a turnkey property. Even for properties that aren’t move-in ready, 94% of agents say bidding wars are on the rise, which makes finding a property challenging — but not impossible.

When you’re looking for properties where you have the potential to increase the home’s value, here are some key elements to seek out.

Space for more square footage

Adding more square footage to a house is a great way to add value to the property, and there are a lot of ways you can do this. Some ideas include:

Updating the outdated kitchen and bathrooms

Along with kitchen upgrades, bathroom upgrades can add a lot of value to a home.

When you’re looking at properties, don’t shy away from the bathrooms with pink tiles or carpeting. You can spend up to $24,000 on a mid-range upgrade and see a 60% return when you’re ready to sell.

Space to make multi-generational living space

Multi-generational living spaces are in demand now more than ever, thanks to the COVID-19 pandemic. Households are growing to include elderly parents, adult children, and even extended family members, so the need to have multi-generational living space is a top priority on the buyer’s list — and it’s likely to stay in demand for a while.

Multi-generational living spaces can be anything from a second primary bedroom and bathroom to a full-on addition or guest house. You can look for houses where there is space above the garage for an apartment, if the basement can be finished and turned into a private living quarters, or if there’s enough room in the backyard for a shipping container apartment.

Note: If you want to make a little extra money, you could rent out the newly created multi-generational space to roommates, or list it on a platform like Airbnb or VRBO.

Knowing how to increase home value for appraisal builds equity

Everything you do to your property is going to have an impact on its value, and any good investor knows that in order to make money, you have to spend money. Even if you’re just going to buy a house to flip it, you need to think carefully about what renovations you want to do because not everything will pay off when you sell.

“You have to figure out your profit margin. Most flippers want to make at least $30,000; otherwise, it’s not worth it,” says Anderson.

Buying a house is probably one of the largest purchases you’ll ever make in your life, and the second you get the keys into your hands, you’re building equity. As you would with any other kind of investment, you want to be thoughtful when making your decisions and methodical when making improvements. When the day comes that you decide to sell your house, those improvements could pay off big time!

Header Image Source: (Phil Hearing / Unsplash)

8 Questions About HOA Dues (And Their Answers)

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When you’re searching for a house, it’s not uncommon to find a few neighborhoods that could potentially be “the one.” So, what happens when you’ve found two equally lovely homes — and the size, features, and location of both are indisputably on point — but one is in a neighborhood with a homeowner’s association, and the other is not?

You’ll find arguments for both sides as to whether an HOA should be viewed as a pro or a con, but you’ll need all the facts in order to make your own fair assessment. While many folks can adopt a grin-and-bear-it approach to regulations they may not totally love for the sake of their dream home, it’s often the HOA dues that are the real difference between moving in and backing out of a deal.

That’s why we’re answering the most common homebuyer questions about HOA dues and what you can really expect in return for your hundreds (or thousands) of dollars in fees. We’ve also brought in Cassie Scramlin, a top agent in Battle Creek, Michigan, who works with 77% more single-family homes than the average agent in her area, to share her insights.

a tennis ball in a neighborhood with hoa dues.
Source: (Manny Becerra / Unsplash)

Remind me what a homeowner’s association is, exactly?

HOAs comprise people who own homes in a particular neighborhood, building, or development. Joining is typically not optional, as the whole idea is to maintain a certain standard of care and upkeep with the involved homes — but HOAs are not uncommon, with about 26% of the United States population living in a community association area.

Specifications for security measures, aesthetic regulations, community resources, and various other services are set forth and enforced by the HOA. We’ll get more into what HOA dues cover shortly, but (ideally) everyone stands to benefit from the added value and structure of the association.

So: What are HOA dues, and what do they cover?

These are the fees that you — and every other homeowner in the neighborhood — are responsible for paying. Whether these are paid on a monthly, quarterly, or annual basis will depend on your specific HOA.

HOA dues cover management, maintenance, and improvements around the community. These features will vary from one neighborhood to the next, but they typically include:

  • Common area landscaping
  • Common area utilities (electricity, water, and so on)
  • Maintaining community amenities (pools, clubhouses, fitness centers, and others)
  • Security
  • Parking lot maintenance
  • Trash removal
  • Snow removal
  • Staff
  • Insurance policies
  • … And any number of other incidentals that may be unique to your neighborhood or building

Usually, the HOA will also maintain a reserve of funds for emergencies or major expenses. Details about how funds are collected, managed, and dispersed should be found in your copy of the HOA covenants, conditions, and restrictions (CC&Rs).

A condo building with hoa dues.
Source: (Troy Tempest / Unsplash)

How much are HOA dues and how do I find out the details?

