From the category archives:

Buyers

Do You have a Clue?

More Minnesota Buyers should Look into a C.L.U.E Report before Purchasing

A great little report that can tell you more than the sellers might, but is mostly unheard of by the majority of the public, is a CLUE Report. What is a CLUE report you ask? To begin with, the acronym means Comprehensive Loss Underwriting Exchange. It is a database used by the insurance industry which includes information about any and all claims filed on a particular property.

In Florida, where I am also licensed, the report is being utilized more often due to the amount of past hurricanes. While full disclosure of any problems associated with a home is required by sellers, some sellers do neglect to inform prospective buyers if any damage has ever occurred to the home. A CLUE report will tell a buyer exactly what kind of claims have been filed against a particular property and when. Some might think such a report is not needed for Minneapolis real estate, but with hail storms, tornadoes, and fires still possible in the area, the report can be used as just another piece of information to put buyers mind at rest.

Buyers, the report can only be requested by the owner of the insurance policy, so don’t try to do it yourself if you are thinking of purchasing a home. Instead, make your offer contingent upon review of the document. Consider it an extension of the Inspection Report.

Sellers, from the beginning, always disclose any and all damage & repairs that have effected the home during your ownership. If a buyer asks for a CLUE report, gladly provide one. While you might see it as an annoyance, it could just be the final key to selling your home.

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Buying a Home is no Easy Task

I had not realized that it has been three days since I last wrote a post. We have been negotiating with a local Minneapolis new home builder the last few days and I have just lost track of time. Driving back and forth for signatures, going to the design studio, packing the kids up to view lots….whew, I’m tired!

One thing about being an agent is that I have to not only negotiate with the builder, but I have to also negotiate with my husband. After approaching another contract as a spouse, I finally had to forgo that role and approach it as an agent. The spousal thoughts were getting in the way, namely emotions, and clouding my judgement. I also couldn’t make a good argument with my husband. Once I put on my agent hat, gave scenarios of available options on what would financially work for our family, I was able to successfully sell my husband on the last offer.

I think my husband was happy I had done so. Buying can become very emotional and stressful, and both were beginning to rear their ugly heads in our family. We could have easily let it get the best of us, and if it had, we would have walked away and waited until next year to begin looking again. A prospect I was not eagerly awaiting.

So if you are in the market to buy, my most important tip would be to check all emotions at the door. If you don’t, you might unknowingly pass that home you always dreamt about by, because you are too busy quibbling over tiny details that in the long run mean nothing to you.

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The Institute for Luxury Home Marketing

Being designated as a member of the Institute for Luxury Home Marketing is highly sought after in the luxury field.

Real estate agents that hold this designation are professionals specially trained to provide high quality service to buyers and sellers of luxury homes and estates. The Institute is also the premier authority in training and certification for real estate agents working in the upper-tier residential market.

Currently I am only one of six agents in Minnesota that are members of the Institute. If you are looking to sell you luxury home, make sure you ask any agents you interview if they are members. Luxury homes are special, and require special marketing to get them sold. Each home I sell has it’s own unique marketing plan. Many times there are special attributes of the home that can be highlighted and presented to a target market. Members of the Institute understand this and have been trained on how to get the home as much exposure as possible.

If you have any questions about marketing your home, let me know and I would be happy to answer them. Many times I will need to see a home to get a feel of what I can do. Preparing a marketing plan and properly pricing the home take more than a day. If you want the best out of your agent, don’t be surprised if the listing process takes a week or two. Photography, appraisals, staging, brochures, etc, take more time with a high-end home.

Don’t worry though, you want the best for you home and hiring a member of the Institute for Luxury Home Marketing will get you there.

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Could You be Charmed?

“Charm Price” Psychology in Residential Real Estate

What does a list price of $1,299,950 say to a potential buyer?

Americans are famous for their tendency to attach a $99.99 price tag to a product, rather than $100.00. This retail strategy—reducing an item’s price by a few dollars or cents to make an item seem less expensive—is known as “charm pricing.” The idea is that an item priced at $895 may appear to be more a bargain to consumers than one priced at $900.

The Real Estate Center at Texas A&M University reported the results of a recent study of this pricing strategy, as used in real estate, in the January 2007 issue of Tierra Grande magazine. For instance, what are the results of listing a home at $1,299,950 rather than $1,300,000?

