Thursday, August 14, 2014

Bottom Line - The Fed study found...


              .....that homeownership is still a great way for a family to build wealth in America.


Wednesday, July 16, 2014

Buying A Vacation Home? Here Are 6 Important Considerations

Whether your purchase is for personal or investment use, here are some key criteria to consider when assessing your choices.

1. Keep costs within your budget.  Get pre-qualified for a loan before looking for that dream vacation home - unless you are paying cash.  Consider these ongoing costs that come with a second home and how much ongoing income you will need to  meet these obligations.  These are costs incurred whether you rent the home or not.

  • Monthly mortgage
  • Real Estate Taxes.
  • Municipal assessments
  • Maintenance
  • Homeowners insurance
  • Flood insurance (see my earlier article on this!)
  • Furnishings
  • Caretaker
  • Emergency fund
  • Travel costs for you to visit the property
2.  How often are you going to use it?  Is it a 2 hour drive, a one hour ferry ride or a combination that will make it difficult to arrange for that amount of time.  Are family and friends a consideration in deciding on a location?  If so, where are they coming from?  Is the house suitable for use in the "shoulder" seasons?

3.  Let's talk location.  If the beach is important to you - the house you select should be close enough that you can get their.  Additionally, if that is the paramount reason that someone would want to rent your property, make sure it fills that bill.  Beach is not the only consideration.  Think about transportation to and from the house, to town, to other recreational activities.  Don't buy a house out in the woods, far from everything, unless you are using it to write the next great American novel and need the solitude!

4.  Maintenance.  The lawn will still need to be mowed even if you are not here.  And, do you want to spend your vacation time mowing grass?  Painting trim?  Winterization?  Some areas have homeowner associations who will let you know if you are not keeping your property up to par, but you can't depend on that - you'll want/need a caretaker.  Many areas of vacation homes have a proliferation of property managers.  Get recommendations though, because the last thing you want is the call that water is pouring out of the windows of your vacation home!

5.  Income Potential.  Find out about the rental market.  What is the vacancy rate?  What will it cost you to list your property on one of those vacation rental sites?  Can you handle the calls and money or should you hire a local professional?  If so, what will they charge?  A local rental agency can give a realistic price range/date range for the rental of your property and provide some other useful services, such as meeting and greeting your tenants and handing over and collecting keys.  All of this effects your bottom line, so don't be too easily swayed by the weekly rental number and remember, you are opening your home to people you don't know.  Be prepared.

6. Selling Out or Trading Up.  A second/vacation home is not usually a forever home, so gaze into your crystal ball and think about where you want to be in 5 years or 10 or whatever number and gauge how this property will fit into that plan.  Will the property hold its value or are the kids hoping you'll pass it along to them.  And consider the tax consequences.  There could be capital gains taxes, depreciation recapture, etc.  You need to factor this into the decision to buy that second home.

Your real estate professional is here to assist you in making this important decision and in answering these important considerations.  A summer home can be yours - happily!



Sunday, June 22, 2014

Disclose Encroachment

Disclose Encroachment

How does a listing agent know when to disclose property line problems?
Q: A neighbor’s fence cuts into the seller’s lot. As the listing agent, should I disclose that?
A: Article 2 of the Code of Ethics requires REALTORS® to avoid “exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. REALTORS® shall not, however, be obligated to discover latent defects in the property.”
The Code of Ethics and Arbitration Manual discusses “pertinent” facts: “Absent a legal prohibition, any material fact that could affect a reasonable purchaser’s decision to purchase, or the price that a purchaser might pay, should be disclosed . . . if known by the REALTOR®.”
Included in the concept of pertinent facts is a fact that may affect “the potential purchaser’s ability to resell the property at a future date.” The encroachment of the neighbor’s fence onto the property of the listing clearly may affect what a reasonable buyer may decide to purchase in that the title to the property has some “flaw” or “cloud.” The encroachment may also affect the buyer’s ability to sell the property in the future unless the encroachment is resolved.
Unless the seller can work with the neighbor to resolve the problem, that encroachment is likely a pertinent fact that should be disclosed to a prospective buyer. Most likely this sort of encroachment would also be required to be disclosed on a seller’s disclosure statement, whether the disclosure statement is required by law or by practice. Even if the encroachment is considered “minor,” it may still be considered pertinent by a hearing panel in an ethics complaint. As in any question of disclosure, the best practice to stay within the Code is “when in doubt, disclose.”
I've had this question raised many times, regarding several different topics, and it always comes back to the question "If it would impact a buyer's decision to purchase the property, it should be disclosed."  And the Golden Rule with a twist - wouldn't you want to know if you were the buyer?

Saturday, May 10, 2014

Your Secret Credit Score

So, you’ve been diligent; paying your bills on time; checking your Free Credit Score periodically.  Everything looks great and you’re ready to buy a house.  You’re confident and you make an offer on the home of your dreams.  You meet with your mortgage broker and fill out all the paperwork to apply for that mortgage, confident that your good credit score is going to put you in that house at a great rate.

Surprise!

