Tuesday, July 16, 2019

Measuring Square Footage

Square footage is commonly used to determine if a home will fit a buyer's needs.  The price per square foot can be used to compare the costs of different homes and even, determine the value of a property.

The challenge is what is the source of the square footage measurement and how was it done.

County records use square footage to determine assessed value for property tax purposes.  They are assumed to be reliable but there can be inaccuracies in their tax rolls.  Another source of square footage could be from the house plans but the problem there is that the builder may have made modifications, or a subsequent owner could have made additions.

Appraisers are required to measure the home to determine square footage and they generally, adhere to a standard method which leads to uniformity in the industry.  The ANSI, American National Standards Institute, guidelines are considered the standard but there are no laws governing the process.

Because basements are below grade level, regardless of whether they are finished, they are typically not counted toward gross living area.  Attics because they are above grade level can be included in gross living area if they are finished to the same standard as the rest of the home and they meet the minimum height requirement of seven feet.

Unfinished areas are usually not considered in the square footage because it is not livable.

For detached properties, it is common to measure the perimeter of the house but to only include the living areas, not porches, patios or garages.  Gross living area includes stairways, hallways, closets with minimum height and bathrooms.  Covered, enclosed porches would only be considered if they use the same heating system as the house.

By contrast, condominiums, generally measure the inside area of the unit. Some appraisers may add six inches to account for the wall thickness.  If you were to compare the total of the interior room measurements of a detached home, it would be far less than the stated square footage using the normal method.

If the county records are significantly different from the appraisal or the plans, it will be necessary to determine which one is more accurate.  This may require getting the home measured by an appraiser which should be less than paying for a complete appraisal.

Tuesday, July 9, 2019

Checking for Water Leaks

Aside from standing water in your yard or water running out from under a sink, the first indication that you might have a water leak comes from a larger than normal water bill.  Before calling a leak specialist or a plumber, there is a simple diagnostic you can perform.

Go through your home and make certain that all the faucets are turned off and that the toilets have indeed stopped filling the reserve.  Then, go to the water meter and make a mark on the lens where the dial is currently.  If there is water in the meter box, the meter itself could be leaking.

If the meter is still turning, the leak is between the meter and the house. By inspecting the area between the meter and the house, you can look for soft, muddy areas or grass that is greener than the rest of the yard.

One of the hardest places to isolate a leak is in a swimming pool.  If you have an automatic filler, like in a toilet, you'll need to turn it off.  Mark the water line on the wall and wait to see if the water level goes down.  There will be a certain amount attributable to evaporation.

Some leaks can be very difficult to locate.  Plumbers, by the very nature of their job, will be more familiar with tracking down the source of the leak than a homeowner.  There are some non-invasive techniques like acoustic listening devices, heat scanners and miniature video cameras on fiber optics that professionals can use.

Leaks can be expensive from the loss of water and the resulting damage that it can cause.  Determining where the location of the leak can also cause damage because plumbing is usually concealed in walls or under concrete. For particularly difficult to locate leaks, discuss how the professional intends to locate the leak and minimize damage in the process.

Checking for Water Leaks

Aside from standing water in your yard or water running out from under a sink, the first indication that you might have a water leak comes from a larger than normal water bill.  Before calling a leak specialist or a plumber, there is a simple diagnostic you can perform.

Go through your home and make certain that all the faucets are turned off and that the toilets have indeed stopped filling the reserve.  Then, go to the water meter and make a mark on the lens where the dial is currently.  If there is water in the meter box, the meter itself could be leaking.

If the meter is still turning, the leak is between the meter and the house. By inspecting the area between the meter and the house, you can look for soft, muddy areas or grass that is greener than the rest of the yard.

One of the hardest places to isolate a leak is in a swimming pool.  If you have an automatic filler, like in a toilet, you'll need to turn it off.  Mark the water line on the wall and wait to see if the water level goes down.  There will be a certain amount attributable to evaporation.

Some leaks can be very difficult to locate.  Plumbers, by the very nature of their job, will be more familiar with tracking down the source of the leak than a homeowner.  There are some non-invasive techniques like acoustic listening devices, heat scanners and miniature video cameras on fiber optics that professionals can use.

Leaks can be expensive from the loss of water and the resulting damage that it can cause.  Determining where the location of the leak can also cause damage because plumbing is usually concealed in walls or under concrete. For particularly difficult to locate leaks, discuss how the professional intends to locate the leak and minimize damage in the process.

Tuesday, July 2, 2019

Building Equity

Owning a home is the first step to building equity.  Tenants build equity but not for themselves; they build it for the owners.

Equity is the difference in the value of the home and what is owed on the home.  There are two dynamics that cause this to grow: appreciation and principal reduction.

As the home increases in value, it is said to appreciate.  Various authorities will annualize an appreciation rate based on average sales prices from one year to the next.  Since appreciation is based on supply and demand as well as economic conditions, it will not be the same year after year. 

If you looked at a ten to twelve-year period, some would be higher than others and there may even be some individual years that it is flat or even declined.  For the most part, values tend to appreciate over time.

Most mortgages are amortized which means that a portion of the payment each month is applied to the principal in order to pay off the loan by the end of the term.  A $300,000 mortgage at 4.5% for 30 years has $395.06 applied to the principal with the first payment.  A slightly larger amount is applied to the principal each following month until the loan is paid with the 360th payment.