The research was conducted by Marcus Allen, of Florida Atlantic University, and William Dare, of Oklahoma State University. Using a large sample of home sales in the Fort Lauderdale metro area, they discovered that when charm pricing was used, homes tended to sell closer to the listed price than did homes offered at a rounded price.

The two concluded that a seller who uses charm pricing is communicating that the listing price is close to the lowest amount he or she will accept. The seller appears to indicate that the price is fixed and that there’s little room for bargaining.

“On the other hand, sellers who list homes with a rounded price seem to be indicating there is room for bargaining,” says Jack Harris, Ph.D., who monitors national real estate research for the Real Estate Center at Texas A&M.

It appears that the psychology of charm pricing, used by retailers for decades, may also work with high priced items like homes.

(article by Laurie Moore-Moore, founder of the Institute of Luxury Home Marketing)

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Is this Your Money Pit? Part 2

It could be if you purchase a historic home without doing your homework first. This post is a follow on to my first post Is this Your Money Pit, which featured the exterior problems to look for in your Minneapolis historic home purchase.

Remember Tom Hanks in the “Money Pit” and all the neat discoveries they found in the inside of the home? I specifically like the staircase problem and the tub falling through the ceiling. It was funny, right? Well, it is, until it happens to you. Here’s some advice on what to look for should you be thinking of buying an older home.

The house in these photos was a historic home we owned and planned on moving into upon completion. It started out great. Projects were going well, until a major Category 4 Hurricane hit. After that, it became a huge money pit. So my advice comes from first hand knowledge on this project and a couple others we have done as well.

So a couple things to look for on the Interior should be:

  • Water Stains – stains can be found most commonly in these two places, ceilings and floors. Ceilings usually indicate a leaky roof and that the whole ceiling will need to be replaced. Floors mean either the ceiling has leaked so much onto the floor that now the floor is warped, or that a pipe from a bathroom, water heater, or kitchen is broken. If a pipe is broken, it could mean tearing out the walls to find the source, and if you don’t find it right away, the cost to find it adds up and up and up.
  • Slopping Floors – walk into the home and take a good look at the floors. You will be able to see slopes easily by looking at the baseboards and the floors relation to them. Walk on them and you can tell if you go downhill. Start thinking of foundation problems, or settling issues. We have even seen supporting beams cut to put a pipe through, thus causing floors to sag under the unsupported weight.
  • Charred Attic Trusses – many historic homes used coal fireplaces instead of wood. The burning embers would sometimes leak through chimney mortar and cause attic fires. In the home above, during the inspection we found a 2200 square foot third level was completely charred. The good news was that by speaking with neighbors, the fire had been 60 years before and the wood was so thick that the fire barely affected the structural integrity. You might not be so lucky and find the damage was so great that the entire truss structure must be replaced.
  • Original Plumbing & Wiring – if the home still has cast iron pipes and the original electrical system, then you are in for a huge cost to replace these items. But to do a project right and to keep the old wiring from burning the house down, they really need to be replaced. For a 4000 square foot home, it might cost you $15,000 for the electrical and another $15,000 for the plumbing, and that is just to install it. It doesn’t include building the bathrooms, or installing fixtures.
  • Wall and Trim Paint – take a good look at the paint on trim and determine how thick it is. Over the last hundred years there is no telling how many coats have been applied and how much of it is lead based paint. Lead based paint is a health hazard if ingested, especially by young children. It is best to get rid of all paint in the home through stripping (a timely & costly process). But once the original wood is revealed, sanded, and stained, the value of the home has greatly increased in the eye’s of a buyer.
  • Cracks in the Walls – if you see alot of cracks in the walls, beware! Most likely the walls are the original plaster and have been taped repeatedly over the years. As soon as you go to hang a picture with a nail, the “walls will come tumbling down”. Replacing the plaster is expensive as most likely you will have to use thicker Sheetrock and account for the higher ceilings. Sometimes the cracks are also a sign of settling issues or structural problems. Best to have a contractor take a look at it to assess any problems.
  • Cracked Windows, Rotten Sashes, Broken Pulleys – if the original windows are still in the home, make sure to open each window. Check for rotten wood around the frame and on the sashes and cracked windows. If the window won’t open, chances are the rope pulleys are broken and need to be repaired. See the costs starting to add up?
  • Non-original Additions to Home – additions can add much needed square feet, but they can also take away from the original design of the home. The top photo shows an area to the right with new exterior siding. This is where an addition was added to the home in the 60’s to add a kitchen and studio (we converted it back from 5 units to single family). We had to remove this part which cost $10,000. After the demolition we found all kinds of rotting beams and shady construction, so beware the possible problems hiding behind an addition. We found a supporting beam under the home was completely eaten through by termites, something that would not have been found had we not removed the addition.

