How HOA Payments Reduce Your Buying Power

buying powerIf you buy a condo or town home, there is almost always a homeowner’s association (HOA) that charges a monthly fee. What the fee buys you varies, but typical benefits are exterior maintenance, water, trash, and sometimes amenities such as a pool, tennis courts and club house.

The issue with HOA payments is they reduce your buying power, which is the amount of house you acquire for your monthly payment.

How You Lose Buying Power
Most people have a total monthly payment (TMP) they can afford, say $1200. If your HOA fee is $335, it takes $335 from the TMP. This leaves $865 for the rest of the TMP. If your HOA fee is $167, it leaves $1,033 for your TMP. Obviously you can borrow more with $1,033 a month than with $865, so that’s how the HOA fee impacts how much house you can buy.

Impact On Buying Power
What can you buy for $865 per month with a $335 HOA fee?

  • A $155,000 condo with 3.5% down and 4.5% interest creates a monthly payment of $840.18 (Principle + Interest + Mortgage Insurance)
  • You also need $77.83 for taxes and about $20 for insurance
  • $335 HOA fee
  • TMP = $1264

What can you buy for $1,033 per month with at $167 HOA fee?

  • A $175,000 house with 3.5% down and 4.5% interest creates a monthly payment of $948.55 (PI + MI)
  • You need $88.92 for taxes and about $20 for insurance
  • $167 HOA fee
  • TMT = $1,165.87

As a seller with a high HOA fee, you are competing against properties that are 11% higher priced, most likely with more features, more square footage, perhaps newer, or in better locations. As a buyer, you are bypassing properties that are 11% higher in price.

Another consideration is property appreciation. Since HOAs tend to increase over time, they put a drag on appreciation as they rise.

That being said, when a property is RIGHT for you, then that is your major consideration, not the HOA fee; it becomes something you live with to have the house you want.


Homeowner’s Insurance: How Much Coverage Do You Need?

insurance-agentWhen you buy a new home, you are required by the lender to have homeowner’s insurance (aka “hazard insurance”). The question is, how much coverage do you need?

Daryl Alexander, an agent in Fort Collins with State Farm, recommends that you “make sure your home is insured for at least 100% of its estimated REPLACEMENT cost. “

What does Daryl mean by “replacement” cost?

Market value is the amount a buyer would pay for a home. Replacement cost is the rebuilding cost necessary to repair or replace the entire home.

Over the years, the cost of materials and labor increase, sometimes faster than the market value of a property. If you have a fire, water leak or hail claim, and you’ve owned your house for many years, the cost to repair your house could be really high.

Cost of Premium
It sounds like replacement cost is the way to go, right? Then why would anyone get market value insurance?

The premium for market value insurance is lower than replacement insurance, which is why many homeowners buy it.

That’s being penny-wise and pound-foolish, as the expression goes. For the minimal increase in cost, replacement insurance gives you the coverage you’ll need in case of a disaster. Remember, you are buying peace-of-mind that your family and possessions are protected.

Review Your Policy Occasionally
As the years go by, it’s a good idea to get together with your insurance agent to ensure you still have the right coverage for your home. This is particularly true if you have remodeled bathrooms and kitchens, finished basements, or added on rooms or living spaces.

The worst time to find out you DON’T have enough insurance is when a disaster occurs. Avoid the heartache and trauma of insufficient coverage; find a trustworthy, reputable insurance agent, listen to his/her advice, and buy the coverage he/she recommends.

If you would like a referral to some trustworthy insurance agents, please contact Gary Clark.

What Papers Do You Sign When You List Your House For Sale?

contract-sale-houseIn listing your house for sale, you will encounter a variety of required real estate agreements and forms. Don’t worry, it only seems like you are signing your life away. In reality, much of what you are signing are disclosures to the buyer about your house. Here is a list of the papers you normally sign, with a brief explanation of each.

Definitions of Working Relationships
This document defines the relationship between you and your real estate sales professional.

  • Seller’s Agent – Agents represent ONLY the seller’s interests in transactions, above their own interests.
  • Transaction Broker – Transaction Brokers help both buyers and sellers “broker a deal,” but are not Agents of either party.

Exclusive Right-to-Sell Contract
This is a contract between you (the seller) and your sales professional that defines the details and terms of the transaction, such as the sales price, commission amount, length of contract, and much more.


