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.

Appraisals

Real-Estate-AppraisalWhen you buy a house, your lender will require an appraisal on the property before they will complete your loan. Why is an appraisal necessary? Because the bank wants to know that they are not loaning more than the property is worth.

What’s an Appraisal?
Appraisals are completed a week to ten days before the closing. Even though lenders require appraisals, you get to pay for them. The cost is $400 to $500.

Appraisals are conducted by – believe it not – appraisers! These are professionals who specialize in determining the “actual value” of properties. The actual value is based on past sales, features, condition, location, and other factors. Appraisers attempt to remove biases and simply look at facts and numbers.

Appraisers vs Real Estate Agents
Instead of “actual value,” real estate agents determine the “market value” of properties. Market value is the price that buyers will pay for a house in the current market. Market value is based on supply and demand, marketing plans, buyer emotion, and market trends. If a market is active and buyers are frenzied, they will often pay higher prices than past sales appear to support.

What to Look For in an Appraisal
From a buyer perspective, your objective is for the appraised price to be at least as high as the purchase price; anything higher is a bonus. You don’t want it to come back lower than the purchase price. The reason is that lenders loan you money based off the appraised value.

For example, if you are buying a $200,000 house with an FHA loan (borrow 96.5%), and the appraisal comes back at $195,000, then the bank will only loan you $188,175 not $193,000.

If the appraisal comes back too low, you have a couple of options. First, make up the difference out of your own pocket. In the previous example, that means you come up with $11,825 down payment (5.9%) rather than $7,000 (3.5%). Another option is to have the seller lower the purchase price to match the appraised value. Your third option is to terminate the contract and walk away.

Summary
Think of your appraisal as a reality-check on the price you agreed to pay the seller. It’s nice when a third party agrees that your new home is a good value – or warns you that the house is over-priced.

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?

The Difference Between MARKET VALUE and 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.

How Does The Home Inspection Process Work?

home-inspection-2After you negotiate the price and terms of your contract to buy real estate, you have the right to inspect the property.

You hire an inspector to “check under the hood” of the property. This will cost between $200 and $500. The inspector produces a report with everything he/she finds. Inspectors go through the house with a fine-toothed comb, so they find lots of stuff, big and small. You and your agent look through the report and determine what you can’t live with, such as unsafe radon levels in the basement, for instance. If there’s more than you can handle, you have the option of terminating the contract.

If you want to move forward, you submit an Inspection Objection document to the seller with all the issues you want fixed before you purchase the house. How much should you ask for? While everyone has their own negotiating style, I prefer to ask for a reasonable number of items, rather than everything in the report. No house is perfect, even brand new ones, so it’s not logical for the seller to fix everything. Instead, look for safety issues, items that should be expected to work, and things not working due to neglected maintenance.

Inspection Objection items are negotiable, so you and the seller will debate what will be fixed: all, some, or none. To me, this is the advantage of asking for a reasonable number of items; you are more likely to get what you want if you are reasonable.

After you and the seller agree on what will be fixed, one of the agents prepares an Inspection Resolution, which you and the seller sign. This binds the seller to address the items on the Resolution.

The last step is to verify the work was done. You can hire the inspector to re-inspect the property. You can ask for reciepts to show the work was done. You can also walk-through the property yourself.

Inspections are a necesarry part of home buying (and home selling) process to ensure that peace of mind when you take over your new home.

For a list of qualified inspectors, please contact Gary Clark. 

Brewpubs in Northern Colorado

Photo from Fort Collins Coloradoan

Photo from Fort Collins Coloradoan

Northern Colorado a hotspot in the national craft beer scene, home to numerous microbreweries and brew pubs. There are so many you could probably throw a rock from one to the other, and more open up every year.

This is a follow up article to an article I wrote in October 2012, called “Microbreweries in Fort Collins.” The difference between a “microbrewery” and a “brewpub” is that a microbrewery is a beer “manufacturer” who sells their product to bars and liquor stores. A brewpub is a restaurant that makes and resells its own beer. These definitions are my own and not official terms, at least that I know of.

Here is a list of brewpubs in Fort Collins and Loveland. While Fort Collins has a well-deserved reputation for its abundance of brewpubs, Loveland has quietly come on as a legitimate brewpub destination. Please let me know if I missed any restaurants that make their own beer and I will gladly add them to the list.

Fort Collins
BJ’s Restaurant and Brewhouse
2670 E. Harmony Rd

Black Bottle Brewery
1611 S. College Ave. Ste 1609

Coopersmiths Pub and Brewery
No. 5 Old Town Square

C.B. & Potts
1427 West Elizabeth Street

Gravity 1020
1020 East Lincoln Avenue

Old Colorado Brewing
320 Link Lane

Equinox Brewing
133 Remington

Tap and Handle
1900 East Lincoln

Loveland
Grimm Brothers Brewhouse
623 Denver Ave

Loveland Ale Works
118 W 4th St

Opie’s Brewing
411 North Railroad Avenue

Rock Bottom Brewery
6025 Sky Pond Dr

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.

Disclosures

  • 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.

Authorizations

  • 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. 

Fair Housing Act

Equal Housing OpportunityIf you rent residential property, you must comply with the Fair Housing Act. The act, passed in 1988, establishes seven protected classes of people. Therefore, you cannot discriminate on the basis of race, color, religion, national origin, sex, handicap status, or familial status.

Because of the protected classes, landlords are not allowed to take any of the following actions:

  • Refuse to rent or negotiate for housing
  • Make housing unavailable
  • Deny a dwelling
  • Set different terms, conditions or privileges for rental of a dwelling
  • Provide different housing or facilities
  • Falsely deny that housing is available for inspection or rental
  • For profit, persuade owners to sell or rent
  • Deny anyone access to or membership in a faculty or service related to the sale or rental of housing

Prohibited actions are threatening, coercing, intimidating and interfering with prospective renters. You cannot advertise or make statements that indicate you do not rent to protected classes.

You can still be “discriminant” with who you rent to, just not in violation of the Fair Housing Act. So on what basis can you discriminate? On things like credit history, work history, and rental history.

The Fair Housing Act is an excellent ideal to strive for. In practice, it’s not always easy or  straight-forward and, should someone file a complaint against you, there are serious consequences.

The good news is that if you treat all people with equality and respect, and use common sense, you’ll be fine.