    This post just covers some of the interior parts of a historic home that you should pay attention to if planning on purchasing in the future. There is no telling what you will find when you buy historic real estate in Minneapolis or St Paul, so do your homework. Get a home inspector that specialized in older homes to thoroughly look over the inside with a fine tooth comb or you might be making your own “Money Pit” movie.

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    Be Prepared to Open Your Wallet

    More Expensive Homes Mean More Expensive Closing Costs

    Like many states, Minnesota has a state deed tax or transfer tax, that is paid to the county treasurer every time a home sells. On top of this, if a buyer is obtaining a loan, a mortgage registry tax is also due to the treasurer.

    Typically in Minnesota, the seller pays for the state deed tax of $3.30 per $1000 (since it is his property being transferred) and the buyer pays for the mortgage tax of $2.30 per $1000 (since it is his loan).

    While the purchase of a home for $200,000 would only require a deed tax of $660 and a mortgage tax of $460, someone selling or buying an upper-tier priced home, will be paying a substantial amount more. In this example, let’s bump up the price to $2 Million. The homeowner will now pay $6600 to the treasurer, and the buyer, assuming he is getting a loan for the full $2 Million, will have to pay $4,600 in taxes on the mortgage.

    So if you are planning to sell or buy a luxury home in Minneapolis, St Paul or on any of the lakes, make sure you are prepared in knowing what is going to come out of your pocket, other than just lender fees or repair requests. Ask your real estate agent for a break down of typical closing costs, but also remember, closing costs are all negotiable. Just because it is typical for sellers to pay for the deed tax and buyers the mortgage tax, doesn’t mean you cannot ask the other party to cover those expenses. It is a buyer’s market after all, and you’ll never know what you can get unless you ask!

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    Is this Your Money Pit?

    It could be if you purchase a historic home without doing your homework first.

    Remember Tom Hanks in the “Money Pit”? It was funny, right? Well, it is, until it happens to you. Here’s some advice on what to look for should you be thinking of buying an older home. Oh, and this advice comes from first hand knowledge of my own money pit historic home from a couple years back.

    I am using this Saint Paul Historic Home as an example, so if you own this home, please forgive me. It is easy to see from the photo that the home needs work, but not every home upon first appearance will tell you as much.

    I have a photo of this home also at the end of summer. As you can
    also see, it is usually covered in vegetation and doesn’t appear to be kept up very well. If it were for sale and I was a potential buyer, red flags would immediately go up. The perception being, if the yard is a mess, than the inside can’t be much better.

    So a couple things to look for on the Exterior should be:

    1. Age of the Roof – if the shingles are peeling, then plan on spending upwards of $10,000+ for a new roof. Victorians are notorious for steep pitches and multi-gables, which bring the price up on roof repair. Not to mention they are quite dangerous for a roofer not use to the height.
    2. Wood Rot – some may not notice this as a problem in Minnesota, but if bare wood exposed to water is allowed to continue, your little problem could spread and before you know it you are not only replacing a window sill, but the entire widow casing and support beams.
    3. Overgrowth & Drainage – trees that rub against the home can cause extensive damage to the roof and siding, and also cause runoff into the home itself. Check to make sure there isn’t any water pooling in the yard from faulty gutters as it could end up in your basement during a downpour.
    4. Weather Stripping – are the windows original to the home? If so, make sure they are properly sealed, and by sealed I mean “neatly” sealed, not just some caulk slapped up for good measure. Old homes can be drafty and cost you a bundle in heating and cooling if windows and doors are not sealed against the elements.
    5. Foundation or Porch Sag – if the porch is warped and sagging, not only will you have to replace the porch foundation, but most likely the porch roof as well. The strain put on the roof supports could cause too much stress and make the porch not very safe, and also cause drainage problems. Remember #2, wood rot? Also, look at cracks in the exterior brick or stucco. This could be telling you the home has foundation problems which will require extensive retrofitting and sometimes go as far as jacking the home up for repairs.
    6. Chimneys – one hundred year old chimneys are usually the last item on any repair list, but if not looked after, they could come crashing down into your home during high winds. Have a professional chimney repair company check the mortar around the bricks. If he can lift a brick off the top or stick an knife in the mortar like butter, than the chimneys will have to be retucked. You might even want to seal them from the elements using a 10 year product that keeps moisture out of the mortar.
    7. Exterior Brick – too many times I see exterior brick homes that need to be completely retucked with new mortar. This can be an expensive repair depending on the size of the home, but it has to be done to keep the structure around for another hundred years. And no, painting the brick is not a good solution. It will cause more problems than it will solve.
    8. Exterior Paint – check and make sure the paint is not peeling around trim. Some times home owners take the easy way out and keep painting over 50 years worth of paint. Instead, all old paint should be stripped off, then the trim should be treated, repaired, and painted with new exterior paint. Remember lead based oil paint was used prior to 1978 and will not take water based paint very well over it. It always bubbles up or peels within a couple of years.