Your mortgage broker sends you a commitment letter with terms you don’t understand.  How could they be asking you for more information, and offering you a higher rate than you expected?

You have a secret credit score.

That free credit report you get so easily is not the credit report that your mortgage lender will see.  And now you have only a short period of time to “fix it”, if you can! 

How to avoid this?  Get your mortgage broker (or friendly banker, if you’re early in the purchase process) to run your credit and review it with you.  You’ll see things there that you may have time to dispute and correct.  The credit bureaus have a process for disputing charges and things like duplicate accounts, mixed identities, etc., but you’re going to have to direct that process.  There was a recent news article about this process and the lax attention and zero responsibility that the credit bureaus have for correcting bad information on you.

Also, if your credit report is “pulled” too many times, it lowers your score!


Unfair - yes!  So, be proactive and protective of your credit health.  Review your real credit score/report and get on with making your real estate dreams a reality!

Friday, May 9, 2014

Lead Paint Horror Stories

I just heard a horror story about lead paint where the seller was a municipality and the buyer had a 4 year old son.  The municipality assured the buyer that there was no lead paint in the 1890 structure.  Two years later, the son tested positive for lead paint levels above normal!  

The following answers some common questions about lead paint.


It’s Always A Good Time To Review the Massachusetts Lead Paint Law Disclosure Requirements
By Rich Vetstein on May 08, 2014 05:00 pm

Fraught with liability and danger, the Massachusetts Lead Paint Law is always a hot topic for Massachusetts residential real estate professionals. Fortunately for us, my colleague Attorney Marc Canner recently gave a seminar on the Lead Paint Law in which he prepared a very helpful Frequently Asked Questions (FAQ) with Practice Pointers which he’s graciously allowed me to share here.
The overriding policy of the Mass. Lead Paint Law is to encourage full disclosure of all lead paint related issues and give buyers the opportunity to test for lead paint before they purchase a home with lead paint. Unlike rental properties, however, there is no obligation on the seller to de-lead prior to a private sale. But common sense dictates that a lead-free house may be more valuable and marketable, and this is particularly true for multi-family properties where tenants with children under six years of age may in any event trigger the de-leading requirements of the law.
Further, penalties for non-compliance with the disclosure requirements are quite stiff. Sellers and real estate agents that do not meet the requirements can face a civil penalty of up to $1,000 under state law and a civil penalty of up to $10,000 and possible criminal sanctions under federal law for each violation. In addition, a real estate agent who does not meet requirements may be liable under the Massachusetts Consumer Protection Act, which provides up to triple damages.
What lead paint disclosures does a listing agent have to provide?
Whenever an owner of a home built before 1978 sells, the listing agent must provide the (1) the “Property Transfer Notification Certification”, and (2) all 10 pages of the Department of Public Health’s “Childhood Lead Poisoning Prevention Program ‘CLPPP’ Property Transfer Lead Paint Notification.” Most agents only use the one page form, and that’s a “no-no.”
Practice tip: It is a good idea to combine the two forms as one document in DotLoop (or other transactional software system) or on the MLS when the listing agent is providing these to the Buyer.
Can the Buyer sign the Property Transfer Notification Certification form before the Seller?
No. It is invalid. The Property Transfer Notification Certification (“Property Transfer Form”) must be completed and signed by the Seller before the Buyer can sign. The Buyer’s signature acknowledges they are in receipt of the disclosure. Thus, the Buyer cannot be in receipt of the disclosure until the Seller first completes the form.
Practice tip: If the listing agent is slow to send the Property Transfer Form, then the buyer’s agent should document the requests by email. In addition, the buyer’s agent should email the listing agent’s broker to request the timely receipt of the Property Transfer Form.
What disclosures and acknowledgements have to be completed on the Property Transfer Form?
All disclosures and acknowledgements have to be accurately completed, including the Seller’s Disclosure, the Purchaser’s or Lessee Purchaser’s Acknowledgement and the Agent’s Acknowledgement. Agents should be aware that HUD and the EPA have audited broker’s files in the past and have at times found them deficient from a compliance standpoint. Thus, it is critical to accurately fill out the form.
Practice tip: Make sure that the Property Transfer Form includes the property address. The older form, “CLPPP form 94-3 dated 6/30/94” does not include a line for the address. Both agents working on the transaction should sign the form.
Does a listing agent have to provide a Property Transfer Form for a property built after 1978?
No. The lead paint law only applies to homes built after 1978. Therefore, testing for lead-based paint is not required.
Practice tip: If the listing agent provides a Property Transfer Form for a home built after 1978, neither the buyer nor the buyer’s agent has to sign the form.
Does a Seller have to accept an offer from a Buyer who is requesting lead paint testing?