  • Seller’s Property Disclosure – Tells the buyer about certain conditions existing in your house.
  • Lead-Based Paint Disclosure – Tells the buyer if there is lead-based paint in your house. Only possible in houses built before 1978.
  • Square Footage Disclosure – Tells the buyer how the square footage in your house was determined.
  • Source of Water Addendum  Defines where the buyer will get their water, such as a municipality, like Fort Collins or Loveland, or a well.
  • Common Interest Community Disclosure – Tells the buyer what your HOA provides and charges.


  • Request for Utility Information – Allows the brokerage to inquire how much your utility bills are.
  • Request for Homeowner’s Association Documents – Allows the brokerage to obtain copies of your HOA documents from the HOA.
  • Lock Box Agreement – Allows the brokerage to install a lock box so other real estate agents may show your house.
  • Loan Payoff Information – Allows the brokerage to find out what is the payoff amount of your loan.

Closing Instructions
Defines who is the title company and how the closing process will work.

If you have any questions about Listing Agreement and Forms, please feel free to contact Gary Clark. 

Mortgage Debt and Inflation: An Investor’s View

Inflation-rateInvestment advisors are nearly unanimous in saying that inflation will hit the USA in the next few years. So what is the thinking on mortgage debt in inflationary times? Overall, debt should be avoided whenever possible, in my opinion. However, a manageable, intelligent mortgage on your residential rental property can be good.

Remember that debt on a rental property isn’t paid by you; it’s paid by tenants. (As long as you made a reasonable down payment, such as 20-25%, and your payments and maintenance costs cash flow.) But what happens to your debt if the inflation rate hits 10%?

Rents would presumably rise with inflation. Your mortgage payments, on the other hand, would remain fixed (assuming you have a fixed rate loan). Certain costs, such as maintenance, utilities, insurance and taxes, would all go up too. All in all, your cash flow would probably improve. You could either pocket the extra revenue or use it to pay down your mortgage faster.

What about your loan principle? Let’s say you borrowed $150,000 at 5% fixed rate, prior to inflation taking off. Your payment would be $805.23. Now let’s assume that interest rates climb to 8%. The payment at that rate would be $1,100.65. In five years that makes a difference of $1,477.10. Suddenly your 5% loan seems like pretty cheap money.

Now consider that the value of your property would also rise with inflation. If you bought your property for $200,000, before inflation took off, it would likely increase at the 10% inflation rate. In 5 years your house would conceivably be worth $292,820.

Investment advisors say solid inflation hedges produce income, allow prices to rise along with costs, and increase in value along with the inflation rate. Rental property meets all these criteria.

Every way I evaluate rental property against inflation, it comes up favorably. You have to compare it against own investment criteria, of course. And you have to want to be in the business. But if it’s the right thing for you, I think you’ll find that rental property will protect your wealth when inflation hits.

Zestimate® or Guesstimate?

Home-Equity-Loan-3Ah, the Zestimate…loved by home buyers because it gives them a dollar value on a property…hated by real estate agents because it’s so inaccurate.

When used properly, a Zestimate is a useful tool; when misused for things such as contract negotiations and pricing real estate, it causes problems. Let’s look at what a Zestimate is, and how it should be used.

What is a Zestimate?
This definition of Zestimate is from Zillow’s website:

“The Zestimate® (pronounced ZEST-ti-met, rhymes with estimate) home valuation is Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value. The Zestimate is calculated from public and user submitted data; your real estate agent or appraiser physically inspects the home and takes special features, location, and market conditions into account. We encourage buyers, sellers, and homeowners to supplement Zillow’s information by doing other research such as:

  • Getting a comparative market analysis (CMA) from a real estate agent
  • Getting an appraisal from a professional appraiser
  • Visiting the house (whenever possible)”

Let’s break Zillow’s definition down and see what it tells us:

  1. It is not an appraisal; it is a starting point. This statement is telling you that Zestimates are not meant to be accurate measures of value. Rather, Zestimates are meant to give you a ball-park idea of the value.
  2. (It) is calculated from public data. This informs you that Zestimates pull data from county assessor’s records. These records are used to calculate your property taxes, and are notoriously inaccurate measures of market value. Most tax payers want the assessed value as low as possible so they pay lower taxes.
  3. Get a CMA from a real estate agent. Zillow says “your real estate agent physically inspects the home and takes special features, location, and market conditions into account.” Not to mention recent sales and homes currently on the market, and the home’s condition. Zillow can’t know a house has a remodeled kitchen or smells like cat pee.