    This post just covers the exterior parts of a historic home that you should pay attention to if planning on purchasing in the future. It is also a good basis for home owners who currently live in an older home. Use it as a check list for repairs that you might not previously have thought about completing.

    Look for my future post in the next week where I discuss items to look for in the interior of a Historic Home whether it is in Minneapolis, St Paul, or somewhere else in the States.

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    Oh, No…not another Offer!

    One Creative Solution in a Multiple Offer Situation

    So you are touring possible Minneapolis homes for sale and finally walk into the house of your dreams. You run through every room three times just so you can make sure all your furniture will fit. The trusty real estate agent you hired writes up an offer to purchase and delivers it to the seller, while you sit back and dream of your new home.

    Then the phone rings…it’s your agent telling you she has just learned another offer has been submitted. As you start to visualize your dreams come crashing down, your agent tells you to hold on a minute, there might be a solution to getting your offer accepted. At least this is what I would tell you, however, not all agents are familiar with multiple offers or what to do about them. Here is one solution to consider:

    • write up the offer with the purchase price you are most comfortable paying
    • next, add an addendum stating that you will pay “X” dollar amount above and beyond any other offer presented to the seller
    • also, add a maximum dollar amount you are willing to go up to
    • finally, add that if your offer is accepted, proof of the other offers purchase price be provided asap and have your approval before the final contract is executed

    Here’s an example, we’ll use $100,000 as a simple calculation base:

    You offer $100,000 on the home. You really want this home, so once you hear of another offer, write up a document that says you will pay $1000 above and beyond any other offers, up to a Maximum of $110,000.

    Most agents and buyers submit an offer that just gives a purchase price. An example is when the listing price is $100,000, but you offer $110,000 above it just to get the home. The major problem with this scenario? What if no one else ever puts in another offer? Now you just paid $10,000 more for a home you could have gotten for $100,000!

    However if you do what I suggest, not only will it help you save money, but it also keeps the seller honest. I hate to say it but I have encountered instances when a seller has lied about multiple offers just to get a higher price for the home. In these cases, if you don’t have something in the contract requesting proof of those other offers, you are out of luck.

    Multiple offers don’t happen all the time, but you should always be aware of real estate solutions available to you should the need arise!

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    Financing a Luxury Home

    Despite the recent interest rate increases, experts say you should finance as much as possible. (by Jessica Goldbogen Harlan, Unique Homes)

    Financing a multi-million home can be a scary proposition, but there are plenty of options and packages available for high-end home buyers that can make buying a luxury property fit nicely into a portfolio of sound and secure investments. Although the Fed raised interest rates 17 times in a two-year period from June 2004 to June 2006, now rates have stabilized and experts believe that the rates will stay about the same through mid-year, while some even predict that we might see an interest-rate drop later this year.

    Many luxury home buyers are recognizing the value in financing more of their properties than ever before, as opposed to paying big chunks of cash as a down payment for immediate equity. And luckily, the current real estate environment supports this type of a transaction. “We’ve noticed that buyers have a little more leverage on their side of the transaction than they would have had a year ago,” says Brent Rupnow, relationship manager for Private Mortgage Banking Group, a division of Metrocities Mortgage. “In the past year to three years, if they wanted to get into a property offer, they may have had to come in with an all-cash offer and figured out their financing later, because sellers may have been getting 10 to 12 offers, and if you’re selling a $5 million home, you’re more likely to gravitate toward that all-cash offer.”