A property owner or real estate agent cannot sidestep the lead paint law simply by refusing to sell or rent to families with young children. The purpose of the lead paint law it to protect the health of children and pregnant women. An owner cannot refuse to sell or refuse to renew the lease of a pregnant woman or a family with young children just because a property may contain lead hazards that they do not want to spend the money to remove. Any of these acts is a violation of the Lead Law, the Consumer Protection Act, and various Massachusetts anti-discrimination statutes that can have serious penalties for a property owner or real estate agent. A case in point: a Boston area landlord was recently hit with a $75,000 penalty by the Mass. Attorney General’s office for lead paint violations.
What is required to obtain a Certificate of Compliance?
Owners of homes built before 1978 where children under six live should have the property inspected by a licensed lead inspector. Typically, an inspector will look to remove peeling, chipping or flaking paint. A full list of surfaces to be deleaded is available in the CLPPP form.
Practice tip: To contact a licensed lead inspector, click this link.
Does a listing agent need to disclose a Letter of Interim Control?
Yes. A Letter of Interim Control is only valid for one year. Thus, if a home built before 1978 that has a Letter of Interim control but does not have a Certificate of Compliance, then the agent needs to Disclose the Interim Letter of Control and likely engage a professional to determine what work is needed to bring the property into compliance.
What is the contractors’ role in the lead removal process on home improvement projects?
In a previous article, I noted that new regulations went into effect in 2010 that cover paid renovators who work in pre-1978 housing and child-occupied facilities, including renovation contractors, maintenance workers in multi-family homes, painters and other specialty trades. These regulations provide that most home improvement projects on homes built before 1978 require certified lead paint removal project contractors to follow strict lead paint removal precautions. Nothing in these new rules requires owners to evaluate existing properties for lead or to have existing lead removed.
Are there lead paint removal tax credits and loans available?
There are a number of lead paint removal no and low cost loans available. MassHousing, for example, has a “Get the Lead Out” Lead Paint Removal loan program for income eligible owners or tenants.
In addition, Massachusetts has a tax credit of up to $1,500 for each unit deleaded.
If an agent has a buyer purchasing a home built before 1978, should the agent request lead removal be done before the closing or after the closing?
If making these strategic decisions, we recommend that you consult a real estate attorney in order to be in full compliance with lead paint laws.
At closing, should Sellers sign the form in the closing package that says the Seller agrees to remove all known lead paint?
The form typically contained in most lender closing packages states that the Buyer agrees to indemnify and hold the lender harmless in the event of any non-compliance with lead paint laws.
___________________________

Richard Vetstein and Marc Canner are Massachusetts real estate attorneys. Rich can be reached at rvetstein@vetsteinlawgroup.com and Marc at mcanner@cannerlaw.com

Thursday, April 17, 2014

Open House at 51 Old Purchase, Edgartown on April 26, 2014

We will be hosting an Open House to the public on Saturday, April 26, 2014 from 11:00 - 2:00.  This 3 bedroom, 2 bath home has been carefully maintained and is located in a convenient and popular area.  Come by or call 508-939-0206 to arrange a private viewing.



Tuesday, April 8, 2014

Flood Insurance and Its Impact on Property Values



The Biggert-Waters Act that, when implemented, will redraw the flood plain maps nation-wide and allow insurers to recoup losses suffered from major storms such as Hurricane Sandy, has been modified.  President Obama has signed the HFIA A14 (Homeowner Flood Insurance Affordability Act, Article 14), which puts off some of the major impactful aspects for 4 years, requires a reexamination of the flood maps and contains the following highlights:
  1. The sale of a property is not a trigger.
  2. Annual premium increases will be limited to a minimum 5% increase and a maximum 18% increase on renewals.
  3. Establishes a surcharge for existing policies.
  4.  Maintains the Grandfathering rules currently in effect.
  5.  Maintains the 25% premium increases for non-primary, business properties and severe repetitive loss properties.

What does this mean for you if you have a property in a flood zone?  Increased premiums.  Maybe not substantially, at first, but there is one other consideration that will realize a major impact - property value. 

Property value is comprised of a number of aspects - you’ve heard the term “location, location, location”.  But other factors such as condition also impact value.  In the past, having a beachfront property meant a higher price tag and you (the Buyer) expected to have higher expenses, such as real estate taxes, etc.  Enter the new flood insurance.  If your annual premium, in just the first year, is $50,000 for $250,000 of insurance (the maximum amount you can procure from the government - the rest must be purchased from private insurers), will this impact your decision to buy?  Will it impact how much you are willing to pay for this property?  Yes. 

If over the course of your ownership the premium cost to you will increase between 5 - 25% per year, this impacts the value of the house and what anyone would be willing to pay for it.  If its not your primary residence, its 25% increase every year!  And, remember, insurance policies are based on replacement cost - not what you paid - not what the assessors think its worth, but what it will cost to replace the structure. 

Here on Martha’s Vineyard, the cost per foot for new construction can vary widely, so your premium will also vary depending on that factor alone.  If you pay cash for your home, or have no mortgage, you do not have to purchase flood insurance.  Just remember that FEMA is not going to bail you out (literally) should a major event occur. 

Expect to see waterfront/flood zone properties decrease in value.  The municipalities where these properties stand will see their tax revenues decline as property owners file for abatements based on their inability to sell or because they purchased a property at a price far below the assessed value.  Almost a tsunami.