How to Use Zestimates
Use Zestimates a starting point to determine the general price point of a neighborhood. In other words, houses in the neighborhood are mostly $250,000 or $350,000. You can also use Zestimates to compare one house to another, which will tell you if a house is generally higher priced than others around it.

How NOT to Use Zestimates
The biggest misuses of Zestimates are negotiating the purchase price of a house you want to buy, and setting the price of a house you want to sell. For these tasks, you must get a market analysis from a real estate agent. You need an up-to-date, accurate number based on research conducted by a qualified professional who is knowledgeable about that local area, not a computer program using inaccurate data.

If you would like a market analysis of your home’s value, please contact Gary Clark with Century 21 Humpal.

The Power of Curb Appeal

front_curb_appealEveryone’s heard the term “curb appeal.” Most people understand it means that the outside of your house looks good to buyers. True, but why is “curb appeal” so incredibly powerful?

It’s because buyers make up their minds about your house based on first impressions at a few key points. If their first impressions are favorable, then they try to find reasons to like your house. If their first impressions are unfavorable, then they try to find reasons not to like your house. What are the key points on which buyers form their first impressions?

Point 1: Driving Up in the Car
Prospective buyers make judgments as they drive up to your house. They look at your neighborhood, your yard, your landscaping, the house style, and the paint color. They are getting an overall “feeling” about the location and the setting.

Point 2: Walking up to the Door
As buyers move towards the front door, they take a closer look. They glance at the driveway, the walks, the grass, the plants, and the paint. They are getting a general sense of the property’s condition.

Point 3: Waiting to Open the Door
As their agent opens the lockbox, buyers have 15 to 25 seconds to examine your front porch, the doorstep, the door, the eves, and the soffits. They are determining if the house feels warm, clean and welcoming, or otherwise.

Point 4: Entering the House
As soon as the front door opens, buyers step into the front entry, which I call the “landing zone.” After stepping inside, buyers stop and scan the room for sights, smells, and sounds. They look at wall colors, carpet colors, furniture placement, whether the room is tidy or messy, and the general size of the rooms. They smell food and pet odors.They are getting an overall “feeling” about the interior of the house.

Curb Appeal Impressions Build on Each Other
Each curb appeal point builds on the next. If buyers have positive “vibes” at points 1 through 4, then houses often end up as favorites, and offers are written. If buyers have negative “vibes” at points 1 through 4, then buyers usually want to keep looking at other houses. Mixed “vibes” at points 1 through 4 often result in “maybe” scores, and buyers want to keep looking; they may or may not end up writing an offer on the house.

Importance of Showing Standards
Showings, like job interviews, offer a small window to make a good first impression. Curb appeal is why it’s so important to have your home in great shape so it shows well, and to prepare your house well for each and every showing. If you get in a hurry, concentrate on the four areas that make up curb appeal, and then work on the rest of your house.

Your Best Chance to Sell: the “Golden Window” of Opportunity

Golden Window GraphicWhen is your best chance to sell your house at the highest price? It’s the “Golden Window” – the first two weeks it’s on the market.

The Golden Window is your best opportunity because you are capitalizing on frustrated buyers who haven’t found what they want, or have been beaten out by other buyers. These highly motivated buyers have seen every other house similar to yours and are waiting impatiently for new inventory.

As soon as anything new comes along, motivated, frustrated buyers jump on it like cats pouncing on a mouse. If your house meets their needs and budget, frustrated buyers will bid on it quickly and probably pay your asking price (assuming you priced it well).

On the other hand, if you don’t sell your house within the “Golden Window,” you might as well settle in for the long haul. The odds are it will take many weeks or months to sell it.  That’s because you have to wait for new buyers to enter the market. These buyers are neither frustrated nor highly motivated. They are testing the waters, seeing what’s on the market and what they can get for their money. It takes time for them to acclimate. Some may have to write a contract and lose out, or hesitate about making an offer and lose out, before they understand how the game is played.

As time goes on, you might have to lower your asking price or do something extra, such as include a carpeting allowance, to add more value. This means you net less money.

Your other option is simply to wait for the right buyer to come along.  This takes time and patience.

So the best strategy is to do everything you can to capitalize on the Golden Window.  Research the market so you price your house right. Prepare your house so it shows well and has great curb appeal. Execute your marketing plan so you capture all the frustrated, motivated buyers.

By recognizing and maximizing the Golden Window, you will sell your house quicker and for the most money.