    Today, however, Rupnow says that homes are sitting on the market a little longer and there aren’t as many offers on the table, giving buyers more negotiating room than in the past.

    In terms of the types of financing available to luxury home buyers, both Rupnow and Ridings agree that each case is entirely different, and buyers should make sure they work with a lender who consults with them about their financial situation to ensure they obtain a mortgage that will benefit them the most. “We see a lot of clients coming to us looking to leverage higher amounts of financing and put less or even no money down,” says Rupnow. “For purchase prices up to $1.7 million or $1.8 million, we can [still] do no money down.” A number of new mortgage products can make financing even more attractive.

    For instance, Ridings points out that the banking community is coming out with longer amortization terms. While in the past, most mortgages were no longer than 30 years, now banks are offering 40- and 50-year amortization terms. Other home buyers may be interested in some of the new interest-only or payment-option adjustable rate mortgages. A Wall Street executive whose main source of income is a hefty year-end bonus, for instance, can pay low amounts for most of the year, but use part of his bonus to pay down his principal balance, thus recalculating the interest-only payments for the next year. These types of mortgages give a homeowner the opportunity to plan for different amounts of money to be allocated to their mortgage at different times of year.

    Often the monthly bill coupon itself will indicate several options for that month’s payment, whether it’s interest-only, a minimum payment that temporarily defers interest, or a larger amount that would pay against the loan’s principal. “You can change it literally every month, which gives a [homeowner] a much greater ability to control their own personal cash flow,” says Rupnow. Rupnow’s company also sees a resurgence in mortgage interest rate buy downs, a practice that was popular in the early 1990s. “Under this program, the seller ‘buys down’ the interest rate for the buyer for a set period of time,” explains Tim Kruger, executive vice president, Private Mortgage Banking Group. “This helps to avoid deep price cuts, while providing the buyer with a lower mortgage payment.” This can be temporary-in which the pre-payment of the interest is for a specific period of time, such as one or two years-or permanent.

    At the other end of the spectrum, other types of home buyers are gravitating to more traditional, longer-term fixed-rate mortgage options. Because a short-term interest rate is actually a few points higher than the rate for long-term loans, locking into that long-term rate makes sense for clients who do not want to worry about changing rates and aren’t cash-flow sensitive. Whatever financing option you choose, it’s almost certain to benefit your short- and long-term financial health.

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    What to do before you Buy Minneapolis Luxury Real Estate, Part 3

    Here are even more things to consider before you buy a Luxury Home in Minneapolis!

    • Most Luxury Owners do not Absolutely have to Sell – some might just be “fishing” and seeing who bites. Remember this when you make an offer for lower than list price and the seller rejects it.
    • No Emotions Allowed – at least during negotiations. They can break the sale.
    • Don’t discuss Your intended use of the Home – try not to inform the seller of potential renovations you might perform. Their beloved kitchen that you plan on tearing out might cause emotional turmoil and alienate the seller, making negotiations more difficult.
    • Get a Survey done – Mortgage companies in some states do not require a survey to close, but some do. Is always wise to have a recent survey so you know your boundary lines and if any encroachments exist.
    • Get separate inspections if needed – Many Home Inspections companies will inspect the entire property, but in some cases it is better to find an expert for certain areas, like a structural engineer for foundation questions, or pool expert for the pool motor/housing unit.
    • Check Everything in an Inspection – ask for furniture to be moved if it is blocking outlets or doors, require appliances and circuit boxes located in garages or basements be accessible, request floors be rug and clutter free.
    • Get all the Documentation you can – Make sure you receive copies of all disclosures required by law, homeowner association or condominium documents, and ask if any special assessments are due or pending.
    • Buy Title Insurance – Some homes still work with an abstract of title, which in itself can have unseen problems written in decades ago. Have an attorney review the title and check for easements and encroachments. Buy title insurance to protect yourself, your property, and the mortgage company in case future problems arise.
    • If in Doubt, get it in Writing – sometimes items are transferred in the sale of a property including appliances, memberships etc. Draw up a separate agreement from the main contract with the special terms and have both parties sign it.
    • Sign a Buyers Representative Agreement – In Minnesota, you are required to sign a Buyer’s Broker Agreement if you want an agent to represent you in a transaction. Otherwise, the agent has no fiduciary duties to you like confidentiality, loyalty, or obedience to your requests or instructions. If you are buying a luxury home, just make sure your agent has knowledge of the upper tier market…it will work to your advantage.

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