If you guessed that the answer to the first part of this question is “it depends,” you’re correct! If you’re looking at a modest condo building, where the amenities are limited to an elevator and a parking garage, your fees may well be along the lines of $200 per month. On the other hand, if the home you’re eyeing is located in a sprawling gated community with a pool, common area clubhouse, and a fully equipped gym, you could be looking at closer to $1,000 each month for your HOA dues.

HOA dues are usually paid along with your mortgage, but some associations may be set up for direct payments on a quarterly or annual basis. And there may be a further HOA buy-in fee due at the time of your home’s purchase — which, you guessed it, will vary depending on your HOA’s guidelines.

Scramlin also warns that, “just because you’re buying a home in an HOA doesn’t mean you’re automatically approved. Sometimes the association wants the buyer’s information ahead of time so they can approve them.”

If the idea of having to be approved by the HOA makes you nervous, don’t get too caught up on the what-ifs. The HOA board will have to evaluate your intent to purchase in accordance with the Fair Housing Act, and if you’ve been preapproved for the mortgage amount you’ll need to buy the home in question, there’s little reason to deny your application.

While it sounds like the variables are endless when it comes to HOA dues and regulations, the good news is that none of these details are kept secret until it’s too late for you to back out. In essence, you (as the homebuyer) also must approve the HOA, which is why it’s important to work with a skilled agent who is familiar with the communities in your area and can properly advise when you’re considering a home under an HOA.

If the CC&Rs are not already provided with the listing information, it’s critical that your agent request a copy early on in the purchase process.

“It’s always good to ask for a copy of the HOA CC&Rs and handbook within two days of an accepted offer,” says Scramlin.

In a competitive market where sellers are receiving multiple offers and there’s no time to spare, you may even want to ask for and review those HOA documents prior to making an offer. This way, you’ll know exactly what you’re potentially signing up for and can accurately determine if this home is, in fact, the one to pursue.

Can I opt out of paying HOA dues?

In short, no.

By purchasing a home in an HOA, you are contractually obligated to pay all associated fees, and failure to do so could result in the HOA putting a lien on your home. In severe cases, foreclosure can even result from defaulting on your HOA payments.

These associations are not something to take lightly, and disbanding an HOA is just shy of impossible. Be sure that you’re fully aware of and okay with all aspects of an HOA before committing yourself to a particular home, and don’t be afraid to ask questions if there’s anything on which you’d like further clarification.

Papers that explain hoa dues.
Source: (JJ Ying / Unsplash)

I’ve skimmed the CC&Rs: What’s the difference between dues and an assessment?

While HOA dues are a regular payment meant to cover maintenance, upkeep, and minor repairs, an assessment is an additional payment to compensate for something that the HOA’s reserve fund can’t cover.

Assessments are usually made in the wake of major and unexpected work. This could be anything from a pipe bursting in a common area to a video surveillance system suddenly shorting out. If you (or other residents) feel that an assessment has been leveled unjustly, there should be protocol in the CC&Rs for filing a dispute.

How often can an HOA raise its dues?

Technically, an HOA can increase dues at any time. At the risk of sounding like a broken record, there should be verbiage on this in the CC&Rs, but it’s a good idea to inquire specifically about rate hikes before buying a home in an HOA if the terms aren’t clearly spelled out in the documents.

Are HOA dues tax-deductible?

Though there are certain tax benefits to owning a home, HOA fees are usually not part of the equation.

According to H&R Block, the HOA dues for your primary residence are not tax-deductible, but you can write off dues on investment properties. If you’re not sure, it’s best to err on the side of caution and speak with a tax professional.

A hedge that is maintained using hoa dues.
Source: (Justin Veenema / Unsplash)

What else should I know about HOA dues?

Ultimately, HOA living is a personal preference. Many people enjoy the security and convenience of being part of an established community where they won’t have to worry about the neighbor across the street suddenly repurposing their front yard into a parking lot, but others prefer the independence of homeownership without an HOA.

If you’re someone who cringes at the thought of facing fines if your grass is half an inch taller than regulations call for, or if you’d rather not have to seek approval to paint your front door burnt sienna, it may be worth utilizing your agent’s expertise and finding a home that doesn’t fall under the restrictions of an HOA.

Above all, be sure that you can comfortably afford to live in an HOA community. This means factoring in regular dues, as well as possible buy-in fees and unexpected assessments. Chat with your lender to learn more about how HOA dues may impact your purchasing power and your monthly payment to avoid possibly biting off more than you can chew.

Header Image Source: (Véronique Trudel / Unsplash)

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