If additional principal payments are made, it will save interest, build equity faster and shorten the term of the mortgage.  Using the previous example, if an additional $250.00 principal contribution was made with each payment, it would only take 270 payments to retire the loan instead of 360.  It would save $69,305 in interest and shorten the mortgage by 7.5 years.

To see the dynamics of equity due to appreciation and principal reduction, look at the Rent vs. Own.  To see the effect of making additional principal contributions on your equity, look at the Equity Accelerator.  

Tuesday, June 25, 2019

Taxes and the Homeowner

Whether you're an owner now or expect to be one in the future, it is important to be familiar with the federal tax laws that affect homeownership.  Since personal income tax was enacted in 1913 with the 16th amendment, homes have had preferential treatment.

The mortgage interest deduction is based on up to $750,000 of acquisition debt used to buy, build or improve a principal residence.  In addition to the interest, the property taxes are deductible, limited to the new $10,000 limit on the aggregate of state and local taxes (SALT).  The taxpayer may also deduct interest and property taxes subject to limits on a second home.

Homeowners can decide each year whether to take itemized personal deductions or the allowable standard deduction which was significantly increased under the Tax Cuts and Jobs Act of 2017.

Single taxpayers may exclude up to $250,000 of capital gain on the sale of their home and up to $500,000 if married filing jointly.  They must have owned and lived in the home for at least two of the last five years.  For gains more than these amounts, a lower, long-term capital gains rate is paid rather than one's ordinary income tax rate.

Capital improvements made to a home will increase the basis and lower the gain.  Homeowners are probably familiar that large dollar expenses like roofs, appliances or major remodeling are capital improvements.  However, many lower dollar items may also be considered improvements if they materially add value or extend the life of the property or adapts a portion of the home to a new use. 

Homeowners are urged to keep records of money they spend on the home that they own over the years so that their tax professional can decide at the time of sale what they must report to IRS.

You can download a helpful Homeowners Tax Guide that explains in more detail and includes a worksheet to keep track of the basis of your home and capital improvements.

Tuesday, June 18, 2019

Show Them You're Serious

June and July are the busiest home sale months of the year. When inventory is in short supply and you may be competing with other offers, it is important to show the seller you're serious. Make your offer look as good as possible because you may not get the chance to make or accept a counter-offer.

Put yourself in the seller's shoes.  Your home has just gone on the market.  There is lots of activity and suddenly, there is more than one offer to purchase.  The seller's first consideration may be to accept the highest offer but there are many other things to consider like closing dates, closing costs, possible repairs, contingencies and of course, the ability of the borrower to get a loan.

Offer a fair price for the property in your initial purchase agreement.  It shows sincerity and good faith that you're actually trying to purchase the home and not trying to take advantage of the seller.  The old adage that you can always go up later may never happen if there are multiple offers on the property in the beginning.

  1. Remove the uncertainty that you may not be approved for a mortgage by having a pre-approval letter from your mortgage company.
  2. Show your sincerity by increasing the normal amount of earnest money customary for the area and price of the home.  The earnest money will be applied toward your down payment and closing costs.  Consider placing even more money in escrow when the contingencies have been met.
  3. Specify a closing date in the contract but acknowledge that you can be flexible to accommodate the sellers' moving date.  If it becomes an issue, it still must be mutually agreed upon.
  4. Make the contingency periods shorter if possible to make the seller feel that they'll know sooner that the offer is solid.
  5. If the contingency really isn't important to you, leave it out of the offer.  The more contingencies included in a contract, the more the seller will wonder what might happen to keep it from closing.
  6. Write a personal note to the seller explaining why you like and want their home.  Consider including a picture of your family and pets.
  7. If you're not using a digital contract, physically sign the offer with a felt tip pen of contrasting color.  You'd be surprised how this adds a personal touch to the offer.

One way to eliminate the competition of multiple offers is by not procrastinating.  When you have decided to write a contract, don't wait; do it immediately and ask your agent to deliver it quickly.  Your agent will be able to help you craft a solid offer that makes you look serious and can give you advice that may be unique to your situation.

Tuesday, June 11, 2019

Don't Leave Home Without...

You've been planning this trip for some time and almost every detail has been considered...or has it?  Have you thought about how to protect your home while you're out of town?  What's going to make sure that everything you left is still there in you return?

Nothing could ruin a trip more than coming back to find out your home has been burglarized or worse.  It makes sense to spend a little time before you leave on making sure your home is as safe and sound as it can be.

There are a host of devices to use across the Internet including camera door bells, video cameras, door locks, garage door openers, light and thermostat controls.  You can monitor your home whenever you have an Internet connection.  The question is whether you want the distraction from your trip.

Consider these low-tech suggestions along with your other normal efforts:

  • Tell your neighbors you'll be out of town and to be aware of any unusual activity.
  • Notify your alarm company
  • Discontinue your postal delivery
  • Use timers on interior lights to make it appear you're home as usual.
  • Don't make it easy for burglars by leaving messages on voice mail or posting on social networks.
  • Post on social networks after you've returned about your vacation.
  • Remove the hidden spare keys and give it to a trusted neighbor or friend.
  • Lock everything, double-check and set the alarm.
  • Take pictures of your belongings in case you need them.
  • Disconnect TVs and other equipment in case of unexpected power surges.
  • Adjust your thermostat.
  • Arrange for lawn care.
  • Consider disconnecting the garage door opener.
  • Put irreplaceable valuables in a safety deposit box.

It's nice to go out of town on a well-deserved trip and it's always nice to get back home...especially when it is just the way you left it.